Value Pick: APL Apollo Tubes long-term outlook remains strong; brokerages see 34% upside in stock

With the rising commodity prices, the overall outlook for the metal companies have improved. “Metals bucked the general trend today led by steel and aluminium stocks on the back of price hikes,” S Ranganathan, Head of Research at LKP securities in a post market comment said.  

Several brokerages are bullish on shares of APL Apollo Tubes Limited (APL), which manufactures iron and steel products. They see an upside of up to 34 per cent in terms of strong long-term outlook and on the expectations of good quarterly results going forward.  

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The stock price of APL Apollo Tubes on Wednesday slipped by around 3 per cent to Rs 909.75 per share on the BSE, as compared to 0.53 per cent fall in the S&P BSE Sensex. 

ShareKhan 

APL has presence in a niche business and has a first-mover advantage (it has introduced, first-of-its-kind innovative products) in the structural steel tubes space. Moreover, the improved earnings quality and merger of Tricoat could help reduce valuation gap with listed building material companies.  

The brokerage expects APL to sustain its high earnings growth momentum, expects PAT (profit after tax) CAGR (Compound Annual Growth Rate) of 37 per cent over FY21-24E, supported by robust double-digit volume growth and margin expansion.  

The brokerage maintains a Buy rating on the stock with a price target of Rs. 1,100 per share, which implies an upside of 21 per cent. 

Hem Securities 

APL Apollo delivered average numbers during third quarter of the financial year 2021-22. The volatility in steel prices is a major risk but we believe company will deliver good performance in the coming few quarters.  

The merger of APL and Apollo Tricoat is completed but the merged entity shares are expected to trade from first quarter of FY23. Union budget 2022-23 also focuses on improving infrastructure which can reap benefits for the company. 

The brokerage initiates a Buy rating on the stock and values the stock at 38.0x FY23E earnings to arrive at the target of Rs 960 per share, implies an upside of 6 per cent. 

Axis Securities 

The balance sheet of APL will continue to strengthen with healthy operating cash flows going ahead due to its balance sheet deleveraging, reduced working capital cycle with a strategic shift to cash, along with efficient inventory management, while focusing on value added products and rural push.  

The volume expansion plan from the current 2.6 MTPA to 4 MTPA would aid in market share gains from the unorganized players.  

We expect the company to deliver steady improvement in volumes and profitability moving forward and retain a Buy rating with target price of Rs 1,215 per share, an upside of 34 per cent.