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APL Apollo Tubes is amongst India's leading branded steel products manufacturers. The Company operates seven manufacturing facilities with a total capacity of 1.3 Million MTPA. It has pan India presence with units strategically located in Sikandarabad (3 units), Bangalore, Hosur, Murbad and Raipur. APL Apollo's multi-product offerings include over 400 varieties of MS Black pipes, Galvanized Tubes, Pre-Galvanized Tubes, etc.
APL Apollo Tubes caters to different sectors of the economy, which includes infrastructure, construction, automobile, energy and agriculture. Factors like continuous government reforms, increasing infrastructure spending, better monsoon, rising income level, introduction of latest products, etc. will ensure steady demand for APL Apollo's products from all the sectors.
The company is one of the leading steel tube manufacturers in India. Its products are used in diverse applications like structures of new commercial buildings and bridges, liquid petroleum gas cylinders, wind energy structures , water pipes, low-floor buses, metro railway bogies, airports, mobile telecom towers, etc.
It has been expanding its capacity across India to cater to the increasing demand. Recently it started a new facility in Eastern region at Raipur with an installed capacity of 0.32 mn tonnes, of which it has commissioned one line out of six lines and expects to start all the lines in the current fiscal.
APL Apollo is the first company to bring Direct Forming Technology (DFT) in India for making hollow sections, both square and rectangle. It is also focusing on inline-galvanizing technology in which tube manufacturing and zinc plating are done at the same time. Thus, technically advanced and upgraded products have enabled the company to differentiate itself from its peers, which we believe will continue to increase its customer base in the future.
With healthy revenue growth in the coming years and improvement in operational efficiency, we expect the working capital cycle of the company to improve with reducing inventory and receivables days. Also debt reduction will reduce the overall interest cost, which will add up to its bottom line.
APL Apollo Tubes is the market leader in the Indian ERW (Electric Resistance Welded) pipe industry with a market share of ~15%. With upcoming capacity expansion, entry into new markets (east India), branding, innovation and technology capability (DFT and in-line galvanizing), it is well placed to benefit from strong demand outlook for its various products. We expect Revenue and PAT CAGR of 18.2% and 30.8% over FY17-20E. At CMP 1,596, the stock is available at 11.6x of FY20E earnings, which is fairly attractive considering robust demand outlook, improving balance sheet and rising profitability. We recommend a Buy on the stock with a target of Rs. 2,352 with an 18 months perspective.
Financial Summary
Religare Investment Call
July 12, 2017
Iron & Steel Products
CMP (Rs)
Target Price (Rs)
Potential Upside
Sensex
Nifty
Key Stock data
BSE Code
NSE Code
Bloomberg
Shares o/s, Cr (FV 10)
Market Cap (Rs Cr)
3M Avg Volume
52 week H/L
Shareholding Pattern
(%)
Promoter
FII
DII
Others
1 Year relative price performance
1,596
2,352
47.4%
31,747
9,786
533758
APLAPOLLO
APAT:IN
2.4
3,770
15,100
1742/811
Dec-16
38.8
0.5
17.5
43.2
Mar-17
37.5
0.4
15.3
46.8
Jun-17
37.5
0.0
15.2
47.3
Research Analyst
Ajay Pasari, [email protected]
Investment rationale
Outlook & Valuation
Initiating Coverage APL Apollo Tubes
A strong play on capacity expansion and innovation...BUY
Particulars, Rs cr FY17 FY18E FY19E
Net revenue
EBITDA
OPM (%)
Adj PAT
PATM (%)
EPS, Rs
RoE (%)
P/E (x)
4,545
324
7.1
146
3.2
62.1
22.7
25.8
5,457
414
7.6
199
3.6
84.2
25.0
19.0
6,439
505
7.9
259
4.0
110.0
26.8
14.5
7,501
604
8.1
326
4.4
138.4
27.4
11.6Source : Company; RSL Research
FY20E
8090
100110120130140150160170180
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
No
v-1
6
Dec
-16
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
May
-17
Jun
-17
Apl Apollo Tubes Ni�y
Jul-
17
Initiating Coverage Iron & Steel Products
Religare Investment Call
APL Apollo Tubes
Investment rationale
Application of APL Apollo’s products in major sectors of the economy
APL Apollo Tubes caters to different sectors of the economy, which includes infrastructure (metro, airport, ports, smart cities, etc.), construction (railings, cranes, fencing, etc.), automobile (bus/truck bodies and heavy vehicle axles), energy (power, solar plants, water transportation, etc.) and agriculture (drip irrigation, pump conveyance, etc.). India being amongst the fastest growing economies in the world would see huge demand and consumption in the coming years. Also factors like continuous government reforms, increasing infrastructure spending, better monsoon, rising income level, introduction of technically advanced products, etc. will boost the demand for APL Apollo's products from all the sectors.
