Motilal Oswal has kept a positive outlook on APL Apollo Tubes with a target price of INR 2,240. Despite a 6% drop in sales volume due to challenges in the UAE and supply chain issues, the company managed to grow its operating profit by 11% year-over-year. Investors are watching how the company balances its expansion and premium product strategy against these short-term market pressures.
Motilal Oswal has maintained its positive stance on APL Apollo Tubes, issuing a target price of INR 2,240 per share. This update comes as the company navigates a complex period marked by both operational hurdles and a focused effort to improve its profitability margins. While the brokerage maintains a positive view, the financial results show a mixed performance that highlights both the company's strengths and current market challenges.
Impact of Volume Declines and Market Pressure
In the recent quarter, APL Apollo Tubes faced a 6% decline in sales volumes compared to the previous year. This dip was driven by several factors, including logistical and operational disruptions in the UAE, which is a key market for the company. Additionally, the company saw weaker performance in its 'SG Premium' product category. This was largely caused by a widening price gap between primary and secondary steel, which influenced buyer behavior. Energy-related supply chain disruptions and a broader trend of distributors reducing their inventory, known as destocking, further added to the pressure on construction demand during this period.
Operational Efficiency and Earnings Growth
Despite the decline in volumes and the resulting pressure on fixed costs, APL Apollo Tubes demonstrated financial resilience. The company reported an EBITDA of INR 4.1 billion, which represents an 11% increase over the same period last year. A key driver for this growth was the company's ability to maintain its EBITDA per metric ton at INR 5,522. By adjusting its pricing strategy and focusing on higher-value products, the company successfully offset some of the negative effects of the lower sales volume. This suggests that the management is prioritizing profit quality over raw volume growth during times of market softness.
Long-Term Outlook and Financial Targets
Looking toward the next few years, the brokerage projects steady growth for the company, estimating a 17% CAGR in revenue and an 18% CAGR in EBITDA between FY26 and FY28. Analysts are factoring in an estimated earnings per share (EPS) of INR 63 by FY28. The target price is based on a valuation of 35 times this projected EPS. While these projections indicate confidence in the company's long-term business strategy, investors should note that these figures are estimates and depend heavily on the company's ability to navigate volatile steel prices and maintain its competitive advantage in the premium steel tube segment. The future performance will likely depend on how quickly the company can normalize operations in the UAE and whether the gap between primary and secondary steel prices stabilizes to support better volume growth.