APL Apollo Tubes

9th August, 2021

Rating: Buy Price:1738 We at Stallion have a consistent investment philosophy of

buying companies that fit our Philosophy of 4 M’s:

 Market Opportunity
 Market Leadership
 Management
 Margin Of Safety

Thesis:

Market Cap (Rs. Cr) 21709 APL Apollo has seen a Transformational journey in last one year
EPS (Diluted) 39.23 with changing Business Economics. These new economics reflect a
P/E 44.3x potential wealth creating Building Materials Company from a pure
P/BV 11.9x Commodity player previously. We believe it has further legs to get
Promoters Holding 36.88% re-rated on expanding TAM and being a proven player in Market
52 Week High/Low 1850 / 410 Development of Structural Steel Tubes Market. Our Buy Rationale is
Shares Outstanding 12.5 crs built on -

1. A story of Transformation.
2. Growth will be supported by higher Share of Value Added
FY18 FY19 FY20 FY21 products
Revenues 5472 7152 7426 8214 3. Three focus areas: Improving EBITDA/ton, Improving Free
EBITDA 379 404 499 714 Cash Flows and Enhancement of ROCE.
EBITDA% 6.9% 5.7% 6.5% 8.4%
Valuations:
PAT 158 148 256 407
PAT% 2.9% 2.1% 3.3% 4.8% We expect the company to report an EPS of 50/73 (inclusive of
Tricoat’s Dilution) for FY22/FY23. The company is effectively trading
at 35x/24x FY22/FY23 earnings.

Please see important disclosures towards the end of this report. Stallion Asset
 APL Apollo Tubes

Play Book For Building Materials Company

Distribution
Strength

Market
Creation Market
and Product Leadership
Innovation

Lower
Working
Capital

All Building Materials companies are inherently “Commodities”

The Great and Not so Great Building Materials Companies are divided in 2 stacks –

1. The Push Stack (Distribution Strength, Market Leadership)

2. The Pull Stack (Lower Working Capital, Market Creation and Product Innovation)

The companies which toggle well between the two stacks wins the Game.

Getting all the things right

- Processes
- Product Portfolio
- Right set of Distributors
Push Stack
The company is pushing the product to the
intermediaries, who are then expanding and penetrating
the market for the company. Keep the Distributors
Happy!

This is the Consumerism Stack

Where companies becomes leaders on Product

Pull Stack innovation and Market Development.

Premiumization of the Product Portfolio is an outcome

of getting the Pull Stack right.

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 APL Apollo Tubes

Distribution Strength – Visibility on Ground and Product availability is more important than Promotional Visibility
in the initial years. This is the toughest part for the Building Materials Company in the initial years. Because there is
always an incumbent at the time of entry.

Market Leadership – The strength in Distribution decides the Market Leadership regionally, which is usually closer
to the factories. More the factories -> Closer to the Market -> Lower Logistic Costs -> Lower Turnaround Time ->
Best Cost Structure -> Lowest Prices for the Consumer.

Lower Working Capital – There are hidden Network effects in Market Leadership for Building Material companies.
If the dealer does not keep the product of the Top Company, the dealer potentially loses out on a sale to a
Competitor dealer. This causes “Khicha Tani” which leads to better terms for the Building Material Company in way
of lower Receivables Cycle. At the same time, as a supplier he/she wants to work with the company who pays on
time. Leader has the volume power thus the “Khicha Tani” here also leads to higher Payables days and higher
discounts. “High Volumes ka Discount!” Better Working Capital and best prices from Supplier to the Company.

Market Creation and Product Innovation – Lower Working Capital leads to higher Cash with the company, where
the good managements keep expanding their moats by adding new product lines or by reinventing the same
product with newer and better utilities. Customer Delights is a never ending process for these kind of companies.

APL Apollo has ticked all the boxes right in this Playbook.

