Target: ₹1,930
CMP: ₹1,602.45
We visited APL Apollo Tubes’ (APL) Raipur plant to gain a more in-depth understanding of the company’s manufacturing processes, operational preparedness and its differentiating factors for a competitive edge.
Key points: Capacity utilisation of its Raipur plant is expected to improve progressively; Narrow flats products line is undergoing cold commissioning and shall stabilise in Q3FY24; and expect Q4FY24 production rate at 60–70kt/month; The plant is capable of producing a wide range of differentiated products such as roofing sheets of 1,500mm width (peers at 1,250mm). Besides, contingent on demand, there is sufficient land to expand capacity by another 300ktpa.
We believe that as capacity utilisation at the Raipur plant improves, EBITDA/te is also expected to improve beyond ₹5,000/te in FY25 (our estimate at ₹5,130/te).
Taking cognizance of an imminent ramp-up and optionality of further expansion at Raipur, we raise our valuation multiple to 40x (earlier 36x), resulting in a revised target price of ₹1,930 (earlier ₹1,740).
Key Risks: Slow than expected ramp-up of Raipur plant; Competitive intensity increasing in the space; and HRC – Patra price gap widening.