APL Apollo has a diversified product basket
The company is one of the leading steel tube manufacturers in India. Its products are used in diverse applications like structures of new commercial buildings and bridges (urban infrastructure), liquid petroleum gas cylinders (housing), wind energy structures (renewable energy), water pipes (irrigation), low-floor buses, metro railway bogies, airports, mobile telecom towers, etc. The company has created a portfolio of innovative products like hot dipped galvanized pipes, pre-galvanized pipes, electric resistance welded tubes, black and hollow sections across dimensions.
For FY17, the revenue mix for the company was- Hollow sections (48%), Pre-galvanized tubes (23%), Black round pipes (15%) and Galvanized pipes (14%). The total volumes growth for FY17 was restricted at 4% hit by demonetization partly and volatile steel prices during the year. Black round pipes saw volume de-growth of 22%, whereas volume growth
APL Apollo Tubes has application of its various products in all the major sectors of the economy namely; construction, automobile, agriculture, solar energy, etc.
The company has over 400 product range used in different applications like water pipes, mobile telecom towers, bus bodies, structure of buildings, etc.
Source : Company
Application in areas like airport, automobile, solar, construction, etc.
for Hollow sections, Pre-galvanized pipes and Galvanized pipes was 12%, 18% and 2% respectively on YoY basis. The company has been ahead of its competitors in launching new and innovative products like door frames, coastal pipes, etc. We believe the company will continue to invest in technology and launch new products to cater to its diverse customer base.
Revenue growth to come from launch of branded products, capacity expansion and entry into new markets
APL Apollo has been expanding its capacity across India to cater to the increasing demand. It has increased its capacity from 0.49 million tonnes per annum in FY11 to 1.3 million tonnes in FY17. Recently it started a new facility in Eastern region at Raipur with an installed capacity of 0.32 mn tonnes, of which it has commissioned one line out of six lines and expects to start all the lines in the current fiscal. It has a pan India presence with units strategically located in all regions of the country -Sikandarabad (North-3 units), Bangalore (South), Hosur (South), Murbad (West) and Raipur (East). The company has guided to increase its capacity to 2.5 mn tonnes by FY20E through brownfield and greenfield expansion.
Capacity expansion along with launch of latest products will improve demand for company's products. APL Apollo has been aggressively pitching to create itself as a brand for its basket of product portfolio. Recently, it has launched Apollo Coastguard branded product to tap the growing consumption and demand of galvanized steel tubes in the coastal regions. This particular product is made from special galvanized steel, which will help them make 100% rust proof pipes.
Product wise Revenue break-up - FY16
Source : Company; RSL Research
Initiating Coverage
Religare Investment Call
Major product categories include black round pipes, galvanized pipes, pre-galvanized pipes and hollow sections
The company has pan India presence with over 600 distributors and 26 warehouses across India
APL Apollo is in process to expand its capacity from 1.3 mn tonnes to 2.5 mn tonnes by FY20E, which would largely be funded through internal accruals
43%
20%
14%
19%
4%
Hollow sec�ons Pre-galvanized tubes
Galvanized tubes
Black round pipes Trading and scrap
Hollow sec�ons Pre-galvanized tubes
Galvanized tubes
Black round pipes Trading and scrap
46%
23%
14%
14%
3%
Product wise Revenue break-up - FY17
Production in MTPA
Source : Company; RSL Research
Capacity in MTPA
68
2,1
93
89
8,6
90
93
1,0
00
1,0
70
,65
0
1,2
52
,66
1
1,5
03
,19
3
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
FY15 FY16 FY17 FY18E FY19E FY20E
Produc�on MTPA
1,0
50
,00
0
1,3
00
,00
0
1,3
00
,00
0
1,6
50
,00
0
2,0
00
,00
0
2,5
00
,00
0
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
FY15 FY16 FY17 FY18E FY19E FY20E
Capacity MTPA
Iron & Steel Products APL Apollo Tubes
APL Apollo has announced strategic tip-up with NEXTracker to manufacture a key component of its solar tracking system in India. This will enable NEXTracker to source high quality steel products from APL Apollo for solar parks and power plants in India and also help it to penetrate in the fast growing renewable energy market in India. With government's focus on developing solar energy projects in India with a capacity of 100 GW by 2020, the demand for premium pre-galvanized hollow section tubes is expected to be around 1 million tonnes.