DISTRIBUTION NETWORK MARKET SHARE IN

Distribution Network
STRUCTURAL STEEL TUBE
Market Share in Structural Steel Tube
800
790

50%
650
625
600

40%
36%
32%
29%

28%
375

2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021

Product Name Year of Usage

WORKING CAPITAL DAYS Introduction
Designer Roofing, Steel
Apollo Signature FY20
Furniture
Working Capital Days
Apollo Chaukhat FY20 Door Frames
56

Apollo Elegant FY20 Hand Railing

50

Apollo Tricoat FY20 Electrical Conduits

Staircase Steps, Ceilings, Truck

38

Apollo Plank FY20

36

Bodies
33

Apollo Hybrid FY21 PVC+Steel

23

Apollo Scaff FY21 Greenhouse/Scaffolding

Apollo Alpha FY21 Window Frames
500*500mm Steel
To be announced
Pipes
5

Apollo Octagonal
To be announced
Tubes
2015 2016 2017 2018 2019 2020 2021
Apollo Jumbo To be announced

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 APL Apollo Tubes

We have witnessed the wealth Creation in the largest Paints Company of India – Asian Paints given the kind of
Distribution prowess it has built over the years. Innovation Push may have built higher margins in the business, but
Asian Paints has reinvested these margins in the form of better incentives to dealers and lower prices to
Consumers, keeping the weaker players out.

Asian Paint’s Distribution strength is atleast 2.5x of its next competitor. Similarly, APL Apollo today serves 800+
Distributors which is almost 3x of the nearest competitor Surya Roshni.

Company Dealers Company Dealers

Asian Paints 70,000+ APL Apollo 800+
Berger Paints 29,000+ Surya Roshni 250+
Kansai Nerolac 30,000+ Hi-Tech Pipes 350+ (though 1/5th the size of
APL Apollo)
Akzo Nobel 9,000+

Even in Market Leadership, Asian Paints continues to lead with 42% market share in decorative Paints. Second
player i.e. Berger Paints has a Market share of 12% in Decorative Paints space.

Similarly, APL Apollo in the niche of Structural Steel Tube market leads with 50% market share, with second player
and third player coming at 9% each.

The leader in any Building Material Industry has the best Working Capital Cycle.

PAINTS WC Days STRUCTURAL STEEL WC Days PIPES WC Days

TUBES Astral 27 days
Asian Paints 46 days APL Apollo Tubes 5 days Prince Pipes 36 days
Berger Paints 47 days Surya Roshni Pipes 56 days Supreme 114 days
Kansai Nerolac 80 days Hi-Tech Pipes 75 days Industries

Reinvestment of scale-led savings to Product innovation have helped these companies to stay ahead of the curve
in the minds of the consumers. Some of these savings have been reinvested into ad-spends as well as innovation of
new products.

Pidilite over the years has seen a lot value migration cycles, starting with Fevicol in 1960s. It continued to
strengthen its Core Competencies with Bolt-on acquisitions, product innovation and scale-up of new products with
the help of its existing strong Distribution Network, to scale up the 10-20-50 crores brands to 400-500-600 crore
brands.

- 2001 – M-Seal
- 2001 – Dr. Fixit
- 2004 – Roff
- 2006 – Art & Craft
- 2015 – NINA, Waterproofing Projects business
- 2020 - Araldite

We have added a new hyper-scaler to the portfolio. APL Apollo’s thesis for us is built around
transformation and expansion. The company has successfully transformed itself from being a commodity
player to moving towards a Building Materials Leader company.

Please see important disclosures towards the end of this report. Stallion Asset
 APL Apollo Tubes

I) A story of Transformation
APL Apollo has transformed itself over the years from being a typical commodity player (High Debt, High
Receivables) to becoming Operationally efficient (Low Debt, Low Working Capital Cycle, Low Receivables and
Relatively more stable Consumer-like margin) and is now on its way to becoming more of a Building materials
company (Non-Commodity, New Markets, New products, Large Distribution Channel, Pan India Presence).

We will divide this section in 3 parts [Past, Present, Future], showing how has the company transformed
itself.

PAST -
The company in the past was a typical commoditized player with High Debt, High Receivables.

NET DEBT
Net Debt (In Cr.)

681
666

662
597

569
467

415
410
291
224
130

83
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

The company’s net debt was increasing consistently over the last 10 years. The expansion from 250 KTPA to 2.6
MTPA was funded by Debt and equity issuances.

However in the last 1.5 years (Since pandemic struck) the company has been able to bring down its debt. The
reduction in debt has been supported by the change in Business model by shifting from a credit based sales
strategy to Cash Based sales strategy. [More on this later].

