Nuvama Institutional Equities has updated its outlook on APL Apollo Tubes, increasing the target price by 6.1% to ₹2,076, up from ₹1,956. The brokerage has maintained its ‘Buy’ rating for the stock, citing promising growth despite the current lackluster demand in the market.
Factors Behind the Price Target Increase
The recent rise in the target price is attributed to notable market share gains and strategic channel re-stocking that occurred over the past 10 to 15 days. This activity is largely in response to anticipated increases in HRC (Hardness Rockwell C) prices, a key factor impacting the growth trajectory of APL Apollo Tubes.
- What is HRC?
HRC, or Rockwell Hardness C scale, is a method for measuring the hardness of steel. While it can maintain a sharper edge longer, it may also become more brittle.
Positive Outlook for Q4 FY25
Nuvama projects that APL Apollo will achieve robust sales volumes of 850,000 tons in Q4 FY25, marking a 25% year-over-year increase and a 3% quarter-over-quarter rise. This aligns with recent market checks indicating that volumes are expected to rise, with a keen focus on profitability margins.
- Key Estimates for Q4 FY25:
- Projected operating profit of ₹400 crore.
- Anticipated EBITDA per ton returning to ₹4,700.
Profitability Strategies and Market Dynamics
As the company pivots towards profitability, Nuvama notes that the current profit spread sits at ₹6/kg. There’s potential for this figure to increase by ₹2 to ₹3/kg as HRC prices rise. Previously, the spread peaked at ₹18 to ₹20/kg but had significantly dropped to ₹2 to ₹3/kg until January 2025.
- Rising HRC Prices:
Domestic HRC prices are on the upswing, partly due to a 12% provisional safeguard duty recently imposed. Producers have raised prices by approximately ₹52,000 per ton. However, Nuvama suggests that while price hikes are occurring, they may be moderated by increasing HRC production capacities in India.
Third Quarter Performance Highlights
In its latest quarterly report, APL Apollo Tubes showcased impressive growth, with a 30.7% year-over-year increase in net profit, reaching ₹217 crore compared to ₹166 crore in the previous year’s quarter. Revenue from operations also saw a substantial rise of 30% YoY, totaling ₹5,432 crore in Q3 FY25, up from ₹4,177 crore during the same period a year prior.
Nuvama’s insights into APL Apollo Tubes present a compelling investment narrative, bolstered by strategic market maneuvers and a favorable pricing environment. As the company continues to navigate challenges, its focus on profitability and market share positions it well for future growth.
