Geojit Financial Services has initiated a buy rating on APL Apollo Tubes with a target price of Rs 2,325. The company's Q1 FY27 results show revenue and profit growth despite a dip in sales volume, with the brokerage banking on a shift toward higher-value products.
Geojit Financial Services has initiated a 'Buy' rating on APL Apollo Tubes (APAT), setting a target price of Rs 2,325. The brokerage’s outlook is based on the company's market-leading position in structural steel tubes and an expected improvement in earnings visibility as it focuses more on higher-value product categories.
In the first quarter of the fiscal year 2027, APL Apollo Tubes reported a consolidated revenue of Rs 5,607 crore, an 8.5% increase compared to the same period last year. Profit after tax also grew by 10.9% to Rs 263 crore. The company was able to achieve this profit growth despite a decline in sales volume, which fell to 745,000 tonnes from 794,000 tonnes in the previous year.
The volume drop was primarily attributed to specific operational hurdles, including disruptions at the company's facilities in the UAE and power-related supply constraints within India. Additionally, lower sales of the company's premium product segment contributed to the softer volume figures.
Despite these challenges, the company managed to expand its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) by 10.6% to Rs 411 crore. This was largely supported by strategic price adjustments and the company's strong brand presence, which allowed for better realization values per tonne. The EBITDA margin saw a marginal improvement of 10 basis points, settling at 7.3%.
Looking ahead, APL Apollo Tubes is shifting its strategy toward value-added products, such as those used in solar applications and specialized roofing, which are typically less sensitive to volatile steel prices. The brokerage's target price of Rs 2,325 is calculated based on 37 times the projected earnings per share for the fiscal year 2028.
Investors should keep in mind that the business remains exposed to several risks. These include the inherent volatility in raw material steel prices, which can pressure profit margins, and the company's high reliance on the domestic construction sector, which is cyclical. Furthermore, operational stability in overseas markets like the UAE remains a point of focus, as recent disruptions affected the company's overall volume performance.
Moving forward, the primary factor for investors to track will be the successful scaling of these value-added products and how effectively the management can navigate the challenges in its export and domestic supply chain to restore volume growth.