Bluechip Stock APL Apollo Tubes Revenue Up 29%, Volume Grew 41%, Buy Stock For 27% Return, Says Motilal Oswal

Top brokerage firm Motilal Oswal has given a buy rating to the stock of APL Apollo Tubes. The company's consolidated revenue grew 29% YoY to Rs. 39.7b in 2QFY23, led by robust volume growth (up 41%) on the back of an aggressive sales push.

Stock To Buy: Target Price

The Current Market Price (CMP) of APL Apollo Tubes. is around Rs. 1059. Motilal Oswal has estimated a Target Price for the stock at Rs. 1340. This stock has the potential to give a 27% return, in the upcoming 12 months. It is a large-cap stock with a market capitalization of Rs. 25,954 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 1059
Target Price	Rs. 1340
Potential Upside	27.00%
52-week high share price	Rs. 1,177.00
52-week low share price	Rs. 770.90

Stock Valuation

According to Motilal Oswal, "The addition of high- margin products from the Raipur unit and growing share of VAP is likely to result in an improvement in margin. We expect a revenue/EBITDA/PAT CAGR of 19%/26%/34% over FY22-24. We largely maintain our earnings estimates for FY23/FY24 on the back of a higher margin, with an increasing share of VAP and a ramp up at the Raipur plant. We maintain our Buy rating and value the stock at 33x Sep'24E EPS to arrive at our target price of Rs. 1,340."

Strong Q2 Earnings

Gross profit/MT declined by 18% YoY and 22% QoQ to Rs. 8,211, while EBITDA/MT contracted by 26% YoY and 16% QoQ to Rs. 3,850 in 2QFY23 due to a lower mix of value-added products (down 8pp YoY to 54%), channel destocking, and higher cost of the new Raipur plant. EBITDA grew 4% YoY to Rs. 2.3b in 2QFY23. Adjusted PAT grew 3% YoY to Rs. 1.5b Revenue grew 32% YoY to Rs. 74.1b in 1HFY23. EBITDA/PAT in the same period declined by 11%/8% YoY to Rs. 4.3b/Rs. 2.7b.

Management guidance on Capex

Planned cumulative capex stood at Rs. 5b till FY25. This consists of residual capex at Raipur and setting up of a new factory in Dubai and Kolkata, which will boost capacity to ~4.5MMT. The management expects EBITDA/MT Rs. 5,000 from its existing plant going forward. The same from Raipur/Dubai/Kolkata plant is guided at Rs. 7,000-7,500/over Rs. 10,000/Rs. 5,000. The board also expects a blended EBITDA/MT of Rs. 5,000/ Rs. 4,500 in 2H/FY23. The management maintained its volume target of ~4MMT by FY25 (30% CAGR over FY22-25).

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.