Shares of the largest manufacturer of structural steel tubes in India, APL Apollo Tubes Limited (APL) surged 9 per cent to hit a new 52-week high of Rs 1,104.65 on the Bombay Stock Exchange (BSE) on Tuesday. The stock has been gaining for the last 6 trading sessions and has risen 17 per cent during the same period.
The mid-cap stock has delivered a multi-bagger return to its long-term investors. In the past one year, the share price jumped from Rs 381 to Rs 1,104.65 mark -- logging around 190 per cent return in this period.
An amount of Rs 5 lakh invested in this multibagger stock a year ago would have turned into Rs 14.49 lakh today. With a market capitalisation of more than Rs 26,000 crore, the share stands higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages.
Brokerage firm Motilal Oswal expects earning momentum to continue on the back of growing demand across segments, robust distribution network, the launch of new products under the parent company and newly merged entity and increase in the share of the value added products (VAPs).
"We expect a revenue/EBITDA/PAT CAGR of 27/26/37 per cent over FY21-24E and generate strong cumulative CFO/FCF of Rs 3,130 crore/Rs 2,080 crore over FY21-24E," it added.
However, it noted that although the share of VAP is high, adverse changes in steel prices can affect profitability. Higher lead distance raises freight cost, hampering competitive pricing
According to a recent report by Sharekhan, APL’s presence in a niche business, first-mover advantage (introduction of innovative, first-of-its-kind products) in the structural steel tubes space and improved earnings quality (potential margin/RoE improvement) post the likely merger with Tricoat could help reduce valuation gap with listed building material companies (APL trades at 25x FY2024E EPS as compared to the valuation of 55x for players like Astral Limited).
It noted that the global peers have margins of 14-19 per cent in structural steel tubes space, while APL’s margins are at 8 per cent. This provides scope for margin expansion, which management expects to reach Rs 6,000- 7,000/tonne (from Rs 5,000/tonne) with a rise in the share of VAP to 75 per cent from 62 per cent currently. For every Rs. 500/tonne rise in margin our FY24E EBITDA increases by 9 per cent.
"We thus, value APL at a higher P/E multiple of 30x FY24E EPS and increase our price target to Rs 1,100 and maintain our Buy rating on the stock," it added.
In March this year, APL Apollo had announced the merger of Apollo Tricoat and Shri Lakshmi Metal with itself. This merger would combine the businesses under the ‘APL Apollo’ brand. Under the merger scheme, Apollo Tricoat’s minority shareholders will receive one equity share in APL Apollo for every one equity share held.
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