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APL Apollo Tubes Ltd.’s revenue/Ebitda/profit after tax stood largely in line with our estimates. On a consensus basis, it was a slight miss of 4%/3%/5% respectively. Revenue grew by 17%/2% YoY/QoQ, led by higher sales volumes, partially offset by a drop in hot-rolled coil steel prices (down 1.5%/4% YoY/QoQ).
Value added products sales stood largely flat at 55% versus. 54% in Q2 FY23. Ebitda grew by 40%/6% YoY/QoQ to Rs 325 crore, a 3% beat versus our estimates, which was on account of topline growth.
The company’s Ebitda/tonne improved by 25%/4% YoY/QoQ to Rs 4,817/tonne, which is its highest level so far. Profit after tax grew by 35%/5% YoY/QoQ, 2% ahead of our estimate, led by higher Ebitda, partially offset by higher finance costs.
Outlook:
APL Apollo Tubes market-creation efforts have brought more orders from railway stations and airports for the heavy structural and coated products at Raipur which has higher Ebitda/tonne.
These new projects provide demand visibility for the company over the next few years. With a lower capex intensity ahead, higher operating cash flows, and the Raipur plant stabilising in due course, the company’s return on capital employed is likely to improve from ~27% in FY24 to 37% by FY26.
APL Apollo’s vision is to expand its capacity over to 10 million tonnes per annum by FY30 providing a growth tailwind in the longer term.
Valuation and recommendation:
We increase our Ebitda for FY25/26 by 6%/7% and roll forward our valuation at 33 times price-to-earning of September 2025 earning per share (From 32 times at June 2025 earning per share) on continued demand visibility to arrive at our target price of Rs 1,950/share.
Our target price implies an upside of 22% from the current market price. We maintain our ‘Buy’ rating on the stock.
Key Risks to our estimates and target price
Failure to ramp up the Raipur plant as guided by the company.
Steep fall in HRC prices leading to destocking by traders.
Macroeconomic risk impacting the demand for structural steel.
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