APL Apollo Tubes Gets 'Buy' Upgrade By UBS On Sustained Demand Momentum
With a market capitalisation of Rs 42,937 crore, the share price has risen 2.54% during the last 12 months.
Shares of Indian iron and steel products manufacturer APL Apollo Tubes Ltd. were upgraded to 'buy' at UBS Research with a 25% upside, citing "positive surprise" from sustained demand momentum.
The brokerage assigned a target price of Rs 1,900 per share from Rs 1,600 apiece earlier. The latest target implies an upside potential of 25% from Wednesday's close.
The growth momentum of India's largest producer of structural steel tubes is likely to remain, aided by customers shifting from refurbished steel to HRC structural steel tubes, UBS said in a note.
HRC prices — which are inversely correlated with APL volumes historically — are down 14% year-on-year over the past six months, a positive for volume growth, according to UBS. "Discussions with channel partners also suggested market share gains for APL and a stable infra and construction demand environment."
Further, the stock is also seen as attractive by the research house after the recent correction. The counter has been largely flat for the past 18 months and its PE multiple is down 20% from its peak, UBS said. The firm's price-to-earnings ratio currently stands at 72.05.
The company is gaining market share due to competitive pricing, narrowing gap with refurbished steel prices and good demand for large-diameter pipe. "One of our key concerns around APL losing market share to refurbished steel due to high HRC prices is largely gone."
APL has relatively lower exposure to southern states. Hence, the decline in capital expenditure from governments in the south makes no large impact, "albeit any recovery will aid in growth." UBS believes HRC steel prices are likely to remain soft given upcoming domestic capacities.
With a market capitalisation of Rs 42,937.2 crore, the shares have risen 2.54% during the last 12 months. The relative strength index was at 31.7, near the oversold territory.
Fourteen out of the 19 analysts tracking the company have a 'buy' rating on the stock, three suggest a 'hold' and two have a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 10%.