Exports contribute to ~5% of the total revenue. The company is planning to increase exports mainly to US and Europe with latest technology (DFT). It is planning to start a new facility in Dubai in FY19-20E. The implementation of GST is likely to benefit the company in terms of better market share (current share ~15%) in the coming years as organized players will benefit the most and are growing at a faster pace than the industry.
Direct Forming Technology, In-line galvanizing and value added products to improve margins
APL Apollo is the first company to bring Direct Forming Technology (DFT) in India for making hollow sections, both square and rectangle. Currently, it is the latest global technology for making hollow sections. Presently in the conventional technology, round pipe is formed and then the round pipe is converted to square and rectangular shape. However, in Direct Forming technology, square and rectangular sections are formed directly through welding with high production speed. This could be a potential trigger for the company, as the customers can order customized sizes in small or large quantities, which would expand its addressable market size. DFT will help to produce hollow sections within a certain range of dimensions and thickness without changing rolls, which could save setup time, save rolls management time and reduce to zero the space required to store rolls series.
It has successfully established its first DFT line at its Hosur facility and is expected to start more lines at its other existing facilities in the current fiscal. The full benefit of DFT will only be realized from FY19E and thus we expect the company to report healthy margins in the coming years. Apart from DFT, it is also focusing on inline-galvanizing technology in which tube manufacturing and zinc plating are done at the same time. The tube exterior is uniformly galvanized and an anticorrosion coating is applied over it. The tube interior is uniformly finished with baked coating simultaneously done in manufacturing, giving the tube interior its strong anti-corrosion property. Thus, technically advanced and latest products have enabled APL Apollo to differentiate itself from its peers, which we believe will continue to increase its customer base in the future.
Initiating Coverage
Religare Investment Call
The company is targeting to grow at ~20% higher than industry growth of 8-10%, which shall help it to improve its market share in the coming years
Direct forming technology and in-line galvanizing technique to boost its product portfolio, improve working capital cycle and reduce production time
Revenue to grow at CAGR of 18.2% over FY17-20E leading to economies of scale and higher margins
Source : Company; RSL Research
3,138 4,214 4,545 5,457 6,439 7,501
25.6%
34.3%
7.9%
20.1%18.0%
16.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY15 FY16 FY17 FY18E FY19E FY20E
Revenue- Rs. Cr (LHS) Growth % (YoY) - (RHS)
Iron & Steel Products APL Apollo Tubes
Improving working capital cycle, reducing debt and robust return ratios
With healthy revenue growth in the coming years and improvement in operational efficiency, we expect the working capital cycle of the company to improve with reducing inventory and receivables days. The management is aiming to become net debt free company in the next 3-4 years, which will reduce the overall interest cost in the coming years. The entire capex requirement to increase the capacity from 1.3 million tonnes to 2.5 million tonnes is being done through internal accruals. Thus, we expect the company to report healthy margins in the coming years along with robust return ratios.
