APL Apollo :: Management Meet Note , ICICI Securities, link

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Volume led growth to sustain…
We recently met the management of APL Apollo Tubes (APL) to
understand its business model and long term prospects. APL, formerly
known as Bihar Tubes, is one of the leading ERW steel tubes
manufacturers in India. The product range of the company comprises four
major types of pipes/tubes, viz. MS black, galvanised tubes, pre
galvanised tubes and hollow sections. MS black contributes ~25% of
total sales and has an operating margin of ~5%. Hollow sections
contribute ~35% of total sales with 8% operating margin, galvanised
tubes contribute ~16% of total sales with ~8% operating margin while
pre-galvanised tubes comprise 24% of total sales with operating margin
of ~14%. The company has been a pioneer in pre-galvanised sheets and
pipes in India. The company currently has five plants in India with
aggregate capacity of over 8 lakh tonnes per annum (LTPA). Two of the
five plants are in Sikandrabad (UP) with capacity of 1.8 LTPA and 70,000
TPA. Others are in Hosur (Tamil Nadu) with capacity of 3 LTPA, Bengaluru
with capacity of 80,000 TPA and Maharashtra with capacity of 1.7 LTPA.
Volume growth to sustain, going forward
The company has assembled the largest range of products while having
the largest and most diversified footprint in the industry. APL produces a
large variety of tubes across wide range of diameters and thickness. The
company reported volumes of 5.5 LTPA in FY14, growth of 36.2% CAGR
over FY10 where its volume were 1.6 LTPA. It has been able to maintain
the growth momentum in spite of slowness of demand in the industry in
the last two or three years. It is further expanding its capacity and expects
to ramp up its production to 1 MT by the end of FY16. Going forward, it is
planning to launch new products like in line galvanising, colour coated
pipes and decorative pipes where realisations are expected to be higher
and would also aid in improving the margins of the company.
Location advantage, strong distribution network augur well
The company has a presence in all parts of the country with southern
India contributing to 45% of sales, western 28% and northern 16% of
total sales. A wider geographical reach offers advantage over competitors
by reducing logistics cost and lead time. Proximity to key raw material
procurement and client base ensures quicker delivery and lower risk of
transit damage. The company also has an extensive distribution network
with 300 dealers spread all over the country.
Robust volume growth likely to continue
During FY10-14, APL Apollo’s revenues have grown at a CAGR of 42.8%
while volume has registered growth of 36.2%. Going forward, we expect
the growth momentum to continue as the company is expanding its
capacity to 1 million tones per annum (MTPA) from 0.8 MTPA currently.
Total debt on the books as on March 31, 2014 stands at | 479.9 crore out
of which long term debt is to the tune of | 139.6 crore while working
capital loan is to the tune of | 340.3 crore. At the current market price, the
stock is trading at 14.6x FY14 P/E and 8.1x FY14 EV/EBITDA.

LINK
http://content.icicidirect.com/mailimages/IDirect_APLApollo_MgmtNote.pdf