APL Apollo Tubes is top pick for brokerage Motilal Oswal, here’s why

Brokerage firm Motilal Oswal has maintained a Buy rating on structural steel tube company APL Apollo Tubes Ltd.

The brokerage set a target price of ₹1,490 per share and estimates the tube company’s revenue/EBITDA/PAT/CAGR at 15 percent/35 percent/40 percent over the financial years 2023 to 2025. The stock is valued at 33 times the FY25E earnings per share (EPS).

Motilal Oswal views APL Apollo Tubes as a leader in its industry and expects the company to take the lead and make the most of the growing structural tube market.

The structural steel tube manufacturer is estimated to undergo growth on the back of factors including a rising demand across segments, increased product penetration with the help of a robust distribution network, an increase in the share of VAP, thereby driving margins, the introduction of Apollo Mart, and the company’s strong leadership position, Motilal Oswal observed in its note.

The brokerage said that the structural tube market in India is 8MMT (including 4MMT of tubes made from secondary steel). It is expected to reach 30MMT in the longer run, led by growing applications of structural tubes. The company has over the years created a market for its products, i.e., use of structural tubes for structural support and tower infrastructure v/s conventional use of steel angles/channels.

Similarly, it is replacing wood for applications in furniture, door frames and planks with tubes. In building construction, it is replacing traditional RCC and fabricated metal sheets with structural tubes and preengineered steel buildings. The company’s capacity expansion plan is also in sync with increasing applications and market size for structural tubes. The company’s capacity expansion plan is also in sync with increasing applications and market size for structural tubes.

For the March quarter, APL Apollo Tubes posted a 23.8 per cent rise in net profit at ₹201.82 crore compared to ₹163.01 crore in the year-ago period, and its net sales rose 5.13 percent to ₹4,431.09 crore from ₹4,214.73 crore in the same period last year. 

Shares of APL Apollo Tubes ended 2.76 percent higher at ₹1,167.05 on Monday.