
Shares of APL Apollo Tubes have outperformed by giving multibagger returns as the stock has rallied more than 260% in a year and has surged over 100% in 2021 (year-to-date). From trading over ₹480 per share level in September 2020, the stock level has jumped to ₹1,750 apiece currently.
India's leading structural steel tubes producer APL Apollo's multi-product offerings include varieties of Pre- Galvanized Tubes, Structural Steel Tubes, Galvanized Tubes, MS Black Pipes and Hollow Sections, making APL Apollo among the leading branded steel products manufacturers in India.
Domestic brokerage Motilal Oswal has initiated coverage on APL Apollo (APAT) with a ‘Buy’ rating and sees further upside on this multibagger stock. It expects strong volume growth and improved profitability due to higher demand across product segments, launch of new products under the parent company and newly merged entity: Tricoat, robust distribution network, leading to increase in market share, along with increased cross-selling opportunity from the merger, and increase in the share of VAP is driving margin and profitability.
“APAT’s diversified product portfolio and pan-India presence helps in mitigating concentration risk. Higher sweating of assets (capacity utilization at 63%) will lead to kicking-in of operating leverage and better profitability. Robust distribution network, along with warehouses, higher retail network, and SKUs are expected to improve last-mile connectivity," Motilal Oswal said in a note on Tuesday.
The brokerage's Buy rating comes with a target price of ₹2,065 per share. It expects the stock could fetch similar valuation as its peers in the Building Material space, due to its leadership and low-cost position in the Structural Tubes business, strong return ratio profile, and lower working capital days.
The recent merger of Tricoat into APAT is expected to improve sales volume due to newer cross-selling opportunities and higher consolidated ad spends, which is likely to improve its brand presence and image.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.