Target: ₹1,693
CMP: ₹1,410.65
APL Apollo Tubes’ Q1-FY25 performance was in line with our expectations. Revenue grew 9.4 per cent YOY to ₹4,970 crore, driven by volume growth of 9.1 per cent YOY. Gross margin improved 40 bps to 14.2 per cent, thanks to a better product mix. However, EBITDA/t declined by 10 per cent to ₹4,184 due to ESOP expenses and higher A&P cost.
APL expects margins to remain under pressure in Q2-FY25 due to declining steel prices, which is delaying inventory restocking by channel partners. However, APL expects margin to improve in H2FY25 driven by a better product mix, a narrowing pricing gap between scrap steel products and BF steel products, and operating leverage from higher utilisation of new plants.
The capacity utilisation of new Raipur plant reached 61 per cent, while Dubai plant utilisation stood at 30 per cent, as two mills were operationalised in Q2. Capacity utilisation is expected to reach 70-75 per cent at Raipur plant, and 50 per cent at Dubai plant in FY25 with all 4 mills operational.
APL aims to establish a new plant in Ahmedabad along with previously announced plants at Siliguri and Gorakhpur within next 12-15 months to reach 5 mt capacity by FY25 with a capex of ₹560 crore.
We maintain Buy with a revised target price of ₹1,693 (earlier ₹1,814).