Missed APL Apollo Tubes? Buy Amulya Leasing alias Apollo Pipes: Ajay Relan
In the latest edition of Outlook Business, Ajay Relan has narrated a heart-breaking story.
Eight years ago, he was offered an opportunity to buy 50% of APL Apollo at a throwaway price of Rs. 100 per share.
Unfortunately, he turned down the offer.
“I made a cardinal error of judgement,” Ajay Relan said, tears welling in his eyes, his voice choked with emotion.
The reason for despair is because APL Apollo is presently quoting at Rs. 2,000. This means that Ajay Relan, with a 50% stake in it, would have been a contender for a position in the Forbes Billionaires’ list.
“I did not believe in the exceptional vision and entrepreneurial capability of a man called Sanjay Gupta. Today, I treat the same man with undiluted reverence and place him on par with the very best entrepreneurial stalwarts of our country. Gupta deserves probably even greater respect: unicorns run by other revered entrepreneurs are businesses which are more easily amenable to branding, and many of them occupy the services space such as IT and financial services, but Sanjay’s towering achievement is that he has created a very desirable consumer brand from a commodity-style manufacturing play”, Relan added in an emotional tone.
Thankfully, Ajay Relan is not one to sit moping over his losses.
He went scouting for the “next APL Apollo Tube” and found it in an unknown company named Amulya Leasing & Finance.
Few are aware that Amulya Leasing is promoted by Sameer Gupta, the younger brother of Sanjay Gupta. The two companies share the same distribution network and have multiple synergies.
On Thursday, 28th December 2017, Ajay Relan teamed up with other eminent investors being Vallabh Bhanshali, Suraj Bhanshali, Mukul Agarwal, and two FIIs and launched an aggressive and no-holds-barred buying action to mop up all the stocks on offer.
By the EOD, the tally of acquisition was as follows:
| Investor | Nos of shares bought | Price paid (Rs) |
| AJAY KUMAR RELAN | 50,000 | 554.5 |
| FAIND FIDELITY FUND A/C FIDELITY INDIA FUND FAIND | 33,981 | 560 |
| FIL INVESTMENTS (MAURITIUS) LIMITED | 466,019 | 560 |
| PARAM VALUE INVESTMENTS | 400,000 | 555 |
| ROHIT RAJGOPAL DHOOT | 100,000 | 554 |
| SURAJ VALLABH BHANSHALI | 87,548 | 554 |
| VALLABH ROOPCHAND BHANSALI | 100,000 | 554 |
| VERTEX SUPPLIERS PVT LTD | 60,001 | 552.5 |
Sameer Gupta, the promoter, sold 17,62,991 shares.
The presence of a big-ticket FII, namely, Fidelity India Fund/ FIL Investments, is very significant.
FIIs are normally loath to buy micro-cap stocks unless if they are convinced that the stock does have multibagger potential.
Vallabh and Suraj Bhanshali need no introduction to us. Vallabh Bhanshali is the veteran ex-promoter of ENAM and has guided us over the decades on how to find multibagger stocks.
The profiles of Rohit Rajgopal Dhoot and Vertex Suppliers are not familiar. It will require further investigation.
| APOLLO PIPES LTD – KEY FUNDAMENTALS | |||
| PARAMETER | VALUES | ||
| MARKET CAP | (Rs CR) | 312 | |
| EPS – TTM | (Rs) | [*S] | 11.02 |
| P/E RATIO | (X) | [*S] | 56.65 |
| FACE VALUE | (Rs) | 10 | |
| LATEST DIVIDEND | (%) | – | |
| LATEST DIVIDEND DATE | – | ||
| DIVIDEND YIELD | (%) | 0.00 | |
| BOOK VALUE / SHARE | (Rs) | [*S] | 181.49 |
| P/B RATIO | (Rs) | [*S] | 3.44 |
[*C] Consolidated [*S] Standalone
| APOLLO PIPES LTD – FINANCIAL RESULTS | |||
| PARTICULARS (Rs CR) | SEP 2017 | SEP 2016 | % CHG |
| NET SALES | 60.89 | 56.27 | 8.21 |
| OTHER INCOME | 0.14 | 0.09 | 55.56 |
| TOTAL INCOME | 61.03 | 56.37 | 8.27 |
| TOTAL EXPENSES | 54.88 | 49.31 | 11.3 |
| OPERATING PROFIT | 6.15 | 7.05 | -12.77 |
| NET PROFIT | 2.4 | 3.14 | -23.57 |
| EQUITY CAPITAL | 11.03 | 5 | – |
(Source: Business Standard)
Has Sameer Gupta, the promoter, exited completely?
