APL Apollo Tubes Ltd. experienced a notable downturn in its Q1 FY27 performance, reporting consolidated volumes of 745 kilotonnes (kt). This figure fell substantially short of the management's earlier guidance of 875kt, representing an approximate 6% year-on-year and 19% quarter-on-quarter decline.
Factors Behind the Volume Miss
According to analyses from brokerage firms like JM Financial, the weaker-than-expected performance can be attributed to several key factors. Softer market demand, exacerbated by ongoing geopolitical uncertainties, played a significant role. Additionally, channel de-stocking activities, prompted by a sharp rise in Hot Rolled Coil (HRC) prices, contributed to the subdued volumes. The company's Dubai operations also faced challenges, operating with subdued utilization rates.
Brokerage Insights: JM Financial
Despite the volume miss, JM Financial has opted to maintain its 'Add' rating on APL Apollo Tubes. The brokerage firm has kept its 12-month target price unchanged at Rs 2,140. However, JM Financial acknowledged that while APL Apollo had projected 15–20% year-on-year volume growth for the full FY27, the weak first-quarter results increase the likelihood of a downward revision to this annual guidance.
Brokerage Insights: Nuvama Institutional Equities
Nuvama Institutional Equities also highlighted the disappointing Q1 FY27 volumes. In response, Nuvama has trimmed its earnings per share (EPS) estimates for FY27, FY28, and FY29 by 3%, 6%, and 6% respectively. The target multiple has also been adjusted downwards from 35x to 33x. Consequently, Nuvama retained its 'Buy' call but reduced its target price for APL Apollo Tubes to Rs 2,067 from Rs 2,231, rolling over to Q1 FY29E EPS. The brokerage noted that the stock currently trades at 34x FY27E EPS.
Dubai Operations and Seasonal Weakness
Nuvama further elaborated on the operational challenges, specifically mentioning the Dubai facility. This plant is currently operating at below 50% capacity utilization due to supply chain disruptions in West Asia, impacting both raw material imports and finished product exports. The recovery pace at this facility is projected to be slow and gradual throughout FY27.
Looking ahead, Nuvama anticipates additional pressure on volumes in Q2 FY27, which is typically a seasonally weak period. The onset of monsoons and a slowdown in construction activity during this quarter are expected to further impact demand for pipes and tubes.
Market Reaction
On Thursday, APL Apollo Tubes shares were observed trading marginally higher by 0.64% at Rs 1,796.20. Year-to-date, the stock has seen an increase of 8.81%.