APL Apollo Tubes: Impressive 1.2mtpa New Raipur plant

3 Oct 2023 , 10:46 AM

Recommendation: Buy; Target Price: Rs 1632

 

APL Apollo’s 1.2mtpa New Raipur facility, spread over 190acres of a ~400acre contiguous land parcel, expands its product portfolio with new first-to-market products. This includes large section tubes for structural application and colour-coated/galvalume sheets, to be sold as adjacencies. Traction for these will be key to meeting internal volume target of 5mt by FY25. This will also be crucial to kick-start capacity expansion to 10mt (from 5mt in FY24) by FY30 — all supported by internal FCF generation. BUY. 

Impressive 1.2mtpa single location plant in Raipur: 

APAT’s largest plant at Raipur is spread across ~190acres of the total land parcel of over 400acres, with total saleable capacity of 1.2mtpa. 940ktpa capacity is up and running as on date, while the balance 260ktpa capacity will be commissioned by the end of next month. Made using own products for structure and the shed, focus has been on maximising efficiencies with strong economics, given the location and size of single location plant. In Q1, APAT reported a volume of 75kt for these products and is targeting an exit volume of ~200kt in Q4, backed by strong market-development focus for the new first-to-market products being launched from this facility. 

Looking to outpace competitors with innovative products: 

The New Raipur plant expands the product portfolio with first-to-market products, including: (i) Large (up to 1m x 1m) steel tubes for structural applications. (ii) Wide (up to 1500mm) colour-coated and galvalumerolled steel sheets for roofing & cladding applications. (iii) Thicker (up 3mm) colour-coated and galvalume-cold soled steel sheets for loadbearing applications. Reliance on product innovation as a competitive moat continues, with strong focus on market development through leveraging the expansive distribution and branding. 

Reiterates FY25 target of 5mt; FY30 capacity target of 10mtpa: 

APL Apollo will expand manufacturing capacity to 5mtpa by FY24-end, from the current 3.6mtpa including new plants in Dubai and Kolkata. Internally, the company is targeting sales volume of 5mtpa for FY25, assuming strong traction for new product offerings. If this plays out, management is targeting to expand capacity to 10mtpa by FY30 across New Raipur (on surplus land) and other existing locations in India. Improving cashflows on volume growth, expanding margins and low working capital cycle will be a key support for this expansion.