APL Apollo Tubes Ltd Stock Research Report

EBITDA/t Miss on Inventory Loss; Headwinds Largely Behind

Est. Vs. Actual for Q2FY25: Revenue – MISS; EBITDA/t – MISS; PAT – MISS

Change in Estimates post Q2FY25:

FY25E/FY26E: Revenue: -6%/-3%; EBITDA: -23%/-8%; PAT: -29%/-9%.

Recommendation Rationale

• EBITDA/t Miss led by inventory loss: Q2FY25 EBITDA/t declined to an all-time low of Rs 1,821/t (down 62%/56% YoY/QoQ) led by the impact of inventory loss and sales discount as traders were in destocking mode amidst falling steel prices. Steel prices declined by ~Rs 7,500/t QoQ in Q2FY25. Management believes that the worst is now behind and expects margins to expand to a normalised level of Rs 4,500 5,000/t over the next 2-3 quarters. These margins will be sustained throughout FY26. The company targets EBITDA/t of Rs 5,040/t by FY27.

• EBITDA/t to normalise in future quarters as

1) Management now expects range-bound steel prices with limited downside risk given the depressed profitability of steel mills while the upside could be limited as ~12 Lc tonnes per month HR coil capacity from various steel mills is in pipeline which will keep HR coil prices in check.
2) The gap between HRC and low-grade sponge iron-based steel pipes (Patra) has narrowed down to 5-6%, which leads APL to target an additional market of 500kt on a monthly basis as HRC-based pipes become affordable against the Patra, and
3) Channel partners are now sitting on low inventory levels which will help in volume off-take in coming quarters.

• Strategy to penetrate newer markets: To cater to East India two greenfield plants are coming in Siliguri and Gorakhpur, and one plant in Bangalore for a lighter section. These three plants will provide an incremental market of ~1.5MTPA and it will be ramped up in the next 2-3 years.

Sector Outlook: Cautiously Positive

Company Outlook & Guidance: The company’s existing capacity is 4.3MT and will increase to 5MT in FY26 with a residual capex of Rs 3.0-3.5 Bn which will be spent over the next 6-7 months from the internal cash flows. Volume trend in H2FY25 shall remain strong with FY25 sales volume guidance at 3.2MT. FY26 and FY27 sales volume guidance are 4.0 and 5.0MT respectively.

Current Valuation: 33x P/E Sep’26 EPS (From Mar’26)

Current TP: Rs 1,680/share (From Rs 1,650)

Recommendation: We maintain our BUY rating on the stock.

Financial Performance:

APL Apollo Tubes reported weak numbers with EBITDA/t of Rs 1,821/t (down 62%/56% YoY/QoQ) missing our/consensus estimate by 50%/43% respectively. The weaker-than expected EBITDA/t was driven by the more-than-expected impact of inventory loss of Rs 1,981/t and sales discount of Rs 493/t in the quarter due to traders de-stocking amidst falling steel prices. Revenue at Rs 4,628 Cr (up 3% YoY, down 3% QoQ) missed our estimate by 3% led by lower realisations due to lower steel prices while VAP share stood flat YoY at 55%. EBITDA at Rs 138 Cr (down 58%/54% YoY/QoQ) missed our estimate by 50% on inventory losses and higher employee expenses. PAT stood at Rs 54 Cr (down 73% YoY/QoQ each). Net Debt stood at ~Rs 300 Cr (vs. net cash of 18.5 Cr as of Mar’24), however, Net Debt/Equity is comfortable at 0.1x.

Key Financials (Consolidated)

Outlook

The company’s vision is to expand its capacity to 10 MTPA by FY30, providing a growth tailwind in the longer term. We cut our FY25/26 EBITDA as we trim our volumes and factor in slightly higher RM costs. We introduce FY27 numbers with EBITDA/t of Rs 4,800/t and volume of 4.7MT (vs. company guidance of 5.0MT) and roll forward our valuation to Sep’26. Resultantly, our TP increases to Rs 1,680/share.

Valuation & Recommendation:

We now value the company on Sept’26 EPS (From Mar’26) using a 1-year forward P/E target of 33x (the stock is trading at 36x 12MF consensus P/E) to arrive at our Sep’25 TP of Rs 1,680/share (from Rs 1,650/share). Our TP implies an upside of 11% from the CMP. We maintain our BUY rating on the stock.