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HDFC Securities Report
HDFC Securities has initiated coverage on APL Apollo Tubes Ltd. with an 'Add' rating and has set a target price of Rs 2,070/share.
The brokerage noted that APL Apollo's valuation has undergone a material re-rating over the past decade, in line with strong operational performance and balance sheet improvement.
The stock has traded at a 10-year mean one-year forward multiple of ~27x, with valuation re-rating sharply over the past five years to ~38x during FY21–25, compared with ~16x during FY16–20.
Over the past decade, APL Apollo has delivered ~17% AEPS CAGR. AEPS growth moderated to ~6% CAGR over FY20–25, despite strong volume and Ebitda growth, largely due to elevated capex and equity dilution, following the amalgamation of Shri Lakshmi Metal Udyog and Apollo Tricoat Tubes in Feb'22, which doubled equity capital.
HDFC Securities expects AEPS growth to reaccelerate to ~29% CAGR over FY25–28E. Given APL Apollo's leadership position, net cash balance sheet, negative working capital, strong brand premium and ~25/30% RoE/RoCE outlook, the brokerage values the company at 35 times FY28E AEPS, implying a ~30% premium to its 10-year mean but a ~7/25% discount to its 5/3-year means.
We, therefore, initiate coverage with an ADD rating and a target price of INR 2,070/share.
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