APL Apollo Tubes gains 2% after Elara initiates coverage with buy

The domestic electric resistance welded (ERW) pipe industry posted a demand CAGR of around 5 percent over FY16-19

Shares of galvanized steel pipes and tubes maker APL Apollo Tubes bucked the trend and gained nearly 2 percent intraday on July 8 after Elara Capital initiated its coverage with a buy call on the stock.



The stock is currently trading at 11.7x FY21E P/E.

The research house expects a revenue CAGR of around 21 percent and an EPS CAGR of around 49 percent over FY19-21E, led by 1) a volume CAGR of around 19 percent, 2) improved efficiency, 3) better product portfolio, and 4) likely reduction in the net debt-equity ratio to 0.4x in FY21E from 0.8x in FY19.

"Therefore, we initiate on APL Apollo Tubes with a buy rating and a target price of Rs 2,267, implying around 41 percent upside," Elara said.

According to the brokerage, fundamentals in FY21 are likely to be stronger than in the past five years as FY21 return on equity is likely to be at 24.1 percent versus a five-year average of 19.7 percent while FY21 net debt-equity ratio of 0.4x against 1.0x in the past five years.

The domestic electric resistance welded (ERW) pipe industry posted a demand CAGR of around 5 percent over FY16-19.

Elara expects the industry to grow at a CAGR of around 7 percent over FY19-21 to around 8 million tonnes by FY21, led by higher government spending (around Rs 1 lakh crore) towards several projects like metro, airport, urban development, irrigation and water sanitation and rising demand of prefabricated structures, followed by steady demand from traditional applications, like water transportation & sewage and oil & gas.

APL Apollo Tubes is a market leader in the domestic ERW pipe industry with a current market share of around 18 percent. It is among the fastest-growing ERW pipe firms, with a capacity CAGR of around 24 percent over FY09-19. During the past three years, it has grown around the 3x rate of industry growth.

Elara believes the company is well placed to continue strong momentum, given its 1) industry-leading capacity of 2.3 million tonnes, 2) low-cost structure, and 3) pan-India presence with a vast distribution network.

The brokerage expects margin to expand 100bp to 6.7 percent over FY19-21, led by 1) improved operating leverage & higher contribution from direct forming technology (DFT) (20bp margin contribution), 2) better inventory management (60bp margin contribution), and 3) improved realization with continued endeavor for value-added products (20bp margin contribution).

Elara said it believes the absence of major capacity expansion in the near term and performance improvement will help generate free cash flow of Rs 320 crore over FY20-21, thereby leading to faster deleveraging of balance sheet. Deleveraging alone is likely to give around 4 percent upside to the stock price, it added.

The stock was quoting at Rs 1,628.10, up to Rs 16.45, or 1.02 percent on the BSE at 1205 hours IST.

Disclaimer: The views and investment tips expressed by brokerages on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Get a 2 days free trial in Stock Market Tips and MCX Tips  

Comments

Post a Comment

Popular posts from this blog

Technical Classroom: How to use Fibonacci Retracement Levels in stock trading

Image
Fibonacci retracement is a method of technical analysis for determining support and resistance levels A Fibonacci retracement is a popular tool among technical traders and is based on some key numbers. The origins of the Fibonacci series can be traced back to the ancient Indian mathematic scripts, with some claims dating back to 200 BC. However – in the 12th century - Leonardo Pisano Bigollo, an Italian mathematician who was known to his friends as Fibonacci, discovered Fibonacci numbers. It is a popular tool that technical traders use to help identify price levels for transactions, stop losses or target prices. These retracement levels also provide support and resistance levels for a stock. However, it really becomes most effective when confirming signals or conditions identified by additional technical analysis tools. Fibonacci Retracement is a method of technical analysis for determining support and resistance levels. It is named after the use of the Fibonacci sequ...
Read more

Veto Switchgears jumps 5% on realisation of unsecured loan

Image
Veto Switchgears had given unsecured loan to its wholly owned overseas subsidiary Veto Overseas Private F.Z.E. Veto Switchgears and Cables shares rallied 4.8 percent intraday on June 14 after realization of unsecured loan from a subsidiary. "We realized an amount of $1 million against an unsecured loan on June 13," the wires & cables and electrical accessories manufacturer said in its filing. Veto Switchgears had given unsecured loan to its wholly owned overseas subsidiary Veto Overseas Private F.Z.E. The stock climbed 10 percent in the last 15 sessions. At 13:13 hours IST, it was quoting at Rs 66.75, up to Rs 1.10, or 1.68 percent on the BSE. G et a 2 days free trial in Stock Market Tips and MCX Tips  
Read more

Top buy and sell ideas by Ashwani Gujral, Sudarshan Sukhani, Mitessh Thakkar for short term

Image
Sudarshan Sukhani of s2analytics.com recommends buying Dabur India with stop-loss at Rs 381 and target of Rs 394, Ajanta Pharma with stop-loss at Rs 944 and target of Rs 973 and Hexaware Tech with stop-loss at Rs 410 and target of Rs 424. The market reversed most of its gains that were seen in the previous session and closed sharply lower on June 21. Escalated geopolitical tensions between the US and Iran and the RBI's concern over slowing economy dented traders' sentiment. Sensex fell 407.14 points or 1.03 percent to 39,194.49, while Nifty shed 107.70 points or 0.91 percent to 11,724.10, forming a bearish candle on the daily as well as weekly charts. For the week, indices declined 0.65 percent and 0.8 percent, respectively. The broader markets outperformed benchmark indices, with the Nifty Midcap and Smallcap indices closing flat with a negative bias. All sectoral indices closed in the red. According to the Pivot charts, the key support level is placed at...
Read more