Global Capex Revival And New Capacity Will Fuel Steel Demand

Key Takeaways

• Strategic capacity expansion, product innovation, and premiumization efforts enhance revenue growth, margin resilience, and reduce business seasonality.
  
• Strengthened export orientation and ESG-led cost optimizations support profit margin expansion and open diversified global growth opportunities.
  
• Slowing growth, steel price volatility, overreliance on sector recovery, underutilized new capacity, and geopolitical risks threaten margins, sales, and earnings stability.

Catalysts

Manufactures and sells structural steel tubes in India.

• Anticipated revival in infrastructure, real estate, railways, aviation, logistics, and solar sectors-driven by government and private capex-positions APL Apollo to tap into strong demand for steel tubes, supporting robust volume recovery and revenue acceleration in the second half and beyond.
  
• The company's ongoing investments in capacity expansion (new plants in East India, Dubai, Bhuj, specialty/non-structural segments) and product innovation (value-added/large diameter/well-diversified SKUs) enable it to broaden end-market coverage and scale, driving sustained top-line growth and lowering seasonality risks.
  
• Focused brand elevation and shift toward premiumization are translating into higher EBITDA spreads even in a tough environment, while the de-commoditization strategy and strong product mix are expected to further protect and expand margins as the market recovers.
  
• Continued commitment to ESG and cost optimization-especially via increased renewable power usage and automation-lowers long-term operating costs and supports net profit margin expansion.
  
• Strengthened export focus with new capacity, particularly in Dubai and the upcoming Bhuj plant, leverages global growth in steel-based construction and diversification into international markets, setting the stage for new revenue streams and margin stabilization.

APL Apollo Tubes Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming APL Apollo Tubes's revenue will grow by 17.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.8% today to 5.7% in 3 years time.
• Analysts expect earnings to reach ₹19.5 billion (and earnings per share of ₹58.76) by about July 2028, up from ₹8.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.4x on those 2028 earnings, down from 54.3x today. This future PE is greater than the current PE for the IN Metals and Mining industry at 22.3x.
• Analysts expect the number of shares outstanding to decline by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.56%, as per the Simply Wall St company report.

APL Apollo Tubes Future Earnings Per Share Growth

Risks

• The company's volume growth guidance has been revised downward from 15-20% to 10-15% for FY'26 due to macroeconomic slowdown, sluggish industrial activity, early monsoon impacting construction, and reduced money supply to channel partners; if these headwinds persist, top-line revenue growth could underperform.
  
• Persistent volatility in steel prices, combined with delays in new Indian HRC capacities and the large price gap between primary and secondary steel, presents ongoing risk to APL Apollo's margins and volume-as higher input costs or aggressive discounting by competitors (Patra/secondary players) could erode net profit and increase earnings cyclicality.
  
• Overdependence on external demand recovery in infrastructure, retail, and real estate sectors (including hopes of a second-half revival) makes the company vulnerable to any prolonged or structural deceleration in India's infrastructure cycle or a pullback in capital expenditures-potentially impacting sales growth and capacity utilization rates.
  
• Expansion into new markets and products (e.g. Dubai, Bhuj for exports, and specialty tubes) is underway, but current utilization at major new plants (Raipur, Dubai) remains below 60%, posing a risk that added capacity may not yield expected operating leverage, which could dampen future operating margin and ROI improvement.
  
• Increased geopolitical tensions (India-Pakistan, Iran-Israel), ongoing destocking by dealers, and uncertainties in global steel trade expose the company to disruptions in exports and volatility in both export and domestic sales, potentially impacting both revenue continuity and overall earnings stability.

Valuation

• The analysts have a consensus price target of ₹1847.0 for APL Apollo Tubes based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2109.0, and the most bearish reporting a price target of just ₹1210.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹342.1 billion, earnings will come to ₹19.5 billion, and it would be trading on a PE ratio of 38.4x, assuming you use a discount rate of 13.6%.
  
• Given the current share price of ₹1566.8, the analyst price target of ₹1847.0 is 15.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.