APL Apollo Tubes: Confident on delivering volume growth

15 Feb 2024 , 11:50 AM

At IIFL’s Enterprising Bharat investor conference, APL Apollo Tube management highlighted confidence on Q4/FY24 volumes of 700kt/2.65mt. FY25 should see further acceleration with strong visibility on full ramp up of New Raipur plant and 200kt volume from Dubai even if existing product volumes remain flat. Conducive macro will help volumes to trend towards 4mt in FY25. Management is not worried on competition given strength in RM sourcing, distribution and well spread product portfolio. Analysts of IIFL Capital Services rationalise estimates with 4-6% EPS cut. BUY. 

Confident on volume of 700kt in Q4FY24: 

While Q3 was weak led by impact of destocking, management remains confident to achieve volume of 700kt in Q4 (vs 603kt in Q3) and FY24 volume of 2.65mt (up 16% YoY). This is supported by stable steel prices, a narrower gap vs scrap steel based tubes and gains from New Raipur plant being fully operational for the quarter. Pick up in volumes and better mix should also support QoQ improvement in profitability. 

FY25-26 should see further acceleration in volume: 

Management expects to utilise the 1mt New Raipur facility fully in FY25 given strong visible traction for heavy and super heavy tubes as well as flat products and light tubes. Combined with 200kt from Dubai (300kt facility commissioned in Dec-23), company in the worst case should post volumes of 3.4mt. This assumes no volume growth for existing products at 2.2mt in FY25. A normalised 10-15% growth for existing products would help volumes to trend towards targeted 4mt. 

Not too worried on competition, exports a meaningful opportunity: 

APL Apollo remains well ahead of competition in terms of capacity, spread of SKUs, ability to source RM efficiently and importantly strong and expanding distribution. Management hence remains confident on ability to handle the threat of competition from smaller as well as larger players. Also with Dubai, company would scale the global presence and indicated contribution of ~1mt over from exports over the medium term