APL Apollo Tubes – A differentiated metal industry player

[vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text css=”.vc_custom_1678021304652{margin-right: 16px !important;margin-left: 16px !important;border-right-width: 10px !important;border-left-width: 10px !important;}”]APL Apollo Tubes, a specialist in steel products, has developed a wide portfolio of products ranging from handrails, gates, and structural members for metros, airports, stadiums, and even steel door frames. It recently forayed into the pre-engineered building segment, which is gaining prominence in the construction industry due to its speed of construction. What sets APL Apollo Tubes apart from other steel players is the fact that its products are value-added products, which automatically generate higher margins compared to other purely steel manufacturing companies.

Application across diverse industries for its products

Another factor that works in favor of it is that it caters to different segments with specific application products across each industry type. In the housing segment, apart from structural steel components, it also offers a range of products like gates, handrails, fencing, and other allied applications. The commercial buildings segment includes products like heavy tube sections, which are used in the superstructures of airport buildings, metros, and cantilever support structures for stadium roofs, among others. Going by the latest quarterly results, Q3 FY23 delivered the highest revenues and net profits in the last five quarters.

The housing and commercial building products contribute nearly 80% of the total revenue. The remaining revenue comes from products such as galvanized structural steel products and greenhouse structures, which find applications in agriculture, plumbing, and firefighting. The firefighting pipes are used for sprinkler piping within buildings, as well as underground piping for connecting firewater line pipes to the tanks.

Over the last five years, the company’s sales have increased with the addition of new products, reaching 1,755 Ktonne in FY22 (1 Ktonne = 100 tonnes). The EBITDA per tonne has grown faster than the sales volume over the same period, and it was higher by 30% YoY in FY22.

Capex plans will play out from Q4FY23 onwards

APL Apollo has invested Rs 650 crore in FY23 for backward integration at its Hyderabad (2 lakh tonne capacity) and Hosur (4 lakh tonne capacity) plants. With backward integration, the company plans to produce steel, which will ultimately feed other plants that develop it into value-added products.

Capex will also be spent on expansion in Kolkata and Dubai. The management expects to achieve 50% utilization at the Raipur plant by the end of FY23 and 100% utilization by FY24.

The Raipur plant, currently under construction, is the largest greenfield facility with a production capacity of 1.5 million tonnes. Production commenced in Q4FY22 with a small dispatch of 400 tonnes, but dispatches are rising week-on-week. The management is confident that the Raipur plant’s contribution will rise significantly from Q4FY23 onwards.

To strengthen its distribution in South India, the company acquired a 10% stake in Shankara Building Products in Q4FY22. With this acquisition, APL Apollo will sell its products through Shankara’s distribution network. According to the management, they want the largest distributor to sell more products because they see a scope to increase sales volume on the Shankara network. This offers them a ready platform to launch their upcoming products, which are mainly from the Raipur plant.

APL Apollo Tubes has seen growth in its pre-fabricated building segment. It received an order from the Delhi government last year to build seven hospitals using the pre-fabricated method, and these are currently under construction. There is immense scope for this type of construction, which is replacing the traditional RCC beam-column structure with steel beams and columns due to the speed of construction.

With growing construction and infrastructure activity, APL Apollo is poised to benefit from products across different segments in these industries. With production being stepped up at the new facilities, the next few years might see a good run for the company.

In the long term, the stock has the potential to further gain 30% over a year, which should see the share price touching Rs 1600 per share.

 

ABOUT THE AUTHOR

Ketan Sonalkar (SEBI Rgn No INA000011255 )

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

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