Receivables Trend
600 14.00%
500 12.00%
10.00%
400
8.00%
300
6.00%
200
4.00%
100 2.00%
0 0.00%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Receivables Receivables as a % of Revenue

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 APL Apollo Tubes

CFO
1200

1000
977 Receivables as a % of Revenue from Operations has
been trending down and has drastically reduced
800 over the last 1 year on the back of change in
Business model (Credit Driven Sales to Cash and
600 510
Carry) implemented from Q1FY21.
400 315
358
This has allowed the company have better Cash flow
from Operations.
200 91
11
0
2016 2017 2018 2019 2020 2021

CFO

Typical Margins for Commodity Building Material Player vs Leader Building Material Player -

Particulars Commodity BM Player Leader BM Player

Revenue 80 100 120 80 100 120
COGS 72 90 108 70 90 108
Gross Profit% 10% 10% 10% 12.5% 10% 10%
Gross Profit 8 10 12 10 10 12

A leader Building Material Player will protect its Absolute Profits during a fall in commodity prices by premiumizing
the product portfolio, pushing higher margin products. A commodity like Building Material Player’s profitability will
only grow when RM Prices goes higher and tread lower when RM prices fall.

We believe APL Apollo has made the transition to becoming a Leader BM Company, which was also iterated
in the Q1FY22 Earnings call, Where the management claimed that its absolute EBITDA of 250 crores a
quarter will be maintained irrespective of the Steel Prices. Thus, annualizing the 250 crores number, we get
close to 1000 crores EBITDA for FY22.

Please see important disclosures towards the end of this report. Stallion Asset
 APL Apollo Tubes

PRESENT

Mr. Sanjay Gupta in the company’s Q4FY20 Concall Quoted the following:

“What happened earlier we know that we have to do this thing but when the train is going at the speed of
200 km everybody was scared. We were scared how to stop it and repair it or not, if the train runs in speed
then the nut bolts loosen ups. But if 10 out of 100 nut bolts are loose and 90 are running fine then the
person leaves it as it is. When the train stopped in the month of April we decided that whatever work we
have to do after 1 or 2 years now the time has come and we should take advantage of the COVID time as
whatever growth has hampered it is all done, now we are not going to sell the material on the credit basis.
We are going to sell the material on the cash basis because the system was without fear and strength was
there, it came out. The management thinks that there are lot of chances for improvement in the future.”

And hence he delivered.

The company has over the last 1 year worked on becoming operationally efficient by focusing on the following
aspects: Lowering Debt, Lowering Working Capital Cycle, Lowering its Receivables and Focusing on its product mix
which will drive relatively higher margins.

DEBT / EBITDA (LOWER IS BETTER)

Debt / EBITDA
2.87
2.76
2.63

2.63
2.56

2.33

2.05

1.78

1.76
1.74

1.46

0.62
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Interest Coverage Ratio

9.3
10

6 5.2
4 4 4 3.8
3.5 3.7
4 3.2 3
2.5 2.5

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Interest Coverage Ratio

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 APL Apollo Tubes

The improvement in Financial metrics on the back of improvement in debt is very much visible on above charts
with Debt as a % of EBITDA coming down to only 62% and Interest Coverage Ratio zooming to 9.3 times. The
consistent efforts towards growing Cash flows and improving WC cycle has led to such phenomenon. Hence we
think this is not a one off and the trajectory should be maintained.

The company has improved its Working Capital Cycle quite significantly.

Working Capital Days 2014 2015 2016 2017 2018 2019 2020 2021
Inventory Days 47 41 59 42 46 45 38 34
Debtor Days 40 23 22 26 34 31 23 6
Creditor Days 20 26 25 35 29 40 38 35
Working Capital Days 67 38 56 33 50 36 23 5

This has further been supported by Lower Receivables and Focus on Stabilizing margins by focusing on higher
share of the Value Added Products in the Revenue share. That trend has been consistently improving as well which
is evident from the chart below.

