India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/16132" target="_blank" data-smartkarma-citation="entities:16132:1">APL Apollo Tubes Ltd (APAT IN)</a> (APL Apollo) is an Indian branded steel tubes manufacturer in the Electric Resistance Welded (ERW) pipes segment. APL Apollo is increasing its current capacity from 1.3 MTPA (Million Tonnes Per Annum) to 2.0 MTPA by FY19E. APL has introduced new high-speed technologies from Europe such as the Direct Forming Technology (DFT), Inline Galvanizing technology for the first time in India. 
We are positive about the stock because:
<ul>
<li> Demand for steel pipes is expected to grow ~10-12% in FY19E. We believe APL Apollo may benefit being one of the largest players for ERW steel pipes in India with a market share of 17% in FY18.</li>
<li>The Capacity Expansion (CapEx) and the introduction of latest technology which includes the Direct Forming Technology (DFT) will drive volume growth for APL Apollo. We expect the volume CAGR of 22% FY17-FY20E.</li>
<li>Reduction in the cost would aid in margin expansion on the back of the introduction of the DFT technology which would save ~3-7% of the cost of the Company. Higher utilisation and improved operating efficiencies will lead to improved EBITDA per tonne. We expect EBITDA per tonne to reach in the range of Rs. 3500-3600 in FY20E from the current level of Rs. 3100.</li>
<li>With the capacity expansion, the revenues are expected to grow at the CAGR of 23% over FY17- FY20E. PAT  is expected to grow at a CAGR of 33% FY17-FY20E driven by higher volumes due to capacity expansion, higher demand, improved margins and lowering of debt. </li>
<li>
We initiate coverage on APL Apollo Tubes Ltd with a fair value objective of Rs. 3,160/- This represents a potential upside of 86% from current price of Rs. 1,695. We arrive at the fair value by applying PE multiple of 24x to March 20E EPS of Rs. 131.6.</li>
</ul>
<table class="table table-striped">
<tbody>
<tr>
<td></td>
<td>
FY17
</td>
<td>
FY18
</td>
<td>
FY19E
</td>
<td>
FY20E
</td>
</tr>
<tr>
<td>
P/E(x)
</td>
<td>
30.4
</td>
<td>
25.0
</td>
<td>
19.0
</td>
<td>
12.9
</td>
</tr>
<tr>
<td>
ROE (%)
</td>
<td>
18.7
</td>
<td>
19.1
</td>
<td>
20.2
</td>
<td>
23.0
</td>
</tr>
<tr>
<td>
ROCE (%)
</td>
<td>
30.9
</td>
<td>
30.3
</td>
<td>
31.3
</td>
<td>
35.5
</td>
</tr>
</tbody>
</table>
<div class="content-caption">Source: APL Apollo Annual Report FY17, Quarterly Presentation 4QFY18, Trivikram Consultants Research as on 28-06-2018</div>

APL Apollo Tubes Ltd (APAT IN) (APL Apollo) is an Indian branded steel tubes manufacturer in the Electric Resistance Welded (ERW) pipes segment. APL Apollo is increasing its current capacity from 1.3 MTPA (Million Tonnes Per Annum) to 2.0 MTPA by FY19E. APL has introduced new high-speed technologies from Europe such as the Direct Forming Technology (DFT), Inline Galvanizing technology for the first time in India. 
We are positive about the stock because:

 Demand for steel pipes is expected to grow ~10-12% in FY19E. We believe APL Apollo may benefit being one of the largest players for ERW steel pipes in India with a market share of 17% in FY18.
The Capacity Expansion (CapEx) and the introduction of latest technology which includes the Direct Forming Technology (DFT) will drive volume growth for APL Apollo. We expect the volume CAGR of 22% FY17-FY20E.
Reduction in the cost would aid in margin expansion on the back of the introduction of the DFT technology which would save ~3-7% of the cost of the Company. Higher utilisation and improved operating efficiencies will lead to improved EBITDA per tonne. We expect EBITDA per tonne to reach in the range of Rs. 3500-3600 in FY20E from the current level of Rs. 3100.
With the capacity expansion, the revenues are expected to grow at the CAGR of 23% over FY17- FY20E. PAT  is expected to grow at a CAGR of 33% FY17-FY20E driven by higher volumes due to capacity expansion, higher demand, improved margins and lowering of debt. 

We initiate coverage on APL Apollo Tubes Ltd with a fair value objective of Rs. 3,160/- This represents a potential upside of 86% from current price of Rs. 1,695. We arrive at the fair value by applying PE multiple of 24x to March 20E EPS of Rs. 131.6.






FY17


FY18


FY19E


FY20E




P/E(x)


30.4


25.0


19.0


12.9




ROE (%)


18.7


19.1


20.2


23.0




ROCE (%)


30.9


30.3


31.3


35.5




Source: APL Apollo Annual Report FY17, Quarterly Presentation 4QFY18, Trivikram Consultants Research as on 28-06-2018

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