Initiating Coverage
Religare Investment Call
APL Apollo is focusing on debt reduction, improvement in working capital cycle, higher profitability through increase in volumes and realizations, which would further increase its return ratios
RoE to increase with rising PAT and reducing debt
Source : Company; RSL Research
RoC to improve and remain robust in the coming years
13.9%
18.9%
22.7%
25.0%
26.8% 27.4%
13.0%
15.0%
17.0%
19.0%
21.0%
23.0%
25.0%
27.0%
29.0%
FY15 FY16 FY17 FY18E FY19E FY20E
ROE %
17.8%
22.9%
21.0%
24.8%
28.1%
30.7%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
30.0%
32.0%
FY15 FY16 FY17 FY18E FY19E FY20E
ROC %
DFT to aid improve operational margins
Source : Company; RSL Research
Higher realizations and reducing debt to support PAT
191.4 281.7 324.4 413.5 505.5 604.1
6.1%
6.7%7.1%
7.6%7.9%
8.1%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
-
100.0
200.0
300.0
400.0
500.0
600.0
700.0
FY15 FY16 FY17 FY18E FY19E FY20E
EBITDA- Rs. Cr (LHS) EBITDA % (RHS)
63.8 100.6 145.9 198.6 259.4 326.4
2.0%
2.4%
3.2%
3.6%
4.0%4.4%
1.4%
1.9%
2.4%
2.9%
3.4%
3.9%
4.4%
4.9%
-
50.0
100.0
150.0
200.0
250.0
300.0
350.0
FY15 FY16 FY17 FY18E FY19E FY20E
PAT- Rs. Cr (LHS) PAT % (RHS)
Iron & Steel Products APL Apollo Tubes
Initiating Coverage
Religare Investment Call
APL Apollo Tubes is amongst India's leading branded steel products manufacturers. The Company operates seven manufacturing facilities with a total capacity of 1.3 Million MTPA. It has pan India presence with units strategically located in Sikandarabad (3 units), Bangalore, Hosur, Murbad and Raipur. APL Apollo's multi-product offerings include over 400 varieties of MS Black pipes, Galvanized Tubes, Pre-Galvanized Tubes, Structural ERW Steel tubes and Hollow Sections. With state-of-the-art-manufacturing facilities, APL Apollo serves as a 'one-stop shop' for a wide spectrum of steel products, catering to an array of industry applications such as urban infrastructures, housing, irrigation, solar plants, greenhouses and engineering. The Company's vast 3-tier distribution network of over 600 dealers is spread all across India, with warehouses cum- branch offices in over 20 cities.
The company's realizations are highly impacted by volatility in steel prices. Its key raw material is HR coils, which are used to make pipes and tubes. Thus, huge volatility in steel prices can impact its revenue and earnings.
APL Apollo caters to different sectors of the Indian economy, which includes infrastructure, construction, automobile, energy, etc. Any slowdown in these sectors could have negative impact on the company's revenue growth.
Company background
Risks
Iron & Steel Products APL Apollo Tubes
Net revenue
Expenditure
Raw material consumed
Employee cost
Other expenses
Total expenditure
EBITDA
OPM (%)
Other income
Depreciation
PBIT
Interest expenses
PBT
Exceptional items
Tax
Tax rate %
PAT
Less: Share of minority interest
Add: Profit/Loss of associates
Adjusted Net Profit
PATM (%)
EPS
Particulars, Rs cr FY18E FY19E
FY17
Source : Company; RSL Research
4,545.0
3,800.5
72.1
348.1
4,220.6
324.4
7.1
3.8
51.2
277.0
68.3
208.6
0.0
62.7
30.1
145.9
0.0
0.0
145.9
3.2
62.1
6,438.7
5,358.1
98.6
476.5
5,933.2
505.5
7.9
4.6
68.1
441.9
54.7
387.2
0.0
127.8
33.0
259.4
0.0
0.0
259.4
4.0
110.0
7,501.1
6,232.2
114.4
550.3
6,897.0
604.1
8.1
4.9
74.5
534.5
47.3
487.2
0.0
160.8
33.0
326.4
0.0
0.0
326.4
4.4
138.4
5,456.5
4,547.2
85.0
410.7
5,043.0
413.5
7.6
4.2
59.8
357.9
61.5
296.4
0.0
97.8
33.0
198.6
0.0
0.0
198.6
3.6
84.2
P&L Account- consolidated
Religare Investment Call
Initiating Coverage
FY20E
Share Capital
Reserves & Surplus
Total Shareholder's Fund
Non-Current Liabilities
Long term borrowing
