Apollo Pipes shares rose 10 percent in intraday trading on Wednesday to 1,028.35 rupees as strong sales growth was expected given the good demand outlook for the industry. Over the past month, the plastics company’s stock is up 46 percent, while the benchmark S&P BSE Sensex is up 1 percent.
In the October-December quarter (Q3FY21), Apollo Pipes had encouraging performance, supported by a robust increase in consumption in domestic markets. During the quarter, the company’s sales volume increased 7 percent to 11,445 MTPA thanks to a good contribution from the cPVC, HDPE pipe and value-added products segment from Fittings. Cost optimization measures and an improved contribution from the high-margin fittings segment led to a better gross margin in the quarter.
Looking ahead, the various growth-enhancing measures taken by the government, particularly in rural areas, infrastructure and agriculture, should lead to better demand and consumption of our products in the domestic market in the medium to long term.
On Friday March 26th, CRISIL Ratings changed its rating outlook for Apollo Pipes’ long-term banking facilities from Stable to Positive. The revision of the outlook reflects CRISIL Ratings’ expectation that APL’s business risk profile could improve in the medium term, supported by an improvement in geographic diversification due to the upcoming capacity in the eastern region and an increase in business scope as the product portfolio expands.
Sales are expected to see an average annual growth rate (CAGR) of around 20 percent in the short term, thanks to the good demand outlook for the industry and increased capacity (around 1.25,000 tons per year through April 2021), according to CARE Ratings, the focus is increasingly on advertising and brand campaigns.
Earnings before interest, taxes, depreciation and amortization (EBITDA) are forecast at around 13.5 percent for the 2021 financial year, supported by inventory gains in the third quarter. The EBITDA margin should be 12 to 13 percent in the medium term, as the focus is increasingly on high-margin value-added products and better cost distribution on a higher sales basis.
The ratings continue to reflect APL’s established market position in Northern India and the increasing geographic diversity. Due to the healthy capital structure, the ratings also take into account the strong financial risk profile. These strengths are partially offset by exposure to intense competition and the vulnerability of profitability to fluctuations in commodity prices and exchange rates (forex).
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