India’s largest maker of structural steel pipes by value has tanked around 33% of its market capitalization since its February 2020 top as Indian equity markets were going under a severe market correction followed a worldwide Covid-19 selloff. The stock currently exchanges around 9 times its FY20 income contrasted and five-year normal of 21 times and is likewise less expensive than peers. Be that as it may, our research team has seen a value buying opportunity in APL Apollo Tubes Ltd for Investors.

Actually, we are advising to purchase this stock with a view that it can turn into multi-bagger in the next two to three years, with a target price of Rs 2,000 each. That is around 11 times its evaluated income for the Financial year 2022.

According to our research team, the positive volume growth drivers can be attributed to focus on constructing material steel pipes where the company has a dominant market share; benefits from Direct Forming Technology (DFT); expansion of the distribution network; and innovation in product offerings.

“The acquisition of Apollo Tricoat has an attractive payback period of less than 3-4 years. It is the first company to unveil global Galvant technology in India. Tricoat’s current capacity more than 75,000-tonne per anum and enjoys high margin, which is almost 2 times of APL.

Solid Financials

APL Apollo has a limit of 2.55 million tons, with 70 percent of that originating from hollow segments and pre-galvanized pipes. The organization supplies pipes for water and sewage, force and oil and gas divisions and fabricating roofing and structures at air terminals, metros stations and buildings; and platform to the construction space.

We see a potential rerun of the 2000-01 to 2014-15 period when increasingly solid plastic pipes by organizations, for example, Supreme Industries Ltd. furthermore, Astral Pipes Ltd. supplanted galvanized iron pipes in home plumbing. The business sees a comparable change from unbending metal course to organized steel pipe as a lower weight gives comparable rigidity, helping save money on up to 30 percent costs. Organized steel likewise offers a preferable feel over RMC and strengthened solid.

The organization is contributing around 10 percent of its working pay in marking and trying different things with ‘work explicit’ items to extend the basic steel showcase while holding per unit cost under tight restraints.

Pioneer in Innovative Products

As per our research team, APL Apollo has been at the front line of propelling inventive items, beginning with pre-galvanized steel tubes in 2003. The organization has presented new items under Signature (designer roofing), Chaukhat (steel door frames), and Tricoat brands. This, as indicated by the business, will upgrade the consciousness of their items.

Immense Economics of Sale

APL Apollo has forcefully expanded its ability, improving the organization’s bartering power with wholesalers. That has diminished working capital days And has improved essentially prompting lower working capital days. APL Apollo as working capital days or time is taken to change over working capital into income is around 30 days. That contrasts and 50-multi day for peers. The organization has a debt-to-equity proportion of 0.5-0.6 times against 0.7-1.6 for peers. Overleveraged peers with an extended working capital cycle are probably going to drive gracefully solidification in the industry.

We had analyzed various things going for APL Apollo include Deeper logistics and supply chain among auxiliary steel pipe players. Acquisition of Apollo Tricoat (margins of 11 percent versus APL Apollo Tubes’ 7 percent) will assist it with sustain operating margins. Scale-related cost points of interest combined with higher resources help better yield on capital utilized. Concentrate on making a truly Indian consumer brand.

Threats

The Covid-19 lockdown is relied upon to bring down Ebitda per ton in the continuous financial closure, with a hazard to margins failing to meet expectations. Because of a lofty fall popular, AL Apollo is probably going to continue higher stock inventory losses. The organization should bolster its merchants to bring down the effect of lockdown, which could extend receivable days to the time taken to gather levy from them to 35 days in FY21 from around 26 days in FY20. As we, in any case, see the Covid-19 effect facilitating after FY21. As indicated by our research team, the business sectors have neglected to comprehend the effectiveness of APL Apollo in light of wasteful companions and lower return on capital utilized in the pipe-making industry. An explanation it’s trading at a discount to its competitors.

Future Outlook

APL Apollo merits premium valuation contrasted with peers on the rear of lean working capital, low debt ratio, and huge available capacity.

An unpredictable circumstance like Covid-19 can apply further weight on the monetary records of littler provincial units and they might be constrained to close their operations forever. This would be a positive circumstance for APL Apollo to pick up the major pie of the overall industry, given its size and scale with plants across India, wide reach, and brand value.