Product Wise Revenue Mix

120%
100%

80%
60%

40%
60% 57% 58% 58% 55%
20% 43% 33%
0%
2016 2017 2018 2019 2020 2021 Q1 FY22

General Structures Heavy Structures Light Structures Rust Proof Structures

Rust Proof Sheets Apollo Tricoat Agriculture/Industrial

All the product categories except General Structures are Value Added Products.

We can see how over the last 5 years the share of General Structures in the Revenues Mix (The Red Lower most
area on the chart) has gone down from 60% in 2016 to 43% in 2021. And has further reduced to 33% in Q1FY22.
The company is coming out with Value Added Products which will further reduce the share of Revenue from
General Structures hence stabilizing the margins further.

Please see important disclosures towards the end of this report. Stallion Asset
 APL Apollo Tubes

FUTURE
The company now is on its way to becoming more of a building material type company by focusing on Growing
market share, Focusing on Non-Commodity Products, Creating New Markets, Manufacturing Larger size products,
Creating Large Distribution Channels and Having a Pan India Presence. The company has improved its market share
consistently over the last 6 years by implementing the above mentioned initiatives and continues to do the same.

Market Share in Structural Steel Distribution Network

Tube 900
790 800
55% 800
50%
50%
700 650
625
45% 600
40% 600
40% 36%
500
35% 32%
29% 375
28% 400
30%
25% 300

20% 200
2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 2021

Market Share in Structural Steel Tube Distribution Network

The company has committed to a future plan which focuses on the following things:

Sufficient Three Focus

capacity for Area [Improving
Double Digit EBITDA/Ton,
Sales Volume Improving FCF
Growth in the and ROCE
Long Term enhancement

Launch New
Add more
High margin
Distributors and
Products and
Penetrate into
Solidify the
New Market
Brand

This vision towards expansion in the product portfolio and higher volumes will further be supported by the
Manufacturing Facilities that the company currently has and the acquisitions that the company has made in the
past few years. 2 Facilities (500 x 500 Diameter Tubes and Coloured Tubes) will be added by Q3 FY22. The company
has a total Capacity of 2.6 Million Tons as of today which is expected to further increase to 3 Million Tons by the
end of the year and the company aims to take this upto 4 million Tons in the next 2 years.

Please see important disclosures towards the end of this report. Stallion Asset
 APL Apollo Tubes

Location Plant Region Capacity (Ton) Products Raw Material

Manufactured Supplier
Sikandarabad Apollo Metalex North 225000 GP,HP,MS Bhushan Steel
Sikandarabad Unit 1 North 375000 GI,HS,MS Bhushan Steel
Bengaluru Shri Laxmi Metal South 125000 GP,HS.MS JSW Steel
Hosur Unit 2 South 550000 GI,HS,MS JSW Steel
Murbad Unit 3 Llyod Line West 450000 GI,HS,MS JSW Steel
Pipe
Raipur Unit 4 East 350000 GI,HS,MS SAIL
Hyderabad Shankara Facility South 200000 GI,HS,MS JSW Steel
Bengaluru Apollo Tricoat North 100000 Tricoat Products JSW Steel
Dadri Apollo Tricoat North 150000 Tricoat Products JSW Steel
Total 2550000

These manufacturing facilities will also allow the company to expand geographically given its presence across the
country.

Apart from this the company is also venturing into Newer Products which are focused on being developed
indigenously so the company can substitute the current existing products and create a market of its own. APL
Apollo is completely developing new product applications for Structural Steel Tubes market.

Now you must be wondering as to why will someone substitute an existing product for a Steel Tube. Here are the
reasons:

Conventional Construction Applications Why Structural Tubes as Which Products would

Products
Steel Angle/Channels
Wood
Aluminium Profiles
Reinforced Cement
Concrete
Fabricated Metal Sheet
Structural Support, Tower
Infrastructure
Furniture, Door Frames,
Planks
Facades and Glazing
Construction of Buildings
Pre-Engineered Steel
Buildings
replacement
Uniform Strength, Lower
Steel Consumption
Cost Effective, Termite Proof,
Environment Friendly
Cost Effective, Higher
Strength
Faster Construction
Environment Friendly
Lower Steel Consumption,
Reduces overall project cost
Substitute
Low Diameter Steel
Tubes/Low Load Bearing
Low Diameter Steel
Tubes/Low Load Bearing
Low Diameter Steel
Tubes/Low Load Bearing
High Diameter Steel
Tubes/High Load Bearing
High Diameter Steel
Tubes/High Load Bearing

Such wide application augurs quite well for APL Apollo. Steel Tubes as a % of total consumption of steel in
India is currently at 4%, whereas this number in developed economies is as high as 12%. Given that the
application of Steel Tubes is wide for the Industry and the Leader APL Apollo should continue growing at a
very good pace for a prolonged period of Time.

