Apollo Pipes Q2 Results Review - Focus On Volumes, Market Share Likely To Limit Margins: Systematix

We expect Apollo Pipes to retain its fast-growing status, driven by pan-India aspirations, richer product mix towards non-agri VAP

<div class="paragraphs"><p>Apollo Pipes Ltd. (Source: Company website)</p></div>
Apollo Pipes Ltd. (Source: Company website)

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Systematix Research Report

Apollo Pipes Ltd. Q2 profit after tax missed estimates on lower-than-expected Ebitda (9.7%, Rs 12.2/kg), despite 28% rise in volume. Management has guided for a low ~Rs 13/kg Ebitda in coming quarters due to aggressive plans for hiring and advertising and promotion expense. A Rs 5 billion capex is planned over FY24-26 to double capacity to ~290 kilo tonne and achieve 30% volume compound annual growth rate.

Plants in the Eastern Uttar Pradesh and Maharashtra, at Rs 1.35 billion capex each, is likely to be operation in H2 FY25. Considering Apollo Pipes’ H1 FY24 performance and management’s focus for volumes over margins, we have cut FY24E/25E earnings estimates by 22%/15% mainly on lower than earlier estimated Ebitda per kg (~Rs 13 now versus Rs 16-18 earlier, as guided by the management).

We now estimate 31%/27%/51%/98% CAGR in volume / revenue /Ebitda/profit after tax over FY23-25E, with return on capital employed of ~17% in FY25E.

We expect Apollo Pipes to retain its fast-growing status, driven by pan-India aspirations and richer product mix towards non-agri value added product. Doubling of capacities in three-four years at Rs 5 billion capex and expansion in distribution should help the company in attaining its pan-India goals.

Considering its robust prospects, we maintain our 'Buy' rating on the stock, with a revised target price of Rs 760 (earlier Rs 896), based on 32 times FY25E price/earning.

While Apollo Pipes has maintained its industry leading volume growth status, margin trajectory is the key monitorable in coming quarters.

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Systematix Apollo Pipes -Q2 FY24 Results Review.pdf
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