Apollo Pipes Q1 Results Review - Industry-Leading Volume Growth; Robust Outlook Intact: Systematix

Systematix Research Report

Apollo Pipes Ltd. reported strong industry-leading volumes (up 19% YoY and 3% QoQ) in Q1 FY24. However, lower-than-expected realisation (Rs 123/kg, down 19% YoY and 9% QoQ) and Ebitda (10.1% margin; Rs 12.3/kg, down 11% YoY and 22% QoQ) led to 15% miss in profit after tax (up 58% YoY, down 7% QoQ).

Gross margin dipped 132 basis points QoQ, as Apollo Pipes priced aggressively to chase market share (in line with its strategy). Inventory loss (~1% of revenue) too impacted margins. With the aim to achieve compound annual growth rate of 25% in volumes and 30% in revenue over next few years, along with ~25% return on capital employed, Apollo Pipes is looking to add capacities in East, West and South India and cater to these markets to fulfil its pan-India aspirations.

Over three-four years, Apollo Pipes aims to double capacity to 286,000 tonne at a capex of over Rs 5 billion. A 25,000 tonne capacity in Dadri (Rs 1.5 billion capex; all value added product such as CPVC, HDPE, fittings) is likely to be operational in Q4 FY24.

We broadly maintain our profit after tax estimates and remain sanguine on Apollo Pipes’ industry-leading performance.

We estimate 20%/22%/66%/115% CAGR in volume/ revenue/Ebitda/profit after tax over FY23-25E, with an return on equity of ~17% and RoCE of ~23% for FY25E.

Considering its robust prospects driven by pan-India aspirations and a richer product mix towards non-agri VAP, we maintain our 'Buy' rating on the stock, with a revised target price of Rs 896 (Rs 825 earlier), based on 32 times FY25E price/earning (30 times earlier). Volume growth and margins are key near-term monitorables.

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