Investment Thesis Apollo Tricoat tubes LTD 8th June 2020

BSE Sensex NIFTY 50

COMPANY OVERVIEW 31642.70 9251.50
Apollo tricoat tubes LTD is the largest producer of Electric Resistance Welded (ERW) Steel Pipes and
Sections in India with a capacity to produce 2.5 Million Tonnes per annum. It has a wide spectrum of
steel products, catering to an array of industry applications such as urban infrastructure, housing,
irrigation, solar plants, greenhouses and engineering. The company’s vast distribution network is spread
across India, with warehouses and branch offices in 29 cities. Currently, Apollo has the largest and most
entrenched distribution networks in the structural steel sector in India with over 790 distributors and
50,000 retailers and fabricator.
Stock Info
INVESTMENT THESIS
Scrip (BSE) APOLLOTRI
Growing Demand Of steel Products.
Equity Shares (mn) 138.10
In India, the ERW steel tubes market is at approx. Rs 30,000 Crore which is expected to grow at ~10-
12% CAGR every year. The steel demand is also expected to grow at ~6-8% through FY21, of which M.Cap. (Crs) 1201
steel pipe will form ~10-12% of the total steel demand, thereby providing a huge opportunity for steel
52-Week Range (Rs) 503/170
pipe consumption in the years to come. Steel pipes have traditionally been used for transporting water,
oil, other liquids and gases. However, with the development of technology steel pipes have found CMP as on 5.6.20 395.20(BSE)
application as hollow structures in other industries like building materials, automobile and daily utility
items also. Book value
65.64
Initiative By The Government:
Due to Corona virus pandemic government has decided the anti-dumping duty which was imposed Financial Snapshot & Valuations
earlier shall remain in the force till Dec 2020 unless revoked to protect its domestic market. (INR b)
Also in Sept 2019 government launched the Scheme ‘Nal Jal Se’ which aims to provide portable water
to 18 lakh rural households. So, this will require large diameter ERW pipes for distribution of water Y/E Mar FY19 FY18 FY17
and smaller diameter pipes for last mile connections and intercity connections. This campaign will Sales 7 191 61
therefore be beneficial for the steel pipe industry as a whole. EBITDA -0.02 11.61 3.41
PAT 2 10 4
The Rapid Expansion: EPS (INR) 29.7 26.7 33.4
Growth 11.6 -20 47.5
In FY 17 the company has a capacity to produce 1.3 million tonnes per year and has 7 plants in India. (%)
Apollo management than adopted rapid expansion policy and currently has 11 units in India and can Book 44.9 38.1 24.7
produce 2.5 million tonnes per year. During Q1FY20, Apollo Tricoat started commercial production of value
In-line galvanized (ILG) pipes and designer pipes at the green-field plant at Malur, Bengaluru RoE (%) 2.38 13.62 37.31
(150,000tn) and in July'19 commercial production of door frames also commenced at its green-field RoCE (%) 3 17 14
manufacturing facility at Dujana, Dadri (50,000tn). Management has guided to increase their capacity EV/EBITDA (x) 26.3 30.8 27.5
to 250kt p.a. by FY20 with a volume contribution of 100kt in FY20E. P/E (x) 28.43 41.4 33.1
Shareholding pattern (%)
Market Leaders in Steel Products: As On Mar-20 Dec-19 Mar-19
Consistently from FY15 onwards market share has seen a marked improvement from 12% to 15% in Promoter 62.53 62.76
Q1 FY20. During Q1FY20, across product segments. It has a market share of 28% in GP Pipes, 26% Public 23.58 14.31 16.34
FII 4.22 13.77 13.09
in Hollow Sections thus making it the leader in the section in the organized market, 8% in Black Pipes MFs 1.39 16.92 18.46
and 9% in GI pipes. These market share gains continue driven by distribution expansion, product Others 4.46 3.65 0.73
portfolio diversification and customization, brand strengthening led by media spends and focus on
value added products (DFT, GI/GP, IGL etc) .

Cost Effective Measurement:

The company is working towards bringing backward integration of thinner materials, which will
significantly help overall cost savings and operational efficiencies. Management has said that company
enjoys a discount of Rs. 500-1000 per tonne over its competitor in raw material procurement.
Company has set up cold rolling mill in Uttar Pradesh with a cumulative capacity of almost 2 lakh
MTPA for enhancing the availability of low-thickness material. This will help in reducing the raw
material cost by significant amount.

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Investment Thesis Apollo Tricoat tubes LTD 8th June 2020
Key Risks

Innovation And Adaption Of New Technology:  Volatility in steel prices as

it is a key raw material
Apollo Tricoat has continuously adopted new technology through its innovation for the betterment
 Economic slowdown to
of its business and products. It was the first company to offer pre-galvanized and colour coated
pipes and then in 2016 company was pioneer to bring Direct Forming Technology (DFT) which effect infrastructure
allows it to offer customized products at lower cost with shorter lead times, DFT enables direct spending.
formation of hollow pipes of various sizes and shapes.  Competitive Intensity to
DFT enhances the efficiency and reduces material cost by 2-10%. Further, DFT can process smaller restrict pricing power.
orders in 30-40 minutes compared to traditional methods which would take 6-8 hours.  Failure to achieve
desired level of
operating activity.
Region WIse Product Mix
Contribution
GI Hollow
Central
West Pipe Othe Section
And
s rs
East
West
South
GP 7% 5% Black Pipes Key Catalyst
North 14% 25% North Hollo GP Pipes
18% Pipe
Central And s w GI Pipes  Higher import duty on steel
South East Secti
43% 23% Others products.
on
Black 52%  Strong distribution network
Pipe and it has pan India presence
s which will help the company to
13%
grow its presence
 ERW steel tubes market is
expected to grow at ~10-12%
CAGR, thereby providing a huge
Comparison With BSE: opportunity for the company.
 First company to introduce
‘Galvant Technology’ will
enable the company to expand
Market Trends its portfolio in the high margin
segment
464%

136%
82%
28% 20% 16%
2% 5%
2017 2018 2019 2020

Apollo Tricoat BSE

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Investment Thesis Apollo Tricoat tubes LTD 8th June 2020