This Metal Sector Stock Zoomed 492% In 3 Years, Motilal Oswal Recommends Buy For 27% Return

Motilal Oswal has given Picked APL Apollo Tubes Ltd. (APAT) as its top stock pick for 2023. The brokerage recommends Buy the stock with an estimated target price of Rs 1,400/share. Considering the current market price and the target price given by the brokerage, if you buy the stock it could fetch a potential gain of up to 28%. APL Apollo Tubes is a mid cap Metals-Ferrous sector company with a market capitalisation of Rs 27,852.47 crore.

Performance of the stock

The current market price of the stock is Rs 1,100/share, trading 1.15% down from its previous close.  The 52-week low of the stock is Rs 770.90/share recorded on 24 February 2022 and the 52 week high is Rs 601.90 recorded on 5 December 2022. 
 
 Over the past 1 week, the share price surged 0.59%, whereas it declined 4.57% in the past 1 month. It moved up by 20.07% in the last 1 year. It has given a massive 492% in the last 3 years and 394.94% in the last 5 years, respectively. 

 

Leading from the front

APAT over the years has created a moat with its strong execution capability, scalability, a wider distributor network, diversified plant locations and innovation of diverse applications for structural tubes.  The company is far ahead of its competitor with large manufacturing capacity of 2.6MMT (excluding newly commissioned Raipur plant of 1MMT), a diversified portfolio of over 1,500 SKUs and a huge distribution network of over 800 distributors as on FY22.  The Indian structural tubes market is expected to reach ~22MMT by CY30E from 4MMT in CY19 (~17% CAGR). APAT is set to capture a larger share of the growing market by adding capacity and expanding applications in diverse areas. A majority of the incremental capacity (~1.9MMT) is coming under the value-added product (VAP) segment such as color-coated products (CCP) (~1MMT), which should increase margins from INR4,154/MT in 1HFY23 to over INR5,500/MT by FY25E.

Valuation and view

The rapid capacity expansion, leadership position, and high industry growth trends should lead to robust growth in sales volume. While the addition of high-margin products from the Raipur unit and the growing share of VAP should result in margin improvement. "We expect a revenue/EBITDA/PAT CAGR of 16%/24%/31% over FY22-25. Reiterate our Buy rating and value the stock at 33x Dec'24E EPS to arrive at a TP of INR1,400," the brokerage has said.

According to the brokerage, Key risks to call are: 1) fluctuation in steel prices to impact margins, 2) slower industry growth to lead to a muted demand outlook, 3) an increase in working capital days to result in liquidity pressure, and 4) lower entry barriers.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.