Deferred tax liability
Other long term liabilities
Long term provision
Current Liabilities
Short term borrowing
Trade payables
Short term provisions
Other current liabilities
Total liabilities
Fixed Assets
Goodwill on Consolidation
Non Current investment
Long Term loans & advances
Other non-current assets
Current Assets
Inventories
Trade receivables
Cash & Cash equivalents
Short term loans and advances
Other current assets
Total assets
Particulars, Rs cr FY18E FY19E
FY17P
Source : Company; RSL Research
23.6
847.6
871.2
196.3
92.3
95.0
1.1
7.8
958.0
442.5
414.8
9.4
91.3
2,025.4
809.0
67.0
12.7
66.2
1.7
1,069.0
582.3
342.4
9.7
130.1
4.5
2,025.4
23.6
1044.8
1068.4
164.8
55.4
99.8
1.2
8.4
1,004.4
420.4
475.4
10.1
98.6
2,237.6
810.3
67.0
12.7
69.5
1.7
1,276.6
687.1
393.8
54.4
136.6
4.7
2,237.6
23.6
696.7
720.3
203.7
104.9
90.5
1.0
7.2
926.0
465.8
370.4
8.4
81.5
1,850.0
790.0
67.0
12.7
77.8
1.7
900.8
469.6
295.2
1.7
130.1
4.3
1,850.0
Balance sheet- consolidated
Iron & Steel Products
23.6
1292.9
1316.5
148.4
33.2
104.8
1.3
9.1
1,042.4
378.3
546.7
10.9
106.5
2,507.3
820.4
67.0
12.7
72.9
1.7
1,532.6
803.9
456.8
123.5
143.4
5.0
2,507.3
FY20E
APL Apollo Tubes
Religare Investment Call
Initiating Coverage
Profit Before Tax
Add: Depreciation
Add: Interest cost
Op profit before working
capital changes
Changes In working Capital
Direct taxes
Cash Flow From Operating
Activities
Cash Flow from Investing
Activities
Purchase of Fixed assets
Others
Cash Flow from Investing
Activities
Cash from Financing Activities
Net proceeds from borrowing
Dividend (incl dividend tax)
Interest cost
Cash Flow from Financing
Activities
Net Cash Inflow / Outflow
Opening Cash & Cash Equivalents
Closing Cash & Cash Equivalent
Particulars, Rs cr FY18E FY19E
FY17P
Source : Company; RSL Research
208.6
51.2
68.3
328.2
35.3
-62.7
300.7
-185.9
16.2
-169.7
-27.8
-34.0
-68.3
-130.1
0.9
0.8
1.7
387.2
68.1
54.7
510.1
-92.1
-127.8
290.1
-69.4
0.0
-69.4
-59.1
-62.3
-54.7
-176.0
44.7
9.7
54.4
487.2
74.5
47.3
609.1
-104.6
-160.8
343.7
-84.7
0.0
-84.7
-64.2
-78.3
-47.3
-189.9
69.1
54.4
123.5
296.4
59.8
61.5
417.7
-88.1
-97.8
231.8
-78.8
0.0
-78.8
-35.9
-47.7
-61.5
-145.0
8.0
1.7
9.7
Cash Flow statement- consolidated
FY20E
Dividend per share Rs
Dividend Yield (%)
Payout %
EPS Rs
Book Value per share Rs
Profitability Ratios
EBITDA / Total income (%)
PBT/Total income (%)
NPM / Total income (%)
ROCE (%)
ROE (%)
Liquidity ratios
Debt-Equity Ratio
Current Ratio
Interest Cover Ratio
Turnover ratios
Total Asset Ratio
Fixed Assets Ratio
Debtors Velocity Overall (Days)
Inventory (Days)
Creditors Velocity (Days)
Cash Conversion cycle
GROWTH YOY%
Sales Growth %
Operating Profit %
Net Profit Growth %
VALUATION
P / E Ratio
P / BV Ratio
EV / EBITDA
Particulars, Rs cr FY18E FY19E
FY17P
Source : Company; RSL Research
12.0
0.7
19.4
62.1
305.3
7.1
4.6
3.2
21.0
22.7
0.8
1.0
4.1
2.6
7.0
20.7
42.7
25.1
38.3
7.9
15.2
45.1
25.8
5.2
13.4
22.0
1.4
20.0
110.0
452.9
7.9
6.0
4.0
28.1
26.8
0.4
1.3
8.1
3.0
8.4
20.9
36.0
25.2
31.6
18.0
22.2
30.6
14.5
3.5
8.3
27.7
1.7
20.0
138.4
558.1
8.1
6.5
4.4
30.7
27.4
0.3
1.5
11.3
3.2
9.5
20.7
36.3
24.9
32.1
16.5
19.5
25.8
11.6
2.9
6.7
16.8
1.1
20.0
84.2
369.3
7.6
5.4
3.6
24.8
25.0
0.6
1.1
5.8
2.8
7.7
21.3
35.2
26.3
30.2
20.1
27.5
36.1
19.0
4.3
10.4
Key Financial ratios- consolidated
FY20E
Iron & Steel Products APL Apollo Tubes
Religare Investment Call
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I/we or any of my/our relatives, have actual/beneficial ownership of one per cent. or more securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance?
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Initiating Coverage Iron & Steel Products APL Apollo Tubes