BUY - Apollo Tricoat Tubes Ltd at Rs. 825

Overview of Apollo Tricoat Tubes Ltd (ATTL)

The company primarily produces steel designer roofing and steel door frames. It is a subsidiary of Shri Lakshmi Metal Udyog, a wholly-owned subsidiary of APL Apollo Tubes Ltd. 

It has 5 brands in its portfolio which are named as follows:

1. Apollo Chaukhat; 
2. Apollo Elegant; 
3. Apollo Signature; 
4. Apollo Steel Plank; and 
5. (5) Apollo Wondoor

Financials

1. Net Revenue rose by 45% YoY
2. A steep rise in materials consumed has led to a decline in the PAT and PBIDT by 25%

The rationale for buying  ATTL at Rs. 825

1. Draft Scheme of amalgamation was approved with APL Apollo Tubes Ltd. This will benefit ATTL in many ways:
• it will have a good platform with stable cash flows. Consequently, the Balance Sheet will reflect a stronger position. 
• lower distribution costs
• a superior premium
• de-risking of earnings with the addition of APL Apollo's products
2. Acquired 26% stake by entering into a PPA with Radiance Ka Sunrise Two Private Ltd for its plant in Malur to purchase 100% electricity generated by it
3. It has formed direct forming technology (DFT) mills at most of its plants because of which it has managed to reduce its manpower, enhanced productivity and reduced inventory. 
4. ROE of 41% in FY21 against 5 year average of 24%
5. ROCE of 43% against 5 year average of 20%

The author recommends to buy this stock at Rs. 825 with a target of 1200 (2.5 years horizon)

[To health, wealth and Happiness - Ujwal Vikram Trivedi]