Thread by @LnprCapital

APL APOLLO Analysis !!
#AplApollo

A detailed #Thread below 🪡🧵
#StockMarket #Investing

About -

APL Apollo Tubes Limited is India’s largest Structural Steel Tubing Company with an extremely strong local presencedia, extensive distribution network & ,world class quality. With a capacity to produce 2.6 Million Tonnes per annum,Co is the largest producer of

Structural Steel Tubes in India.

Financial Summary -
Q3FY22 (YoY)

Revenue at Rs 3238cr ⬆️24%
PAT at Rs 116cr ⬇️ 12.4%
EPS at Rs 4.6 ⬇️13%

▪️ Products :

~ Apollo Structural -

Used in Residential Buildings & Independent Homes, Commercial Buildings, Warehouses & Factories, Infrastructure, Industrial & agriculture.

Application - Structural, Piling, Sheds, Handrails, Gates, Fencing, Balcony, Grills, Staircase,

Light Structures, Structural for Metros, Airports, Stadiums, Stations etc.

~ Apollo Z -

Used in Residential Buildings & Independent Homes, Commercial Buildings, Warehouses & Factories.

Application - Galvanized structural steel tubes for coastal markets.

~ Apollo Tricoat -

Used in Residential Buildings and Independent Homes, Commercial Buildings.

Application - Door Frame, Staircase Steps, Furniture, Plank, Designer Tubes, Fencing, Electrical Conduits.

~ Apollo Galv -

Used in Commercial Buildings, Industrial & agriculture.

Application - Galvanized Structural, Greenhouse Structures, Plumbing, Firefighting.

Acquisition of Lloyds steel’s Murbad plant allowed APL to expand its foothold in the west India market -

The acquisition also allowed APL (known as Bihar tubes back then) to expand capacity from 0.4mtpa to 0.49mtpa. The acquisition took place around the same time when the

company had entered into a Rs70mn distribution deal with Shankara (APL subsequently acquired Taurus Value steel, the steel pipe subsidiary of Shankara in CY19). APL sources HRC from JSW Steel’s Dolvi plant. A cost effective acquisition, subsequent brownfield investments )

including addition of a DFT mill leading to significantly increased asset turns and expanding the SKU range meaningfully – all contributed towards expanding the western market while capturing incremental market share. West India now contributes ~ 32% of APL’s revenue.

▪️ Pioneer in structural steel segment:

Co reported a strong 24% CAGR topline & earnings growth over the past decade, led by customised product offerings, adoption of latest technologies, capacity expansion, vast distribution network, brand building & a strong balance sheet

. This has led to superiority over peers in the space & has helped it enhance market share to 50% (in FY21) vs 27% in FY16. With an increasing share of value-added products, the company has managed to garner a premium value for its products.

▪️ Building a strong brand:

APL has successfully captured the mindshare of fabricators & architects, making its steel tubes as their first choice for applications. Along with
innovative products & offerings,co has aggressively focused on creating a strong brand image through

large-scale print and TV commercials, sponsorships of mega sports events and roping in of celebrities as brand ambassadors. These efforts have allowed it to successfully creep into the rural areas, which are yielding strong results

▪️ Far ahead of peers:

Having a 50% market share, adopting the latest technologies & withholding a strong brand image, APL stands much ahead of its competitors. Its pan-India distribution network (2x of its nearest peer), enhanced capacity (3x of the nearest peer)& broad array

of product offerings (3x more SKUs) have helped it
gain 5x market share vs peers. 40% of its products literally face zero competition, which allows it to command premium value and higher margins. Using advanced technology, it has managed to offer customised products in a much

shorter duration than peers, placing it much ahead of them; we believe it would continue to stay ahead, going forward.

Innovative products designed to customer specifications -

APL brought to India high-speed mills from Europe (which increased speed by 5x), strip galvanizing

lines and the unique Rotary Sizing Mills. It introduced pregalvanized tubes (GP) in India for the first time in 2003. The company introduced the cutting-edge Direct Forming Technology (DFT) technology in India, which enables it to customise products in a cost-effective manner.

▪️ Structural steel market in India and future growth -

India’s overall steel market size stands at ~100 mtpa, of which structural steel tubes account for 4 mtpa (~4%) only. The share of structural steel tubes in the overall steel market in India is much lower compared to the

global average, which ranges from 9-10% of their respective steel markets. This provides significant growth potential for the structural steel segment to expand its market share in Indian steel market by
replacing the conventional RCC and wood usage (especially across

the construction and the building segments), which are labour intensive, prone to high wastage, and time consuming.

▪️ Key Risks -

~ Slowdown in economy or government spending on infrastructure.
~ Fall in steel prices which could result in inventory losses and, thus, lower EBITDA/tonne for APL.
~ Slower-than-anticipated recovery and growth in the real estate market.

Conclusion -

The balance sheet of APAT will continue to strengthen with healthy operating cash flows going ahead due to its balance sheet deleveraging, reduced working capital cycle with a strategic shift to cash and carry business model and efficient inventory management,

focus on valueadded products (In-line Galvanizing, coloured pipes, Apollo Tricoat), and rural push.
Furthermore, the volume expansion plan from the current 2.6 MTPA to 4 MTPA would aid in
market share gains from the unorganized players.

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