APL Apollo (APAT IN, INR 145) :Edelweiss,

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APL Apollo (APAT IN, INR 145, Not Rated)

We recently met the APL Apollo (APL) management to get an update on the company. The company attributed the robust 45.6% revenue CAGR over FY07-11 primarily to the 6 fold increase in capacity via organic and inorganic growth. Its strategically located manufacturing facilities not only help APL penetrate the market more effectively, but also result in freight cost savings and trim working capital requirement. We do not have a recommendation on the stock as it is currently not under our coverage.

Riding growth wave via 6 fold surge in capacity

APL has aggressively expanded its production capacity by more than 6x from 80000 MT to 4, 80,000 MT over 2007-10 driven by addition of 165,000tpa through inorganic growth and the balance via organic route. During Q2FY11, the company fully commissioned its 200,000tpa state-of–the-art Hosur plant, doubling its installed capacity. The greenfield plant, built at a capital expenditure of INR1bn funded by a mix of GDR and internal accruals, has helped APL cater to the market in South India and expand its market share.  

Strategically located plant helps trim logistics cost

The company has direct marketing presence in over 15 countries with a vast distributor network comprising ~ 300 dealers and more than 10,000 retail network across India. APL’s exports to 35 countries are supported by distribution networks in US, UK, France, Germany, Ireland, UAE and Sri Lanka. Prior to commissioning of the plant in Tamil Nadu, the company had limited presence in the South. However, now with its manufacturing facilities strategically located in North and South India and recently in West India via acquisition has helped APL save freight costs and reduce working capital requirement.

Outlook and valuations: Positive

With evolution of newer applications complemented by strategically located plants and strong developing distribution network, APL is poised for strong growth over the next few years. At CMP the stock is valued at 6.8x FY11 earnings and 5.9x FY11 EV/EBIDTA. The stock is currently not under our coverage.