Please see important disclosures towards the end of this report. Stallion Asset
 APL Apollo Tubes

II) Growth will be supported by higher Share of Value Added products

APL Apollo is soon going to introduce 2 New Products (500*500 Diameter Tubes and Coloured Tubes) in which the
company will have a first mover advantage and expansion for the same is ongoing in Raipur with a capacity of
200,000 Tons each coming onstream in Q3 FY22. It takes upto 3 years for the Machinery for these products to
be set up which indicates towards Barriers to Entry being very high in this segment. This new market will be
created and dominated by APL Apollo.

New Product Information 500*500 Diameter Tubes Coloured Tubes

Usage Useful in construction of Complex Can be used as a substitute to
Building like (High Rise Complexes, regular tubes on which painting is
Airports, Hospitals) done later, adding higher value and
further time for Construction
Advantages Lower Usage of Steel and Lower Lower Usage of Steel and Lower
Cost Cost
Expected EBITDA/Ton 7000-8000 8000-10000
Competitive Scenario First one in India First in the World
Current Capacity Expected 200,000 Tons 200,000 Tons
Further Expected Capacity Additional 1 Million Tons for both the Products combined.
(Capacity Mix between the two not provided)

Introduction of new products is focused towards catering to the upcoming opportunities being created in the
Construction industry:

New Opportunities for Construction Industry:

APL Apollo Tubes has initiated work with various

Affordable
Warehousing
Housing industries to promote Structural Steel tubes for the
Construction of Hospitals, Airports, Bullet Trains.

Ofcourse, the company will not be directly dealing

with the Government for contracts but will help the
Urban Urban Real
Infrastructure Estate fabricators/contractors for design and Construction as
a Consultant.

DFT (Direct Forming Technology) gave an edge to the company in terms of its Distribution Prowess and timely
execution of same, delivered the products faster to the Distributors, reducing turnaround times. DFT won the trust
of Distributors for timely fulfillment of orders.

What Changes has DFT Brought Pre DFT Post DFT

Costs and Entry in New Market Relatively Higher Cost and Limited Lower Cost, Better EBITDA/Ton and
Market Penetration, Higher Higher Market Penetration, Lower
Turnaround Time Turnaround Time
Time to Produce Custom Size 8-9 Hours 45 Minutes
Products
Turnaround Time (Order to Delivery) 1-2 Weeks 48 Hours

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 APL Apollo Tubes

Similarly, these new products should put a step forward in Market Development and Product innovation for the
company. The trust won in timely delivery capability will be leveraged for pushing new and innovative products
through the same channels.

Value addition over the year -

This shift towards Value Added products not only expands the TAM for the company but also bring about higher
margins per product. Hence as the basket of Value Added products increases in the Revenue share the EBITDA per
ton also trends higher. This is led by higher EBITDA/Ton coming from Value Added Products.

EBITDA / Ton 2017 2018 2019 2020 2021 Q1 22

Apollo Structural
Heavy Structures 3900 3707 3775 4000 4722 8000
Light Structures 3800 3658 3707 3800 4718 6300
General Structures 2471 2052 1615 1361 1657 3125
Apollo Z
Rust Proof Structures 5722 5691 5568 5021 6728 8990
Rust Proof Sheets 5000 4704 4703 5000 4720 6000
Apollo Tricoat
Home Improvement 0 0 0 6589 7072 11716
Apollo Galv
Agriculture/Industrial 4925 4880 4362 3952 6040 7257

Product Portfolio after addition of these new products will significantly change the EBITDA/ton trajectory for the
company, coupled with growth in Apollo Tricoat products as well. Apollo Tricoat as of FY20 only had 120
distributors vis-à-vis 800 distributors for APL Apollo. The company has increased its scope of penetration with new
products introduced as well as increasing reach of Tricoat products.

