APL Apollo Tubes Ltd Initiating Coverage Report By Motilal Oswal

We recommend to BUY APL Apollo Tubes for a target of INR
1,248 – 15x on FY18E EPS (+37% Upside).

Growing successfully through capacity expansion: APL has been increasing its market share over last 5 years by expanding capacities. It has expanded capacity by 165% to 1.3 mt in last 5 years. It is expanding its capacity further to 2.0 mt which is likley to be completed Q1 FY18. It is setting up a greenfield plant with 200,000 tpa capacity at Raipur in Chhattisgarh. The company is also enhancing its capacity by another 500,000 tpa at its existing locations using the direct forming technology (DFT) to produce pipes for structurals. With new capacity at Raipur, the firm will target Central & East India markets where its presence is low. We expect a volume CAGR of ~20% over next 3-4 years as the capacity utilization improves.

Valuations & View: APL is well placed to gain from expected recovery in demand owing to infrastructure push by the government. Timely capacity expansion along with plans of doubling the dealer network will help it capture growth opportunity. We initiate coverage on the stock with a ‘BUY’ rating valuing the company at 15x FY 18E EPS of INR 83.2 with for a per share target price of INR 1,248, giving an upside of around 37%.