APL Apollo Tubes capacity expansion targets higher value-added mix as pipe demand recovers

Investment View and Demand Recovery

Elara Securities' August 3, 2026 result update retains its Accumulate rating on APL Apollo Tubes. The broker expects a recovery in pipe volumes, supported by capacity expansion in new geographies and a rising contribution from value-added products.

Elara believes the narrowing price gap between primary and secondary steel pipes has begun to support demand recovery. It expects the gap to contract further by FY27-end, aided by stronger sponge-iron demand in H2 FY27 on seasonal demand.

Other prospective volume drivers include Middle East pent-up demand, channel restocking and the ramp-up of newly commissioned capacity.

Q1 FY27 Financial Performance

APL Apollo Tubes reported Q1 FY27 EBITDA of Rs 4,113 million, up 10.6 per cent year on year but 5.6 per cent below Elara's estimate of Rs 4,358 million. EBITDA was broadly in line with consensus. The shortfall was principally due to a Rs 254 per tonne rise in employee cost following the annual wage revision.

Q1 FY27 revenue was Rs 54,382 million, up 8.7 per cent year on year and 4.8 per cent above Elara's estimate. Adjusted PAT was Rs 2,631 million, up 10.9 per cent year on year but 9.9 per cent below the broker estimate.

Pipe Volumes and Segment Performance

Pipe volume fell 6.2 per cent year on year and 19.5 per cent quarter on quarter to 744,800 tonnes, a seven-quarter low. Elara attributes the weak performance to approximately 25,000 tonnes of lost UAE sales during the geopolitical crisis, lower SG Premium-brand sales because of the wider primary-secondary pipe price gap, approximately 25,000 tonnes of lost rust-proof pipe volume owing to gas shortages, and channel destocking amid high inflation.

Pricing, Profitability and Near-Term Volume Outlook

Pricing protected profitability despite the volume weakness. Blended realisation rose 16.0 per cent year on year and 11.2 per cent quarter on quarter to Rs 73,013 per tonne. EBITDA per tonne increased 18.0 per cent year on year to Rs 5,522 and was flat sequentially.

Management reiterated its guidance for approximately 20 per cent EBITDA growth in FY27. Management also indicated that July volumes increased approximately 20 per cent month on month and is targeting sales of around 1.0 million tonnes in Q2 FY27, implying approximately 17 per cent year-on-year growth.

Capacity Expansion and Value-Added Products

APL Apollo Tubes is expanding structural-steel capacity from 5 million tonnes to 8 million tonnes by FY28-end through greenfield and brownfield projects.

• The programme includes 2 million tonnes of capacity across Gorakhpur and Siliguri in East India, Malur in South India and West India.
• A further 1 million tonnes is expected from debottlenecking through plant modernisation and replacement of conventional mills.

Management expects the value-added-product share to rise from approximately 65 per cent at Q1 FY27-end to 75-80 per cent by FY28-end. Elara expects this mix shift to reduce earnings cyclicality.

Earnings Estimates and Valuation

Elara reduced its FY27E, FY28E and FY29E EBITDA estimates by 2.2 per cent, 1.2 per cent and 1.1 per cent, respectively, reflecting weak Q1 volumes. At the same time, it increased revenue estimates by 4.0 per cent, 4.5 per cent and 2.3 per cent, respectively.

Elara raised its target price to Rs 2,312 from Rs 2,213 by rolling valuation forward to 35.0 times June 2028E P/E, based on June 2028E EPS of Rs 66.0.

Key Risks

• A demand slowdown.
• Delays in capacity additions.