We expect EBITDA/ton to be meaningfully different in FY23, a more sustainable number would be Rs.5000-
6000 per ton.

Please see important disclosures towards the end of this report. Stallion Asset
 APL Apollo Tubes

III) 3 focus areas: Improving EBITDA/ton, Improving Free Cash Flows and Enhancement of ROCE.
The company worked along a Four-point Agenda throughout FY21.

4 Point Agenda –

1. Lighter Balance Sheet

2. Lower Fixed Costs
3. Market Share Gains and Volume Ramp-up
4. Higher Profitability and higher ROCE.

1. LIGHTER BALANCE SHEET- REDUCTION IN DEBT, DEBTORS AND INVENTORIES: The Company reduced its
Debt by 55%, Debtors by 75% and Inventory was down by 10% from FY20 to FY21. [The company aims to further
reduce the Inventory levels in FY22]. The company will become a Net Debt Free company in FY22. This was on the
back of Change in Business model leading to Faster Collections.

Balance Sheet
800 18.00%
700 16.00%
600 14.00%
12.00%
500
10.00%
400
8.00%
300
6.00%
200 4.00%
100 2.00%
0 0.00%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Net Debt Receivables as a % of Revenue Inventory as a % of Revenue

2. LOWER FIXED COST OVERALL: The company worked around reduction of its Employee and Interest Cost
among other Operational efficiencies. Fixed Cost as a whole was down by 25% and Interest Cost was down by 25%
as well.

Particulars 2016 2017 2018 2019 2020 2021

Gross Profit 659 745 924 845 850 1050
EBITDA 292 328 379 405 499 715
Gross Profit-
367 416 545 440 351 335
EBITDA (Fixed Cost)
Gross Profit-
8.69% 9.15% 9.94% 6.14% 4.53% 3.93%
EBITDA Margin

On a broad level : FIXED COST = GROSS PROFIT – EBITDA [Row 3] and Row 4 is basically Fixed Cost as a %
of Revenue. We can see that the trend in Fixed Cost as a % of Revenue has been going down further cementing
the point towards Lower Fixed Cost.

Additionally 2018 DFT was implemented and hence the trend of continuous improvement in Fixed Cost structure.

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 APL Apollo Tubes

3. MARKET SHARE GAINS AND VOLUME RAMP UP: The Company started its first plant on the 22nd of April,2020
post Lockdown and over the next 10 days all other plants were operational.

Even though the Industry was down by 25% the company’s volume was down only by 8% (Relative to the market)
which helped the company increase its market share from 40% to 50%.

There were 3 Factors which allowed the market share gains:

1. Rural Sales: The company shifted its focus towards Rural Sales (Because of Reverse Migration due to COVID)
and the share from Rural Sales which stood at 40:60 (Rural : Urban ) turned into 60:40 (Rural : Urban).
2. Un-organized Sectors were under stress due to of lower availability of labour and lower penetration on the
geographical front.
3. Structural Steel started gaining traction on the back of Reduction in Building Weight by 30-40% and
reduction in construction cost by 10-20% which became a necessity for Developers during COVID.

These Factors allowed the company to ramp up its Volumes very fast through FY21 which is evident from the chart
below:

VOLUMES (KTONS)
Volumes (Ktons)

486
481
480

435
401
389

373
364

238

Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22

For FY22, we expect Volume sales of 1.9-2 million tons, averaging 500,000-550,000 tons every quarter for the
remainder of the year.

4. BETTER PROFITABILITY AND RETURN RATIOS BEING LED BY BETTER PRODUCT MIX: The EBITDA per ton
has improved considerably over the years and so has been the trend on a Quarterly basis as well.

EBITDA PER TON (RS) [YEARLY]

EBITDA per Ton (Rs)
4138
3574

3283
3134

2933

2923
2877

2559

2014 2015 2016 2017 2018 2019 2020 2021

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 APL Apollo Tubes

EBITDA PER TON (RS.) [QUARTERLY]

EBITDA per Ton (Rs.)

