This moat stock operating in the steel industry delivered 6.5x returns in two years
APL Apollo Tube Limited has a strong competitive advantage.
Two years back, on 2nd June 2020, the stock was trading at Rs 153. Now, on 2nd June 2022, it is trading at Rs 994. The stock has delivered 6.5x returns for its investors in the last 2 years. The company belongs to group A and has a market capitalization of Rs 24,748 crore.
APL Apollo Tubes Limited (APL Apollo) is one of India’s leading branded structured steel products manufacturers. The company manufactures 1,500+ varieties of MS Black Pipes, Galvanised Tubes, Pre-Galvanised Tubes, Structural ERW Steel Tubes and Hollow Sections to serve industry applications like urban infrastructures, housing, irrigation, solar plants, greenhouses and engineering.
Few elements help APL Apollo to have moats in the structured steel market. The company is the single largest buyer of steel in India, consuming about 2% of the total Indian steel production. Hence, the company has a buying power over its supplier to get its raw materials at a 2-3% discount compared to its competitors. The company has 11 manufacturing units and 49 warehouses pan India. This enables the company to operate at the cheapest freight among its competitors.
Due to economies of scale, the company is also the lowest cost manufacturer. The company’s margin doesn’t get affected by the raw material prices as it passes on all the input cost pressure to its customers. The company also enjoys 100-200 bps cheaper working capital loans compared to its competitors due to its strong financials.
For the FY22 period, the company has an ROE and ROCE of 28.2% and 34.6%, respectively. The company has delivered compounded three-year sales and net profit growth of 22% and 56%, respectively. The growth is expected to continue as the percentage of India's structured steel market of the total steel market is only about 4%, as against the global average of 9%. This reflects the growth potential of the overall industry.
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