Apollo Pipes Q1 Review - Tepid Results; Robust Guidance Intact Though: Systematix

Systematix Report

Apollo Pipes Ltd. Q1 volume/revenue (up 25%/19% YoY and 24%/21% QoQ) was aided by consolidation of Kisan Mouldings (volume 5,625 tonne, revenue Rs 680 million, Ebitda margin 6.8%, profit after tax Rs 30 million).

However, operating result (Ebitda up 11% YoY, 9.4% margin, Rs 10.9/kg) stayed weak. Volume was flattish at 20,937 tonne excluding. Kisan (5,625 tonne). Lower offtake of infra pipes (HDPE) due to general election impacted volume (temporary issue). Volume excluding. High Density Polyethylene pipe grew 10% YoY, led by CPVC pipe (revenue up 20% YoY) and Water-tank (revenue up 30% YoY).

Despite weak Q1, Apollo Pipes maintains its three-year guidance (30% volume compound annual growth rate including. Kisan, ~11% Ebitda margin, <60 days of working capital cycle leading to 25-30% Return on Capital Employed). Focus will be to gain market share over margins in the next few years. ~2 times capacity of 286kt in three years on Rs 5 billion capex will aid growth. A 30kt facility near Varanasi at Rs 1.5 billion capex is likely start production in Q4 FY25.

Kisan is likely to achieve peak utilisation by FY26 end (~40% currently) and clock Rs 8 billion plus revenue with 10%+ Ebitda margin in FY27. We maintain earnings estimates. On 30% volume compound annual growth rate guidance (including. Kisan), we expect 33%/38%/57% compound annual growth rate in revenue/Ebitda/profit after tax over FY24-26E.

Large capex over next two-three years will keep RoCE low (~13% in FY26E). We thus maintain 'Hold' on Apollo Pipes with an unchanged target price of Rs 691 (26 times FY26E price to earning). Volume growth, margin trajectory and integration of Kisan Mouldings are key monitorable.

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