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Shares of APL Apollo Tubes have delivered exceptional returns to their investors in the long term. The stock has soared over 7100 percent in the last 10 years, from around ₹16 in May 2013 to currently trade at ₹1,153.35 (as on May 23, 2023).

An investment of ₹10,000 in the stock 10 years ago would have turned into over ₹7 lakh now.

Meanwhile, it has also rallied nearly 600 percent in the last 5 years from around ₹170 in 2018. Also, from its COVID-low of ₹103, hit in March 2020, the stock has skyrocketed over 11x or as much as 1019 percent. The stock has been on a continuous upward trend since 2020, albeit with some volatility on the back of uncertain markets.

In the last 1 year, APL stock rose 30 percent whereas it has added 5.6 percent in 2023 YTD, giving positive returns in 3 of the 5 months in the current calendar year so far.

The stock has lost nearly 4 percent in May so far after an around 1 percent decline in April. However, it rose 1.3 percent, 4 percent and 4.7 percent, respectively in March, Feb and Jan 2023.

The stock hit its 52-week high of ₹1,336.80 on February 17, 2023, and its 52-week low of ₹816 on June 29, 2022.

Currently, the stock is almost 14 percent away from its 52-week high and has risen over 41 percent from its 52-week low last year.

While the stock has given robust returns in the long run, the recent correction in the stock in the last couple of months has made the valuations of the stock quite attractive.

In the March quarter, the company's net profit jumped 23.81 percent to ₹201.8 crore versus ₹163 crore in the year-ago period. Meanwhile, its revenue advanced 5.2 percent to ₹4,449 crore as against ₹4,225 last year.

It has a target price of ₹1,200 for the stock (end of the week), indicating an upside of around 5 percent for the remainder of the week.

APL Apollo Tubes (APAT) is a leading structural steel tube brand, operating with 14 brands in 4 product categories. It has a 55 percent market share in structural steel tubes in India with a 3.6 MTPA structural steel tube capacity. The product type includes pre-galvanized tubes, Galvanised tubes, Structural ERW tubes, MS Black pipes and Hollow sections.

The company operates 11 manufacturing facilities. The company's vast 3-tier distribution network of over 800 distributors is spread across India, with a presence in over 300 towns and cities.

Volume and value-driven growth outlook: As per the brokerage, APL Apollo Tubes will be ramping up its capacity from the existing 3.6 MT to 5 MT by FY25 with a Capex of ₹600 crore over the next 18 months. Sales volume guidance for FY24 is at 2.8-3 MT and 3.8-4 MT by FY25 (2.28 MT in FY23), it added. It further forecasted that value-added products (VAP) contribution will rise to over 60 percent in FY24 (from 56 percent in FY23) and is expected to reach 75 percent once the full Raipur plant ramp-up stabilizes.

Raipur plant ramp-up: Of the total 1.5 MT Raipur plant capacity, 1 percent MT capacity is now on stream and currently operating at 30 percent utilisation, informed Axis Securities. It also reported that in Q4FY23, EBITDA/t at Raipur stood upward of ₹4,000/t towards ₹4,500/t vs. ₹3,000/t in Q3FY23. By Q4FY24, Raipur capacity will rise to 1.3MT and sales could rise to 0.5MT (vs. 0.17 MT in FY23) at 40 percent utilisation and the full potential from Raipur will be achieved in FY25 which will eventually improve the EBITDA/t, it predicted. The company's target is to operate the plant at ₹7,000/t as it stabilises going forward.

Blended EBITDA/t to improve hereon: With the ramp-up of the Raipur plant, the blended EBITDA/t is expected to improve gradually, noted the brokerage. It informed that in FY23, the EBITDA/t stood at ₹4,481/t and the target is to achieve ₹5,000/t in FY24, which looks achievable, as per Axis and ₹5,500-6,500/t in FY25, assuming the Raipur plant manages to deliver products at ₹6,000-7,000/t.

ROCE is likely to improve towards 35 percent as the Raipur plant stabilizes in FY24 and to 40 percent as the plant utilisation improves in subsequent years. Also, the company's net debt is likely to decline from ₹240 crore in FY23 to a target of net zero by FY25 as OCFs improve and as the residual Capex cycle for 5MT expansion ends by the end of FY24.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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