There is controversy over whether Sameer Gupta has sold his entire stake in Amulya Leasing or not.
According to Mangalam Maloo of CNBC TV18 and Nickey of Bloomberg Quint, the promoter may have completely exited.
Unable to understand Amulya Leasing Finance’s Bulk deal contours. Promoter Sameer Gupta holds 17.6 Lk shares as of Sep. Exited Entire Qty Today? Can’t see any stock split/corporate action in the interim on the exchanges. pic.twitter.com/XuP9tyov0K
— Mangalam Maloo (@blitzkreigm) December 28, 2017
Amulya Leasing & Finance: Promoters Exit; Ace Investors Check In
•Param Value investments buys 8% stake at Rs 555 each for Rs 22 crore
•Vallabh & Sanjay Bhansali buy 3.7% stake for Rs 11 crore
Promoter Sameer Gupta sells 35.3% at Rs 557.13 each for Rs 98.16 crore— nickey (@OnlyNickey) December 28, 2017
However, some knowledgeable investors have a contrary view:
Really funny to see that even some well known business channels flashing promoter exited from Amulya .Doing some basic home work is necessary before saying something in public domain. Recalculate the post merger share holding of promoter and conclude only thereafter.
— valuepick (@valuepick) December 29, 2017
Amulya Leasing merger with its subsidiary Apollo Pipe leads to an increase in promoter stake. Even after this 25% stake sale they still hold more than 50 %. Name change to Apollo Pipe in BSE wef 03/01/2018
— Nadeem Mannan (@ItsNadeemMannan) December 28, 2017
Aashish Tater was the first discoverer of Amulya Leasing alias Apollo Pipes?
Aashish Tater of FortuneWizard.com appears to the first discoverer of the magabagger potential of Amulya Leasing a.k.a. Apollo Pipes.
As far back as in February 2015, when Amulya was quoting at Rs. 130, he called the stock a “very big interesting bet” and recommended a buy.
He pointed out that Amulya’s valuations in comparison to Astral Poly, its arch rival, were mouth watering.
He also explained that Amulya would prosper owing to its association with APL Apollo and could leverage on the enormous distribution network of the latter.
He also correctly theorized that the marquee investors of APL Apollo who were then loath to invest in Amulya Leasing owing to its petty size, would make a beeline for the stock when it grows in size.
BP Equities recommended a buy of Amulya Leasing at about the same time on the basis that company has “good growth prospect and value unlocking going ahead”.
“We believe the acquisition will be positive for the company and will result in value unlocking of Apollo pipes Pvt Ltd. We are positive on the company going forward and expect the company to perform well in medium to long term,” BP Equities said.
Ravi Jain, an expert in the elite valuepickr forum, was also one of the first identifiers of the potential of Amulya Leasing.
“Company is targeting 1000 cr turnover over the next 5 years, led by shifting focus of the group from APL Apollo tube to Apollo Pipe. Company would be setting up new manufacturing facilities, target Pan India Market by leveraging APL Apollo Tube distributor network and would be adding valued added products to the portfolio …. Expansion is expected to be funded by internal accruals and debt. Management is confident of maintaining >20% ROCE & ROE,” he said, making it clear that the stock was then a great buy.
Needless to say, he and his followers in the valuepickr forum have made multibagger gains from the stock.
Amulya Leasing is catching eyes of investors now post bulk deal buy by vetern investors (Param, Bhansali, Ajay Relan) yesterday. Stories remain same as highlighted 1.5 years back, only change is the price which is 625 now vs 170 than (3.5x and counting…)https://t.co/vCyu6Q337c
— RJ (@ravijain88) December 29, 2017
Apollo Pipes is a strong brand in NCR and UP markets: Antique
Antique Stock Broking has issued a detailed note in which all the important aspects of Apollo Pipes are explained in a cogent manner.
“Amulya Leasing & Finance Ltd
A strong brand in NCR & UP markets
Amulya Leasing & Finance Ltd. (AMLF) is primarily into plastic piping and caters mainly to the NCR, Uttarakhand and Uttar Pradesh markets. Its factory being located at Dadri, Uttar Pradesh, with a capacity of 55,000 MT (mainly constituting PVC pipes), AMLF is a North centric Agri PVC pipe maker with access to household CPVC/PVC and infrastructural PVC markets too. Close to 7-8% of its volume comes from CPVC with compound being sourced from KemOne, France.
