Apollo Pipes rallies 10%, hits new high on healthy demand outlook

In the past one month, the stock has surged 46 per cent, against 1 per cent rise in the benchmark S&P BSE Sensex

Shares of Apollo Pipes, on Wednesday, rallied 10 per cent to Rs 1,028.35 on the BSE in intra-day trade on expectation of strong revenue growth on the back of healthy demand outlook for the industry. In the past one month, the stock of the plastic products company has surged 46 per cent, against 1 per cent rise in the benchmark S&P BSE Sensex.

During the October-December quarter (Q3FY21), Apollo Pipes reported an encouraging performance led by a robust uptick in consumption in the domestic markets. During the quarter, the company’s sales volume grew by 7 per cent to 11,445 MTPA, driven by a healthy contribution from the cPVC, HDPE pipe and value-added product segment of Fittings. Cost-optimization measures and improved contribution from the high-margin fittings segment further resulted in a better gross margin performance during the quarter.

Looking ahead, the management said, the various pro-growth measures undertaken by the Government, especially in the rural, infrastructure and agricultural space should lead to better demand and consumption of our products in the domestic market over the medium-to-longer term.

On Friday, March 26, CRISIL Ratings revised its rating outlook on the long-term bank facilities of Apollo Pipes to ‘Positive’ from ‘Stable’. The outlook revision reflects CRISIL Ratings’ expectation that the business risk profile of APL may strengthen over the medium term, supported by improving geographical diversification on account of upcoming capacity in the eastern region and increase in scale of business with widening of  product portfolio.

Revenue is expected to register a compound annual growth rate (CAGR) of around 20 per cent in the near term on the back of healthy demand outlook for the industry and increased capacity (around 1,25,000 tonne per annum by April 2021), along with growing focus on advertisement and branding campaigns, CARE Ratings said in rating rationale.

Earnings before interest, tax, depreciation and amortisation (EBITDA) margin is projected at around 13.5 per cent for fiscal 2021, supported by inventory gains in the third quarter. The EBITDA margin is expected to sustain at 12-13 per cent over the medium term because of increased focus on high-margin value-added products and better spread of cost on higher revenue base, it said.

The ratings continue to reflect APL's established market position in North India and increasing geographical diversity. The ratings also factor in its strong financial risk profile because of a healthy capital structure. These strengths are partially offset by exposure to intense competition, and susceptibility of profitability to fluctuations in raw material prices and foreign exchange (forex) rates.