6825
4780

4742
3721

3514
3384

3343
3217

2992

2982
2898

1985

1978

Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22

Return Ratios
27%
28%
26%
25%
24%
22%
20%
18%
16%
14%
12%
10%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

ROCE ROE

The company has further changed its ROCE guidance from 25% to 30% in Q1 FY22.

The stability and expansion in return ratios provides more optimism for the company’s growth prospects. While the
company has expanded and grown considerably over the last 10 years the return ratios haven’t fluctuated vastly.
And given the share of increase in Value Added Products we might expect to see margins stabilize at higher levels.

Given the change that the company has done over the last year, gives the company an edge to build upon
from here. With Stable Return Ratios, Higher EBITDA per ton, Better Product Mix and De-levered Balance
Sheet, the company is building a war chest for itself (Strong Cashflows) and is simultaneously improving its
Profit Pool while garnering market share and entering into new markets which will eventually drive
Shareholder’s Value.

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 APL Apollo Tubes

Risks –

1. High Volatility in Steel Prices.

2. Failure of New Product Adoption.
3. Economic Slowdown
4. Execution Risk

Conclusion –

The following Question exactly define our Philosophy here at Stallion. And APL Apollo Ticks all the boxes right here
as well:

1) Is it a B2C Monopoly- Yes

2) Is the Management Dynamic- Yes
3) Is there a Large Opportunity Size- Yes
4) Is the Management Deploying Capital at High ROIC- Yes
5) Is there Margin of Safety- Yes

We expect APL Apollo Tubes to report an EPS of Rs.50/73 for FY22/FY23.

The company is effectively trading at 35x/24x FY22/FY23 Earnings.

Please see important disclosures towards the end of this report. Stallion Asset
 APL Apollo Tubes

Disclosures and Disclaimer for Research Report

Stallion Asset Private Limited is a Research Analyst, registered under SEBI (Research Analyst) Regulations 2014, Registration No. INH000007270 and a
Portfolio Manager, registered under SEBI (Portfolio Managers) Regulations, 1993, Registration No. INP000006129. Both the services are rendered under
two separate divisions and operate independently of each other. Stallion Asset Private Limited’s both business divisions have independent research
teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets.

Research Analyst Details:

Name: Kaustubh Mhatre

Email Id: kaustubhmhatre@stallionasset.com
Contact No: 022-68680250 Analyst Ownership of Stock: No

Analyst Certification:
The Analyst certify (ies) that he complies with Qualification and Certification requirements of Regulation 7 of SEBI (Research Analyst) Regulations 2014;
that are required to be complied with by the individuals employed as Research Analysts by an Entity (Stallion Asset Private Limited; Registration No.
INH000007270) registered as Research Analyst under SEBI (Research Analysts) Regulations 2014.

Further, The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and
issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained
in this research report.

Disclosure under SEBI (Research Analyst) Regulations 2014:

Whether the research analyst or research entity or its associates or his relative has any financial interest in the subject company and the nature of such
financial interest- No

Whether the research analyst or research entity or its associates or relatives, have actual/beneficial ownership of one per cent or more securities of the
subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance - No

Whether the research analyst or research entity or his Associate or his relative, has any other material conflict of interest at the time of publication of
the research report or at the time of public appearance - No

Whether it or its associates have received any compensation from the subject company in the past twelve months- No

Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past twelve months- No

Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject
company in the past twelve months- No

Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage
services from the subject company in the past twelve months- No

Whether it or its associates have received any compensation or other benefits from the Subject Company or third party in connection with the research
report. - No

Whether the research analyst has served as an officer, director or employee of the subject company - No

Whether the research analyst or research entity has been engaged in market making activity for the subject company - No

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Stallion Asset is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information
and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be
and must not alone be taken as the basis for an investment decision. The views expressed are those of analyst and the firm may or may not subscribe to
all the views expressed therein. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete,
and it should not be relied upon such. Stallion Asset or any of its affiliates or employees shall not be in any way responsible for any loss or damage that
may arise to any person from any inadvertent error in the information contained in this report. Neither Stallion Asset, nor its employees, agents nor
representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that
may arise from or in connection with the use of the information. Stallion Asset or any of its affiliates or employees do not provide, at any time, any
express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of
merchantability, fitness for a particular purpose, and non-infringement.

Please see important disclosures towards the end of this report. Stallion Asset