Why Analysts Are Bullish on Apollo Pipes Stock: Key Reasons to Buy Now

Apollo Pipes Ltd: The company, which makes pipes and fittings, is expected to show modest growth in the September quarter due to price changes in PVC resin and inventory reductions in July and August. This slowdown was mainly because of low demand during the monsoon season and less construction activity. However, analysts are optimistic about Apollo Pipes’ long-term potential. The management has projected a 25% revenue growth per year over the next three years and expects to achieve a return on capital employed (RoCE) of 25% to 30%, helped by better working capital management.

The company has a capacity of 2.16 lakh tons (including Kisan Mouldings) and works with over 1,000 channel partners. It offers a wide range of products like CPVC, UPVC, HDPE pipes and fittings, bathroom items, water tanks, and solvents, used in sectors like plumbing, sanitation, water supply, infrastructure, and agriculture. Apollo Pipes stands out due to its expertise in handling complex projects, experienced management, and cost-effective manufacturing processes.

The company is well-positioned to benefit from the growth in PVC pipes, driven by factors like urbanization, government programs for sanitation, demand for housing, and the need for infrastructure in irrigation and water supplies. According to its 2023-24 annual report, the Indian PVC pipes market is projected to reach $5.55 billion by 2030, growing at a 7.2% CAGR from 2023 to 2030.

Recently, Apollo Pipes took several steps to boost its core business. These include launching high-value product lines (which are expected to boost sales and profits), setting up a new unit in Varanasi (to be ready by the end of 2024-25), and strengthening its distribution network. The company also acquired a controlling stake in Kisan Mouldings, expanding its presence in West India and improving its market and brand positioning.

Looking ahead, the company is planning a 28,500-ton brownfield expansion, which will raise its total capacity to 2.86 lakh tons in the next 2-3 years. This expansion will include new products like PVC-O pipes (a highly profitable item) and window and door profiles used in the housing sector. Apollo Pipes aims to balance its focus between agriculture and building materials in the coming years and strengthen its Pan-India presence while improving plant utilization.

Stock Selection Methodology: The stock was chosen based on a significant improvement in the consensus analyst rating over the past three months. This rating is calculated by averaging all analyst recommendations, with higher weights given to stronger ratings. The improvement shows that analysts are becoming more optimistic about the stock. Only stocks with more than five analysts covering them are considered.