We recently interacted with the management post demonetization to understand the near term impact on demand and the long term strategies of the company. In mid CY17, AMLF is expected to be renamed as Apollo Pipes and through the reverse merger route, the existing listed entity would be the one representing the plastic piping business. Presently, 75% of its distribution is through the dealer route with rest of it being spread across direct supply to builders, government bodies and irrigation projects.
Apollo Pipes, with the linkage to the well established APL Apollo Tubes Ltd promoters, is in a good position to leverage the established pipe brand (Apollo) along with utilising the distribution network too. Apollo Pipes is operating under the leadership of Mr. Samir Gupta, younger brother of Mr. Sanjay Gupta, the person driving APL Apollo Tubes. Following are the key takeaways:
1. Present capacity of 55,000 MT at Dadri, UP and is expected to ramp it up to 70,000 MT by FY19E in tranches with capex cost of INR60mn for each incremental 10,000 MT.
FY16 production from the Dadri plant was at 30,000 MT and in 1HFY17 production was at 15,000 MT. To cater to the strong Western India markets, AMLF is envisaging a green-field project somewhere in Gujarat or Maharashtra with an initial capacity of 10,000 MT at a cost of INR150mn for the first tranche, which later can be further enhanced to 20,000 MT through incremental capex of INR100mn. Post announcement of the demonetization process, demand at ground level was severely impacted and volume declined by ~30% from normal levels and is expected to remain weak at least till mid-4QFY17. Though demand from government projects and irrigation projects is expected to resume soon, B2C demand got impacted led by lack of cash availability in the system.
Thus company is expecting FY17E volume to be lower than FY16 volume (1H volume growth was flat). Also led by forthcoming elections in UP, demand is expected to remain weak in the near term.
Strategically management is aiming to increase the mix of B2C business to 50% by FY19E by focusing more on household pipes and fittings down the line (fittings mix stands at ~12% currently), especially with the Western India operations start. Seasonally government orders and demand from irrigation projects tends to be higher in 4Q and thus management is hoping for some solace as rest of the household led demand is set to remain weak in 4Q. Apollo Pipes does not have any exclusive sales outlet and it operates through multi brand retail only. It has 250 dealers and in general one dealer deals with 20 end retailers. Thus ~500 touch points are presently catering to the markets of NCR, UP, MP, Haryana and Rajasthan.
2. Employee count is close to 300 now and is set to get ramped up with rise in capacity and distribution. With rising focus on household B2C segment, investment on brand building would also increase ahead. Being a follower brand behind the leaders like Supreme, Finolex, Astral, Ashirwad etc, Apollo sells its plastic pipes at ~5-10% lower rates along with providing much higher dealer incentives as compared to the leaders. Over the past couple of months, with PVC prices increasing by ~10% amid weak demand on back of demonetization, it had been pretty tough to pass on the prices as compared to the leaders. Thus going ahead with higher scale and better brand presence and recall, Apollo Pipes would be aspiring to have a better pricing power to take care of all commodity related volatilities. AMLF is presently operating at robust ~11-12% EBITDA margin levels and is confident of improving it further with scale and mix enhancement.
3. Confident of generating cash from internal accruals to fund the needs for Dadri expansion and fresh green field facility fund needs. Temporary hiccups in credit lending period getting extended led by demonetization to get resolved with demand situation normalizing.
Do not see any need for equity dilution or major debt increase to fund the capex plans and grow in size as strong margin profile and visibility of strong demand for agri pipes and improved distribution for Apollo pipes would generate the necessary cash flows.
Apollo Pipes, with the linkage to the well established APL Apollo Tubes Ltd promoters, is in a good position to leverage the established pipe brand (Apollo) along with utilising the distribution network too”
Is Apollo Pipes still a good buy despite megabagger gains of the past?
Prima facie, the answer to the question is a no-brainer.
Apollo Pipes is still a micro-cap with a market capitalisation of only Rs. 312 crore.
This is laughable market capitalisation when we bear in mind the strong management quality, dominance of the brand and the insatiable demand for pipes in the wake of rapid urbanization and housing for all.
Also, the fact that the ace investors have bought so aggressively at the present valuations is a dead giveaway of the fact that the stock is grossly undervalued in relation to its future potential.
So, at the earliest available opportunity, we will have to sneak into the stock and prepare to bask in the riches that will gush out of it!
