SMC Global Institutional Equities
APL Apollo Tubes India Ltd
Link To Report:
Result Update: Q3 FY20
CMP: INR 2,070
Target Price: INR 2,475
Up Side: 20%
Rating: BUY
APL Apollo’s Q3 FY20 were ahead of our expectation, mainly on EBITDA and bottom-line front, driven by better product mix and lower RM cost. However, the top-line growth was slightly disappointing and missed our estimate on back of lower price realization.
Key Investment Rationale:
· Market share, superior product-mix backed by refilling of dealer inventory outpaces industry growth:
· Better product mix drive EBITDA/Ton and margins:
· Reduction in Long-Term Debt, low capex should drive higher Return Ratios:
Valuations & View:
We have introduced FY22 Earnings factoring improvement in macros, higher contribution from newer product segments, while EBITDA/ton and margins remaining in a range. We therefore expect Revenue/EBITDA/PAT to register 15%/23.7%/41.8% CAGR between FY19 to FY22E. While growth in absolute terms remains sizeable we have not changed the multiple on EV/EBITDA and PAT. We have valued APL on PE and EV/EBITDA basis assigning 50:50 weightage. We have assigned a EV/EBITDA multiple of 8.5x on FY22E EBITDA of Rs 743crs and 16x on FY22E EPS of Rs.170, thereby arriving at a Target Price of Rs. 2,475, implying an upside of 20% and maintain our “BUY” rating on the stock.
Analyst name:
Ankit Merchant