Motilal Oswal's research report on APL Apollo Tubes
APL Apollo Tubes (APAT) ended FY24 with a healthy sales volume growth of ~15% YoY, despite the relatively subdued volume growth of just 2% YoY in 2HFY24. In this report, we have highlighted the current demand trend in the domestic structural tubes industry based on our channel checks. We have also underscored the company’s strategy to foray into various international geographies. Based on our channel checks, we anticipate that the overall demand scenario will continue to remain weak due to a slowdown in construction activity. The demand is likely to weaken further during the general election period owing to a delay in government projects and infrastructure spending. A majority of the dealers are operating with minimum inventory levels in anticipation of weak demand and due to the high cost of holding. We expect demand to recover strongly post-general elections (from 2QFY25) aided by the resumption of infrastructure spending and restocking of inventory by the dealers.
Outlook
Considering the weak sales volume in 2HFY24 and the muted demand outlook in the near term, we cut our FY24E EPS by 5%. Consequently, we reduce our FY25/ FY26 EPS estimates marginally by 4% each. We value the stock at 32x FY26E EPS to arrive at our TP of INR1,800. Reiterate BUY.
