APL Apollo Tubes Limited- Analysis

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Since, APL Apollo tubes ltd is into ERW tubes & pipes, I will briefly talk about them.

ERW is the most basic form of pipe with minimum value addition and hence the lowest margin among all types of pipes. ERW pipe manufacturing is basically a converter business where they modify certain materials , to create new products. That would obviously imply thin margin for these businesses called as conversion margin.  

The raw material used here Hot Rolled steel coil. Raw material cost is about 85% of total cost of the ERW pipe manufacturer. Given the lower margin profile, the increase and decrease in raw material prices are passed on to the customers. 

Traditionally, ERW pipes found application in water supply, sanitation & irrigation. But lately,  CPVC pipes are taking market share from galvanized pipes(GI), particularly in drinking water segment and home plumbing segment. For companies into ERW category, another segment has opened up on a big way which is the use of ERW Hollow Section in the form of structures.

Also, ERW pipe industry is regional in nature due to high logistical cost. Most companies operate out of a single plant catering to the catchment area of 200-300km.

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The positive point for ERW industry is high Sales to fixed asset ratio(5X-6x) i.e. in order to grow the business the incremental fixed asset investment required is low. For seamless pipes, it is about 1x, and that of HSAW pipes is 4x-5x.

Since all these pipes & tubes faces tough internal & external condition, they are prone to corrosion. To minimize corrosion, they are coated with Zinc(Zn) and there are several ways to coat Zn, some are more efficient than others.

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Shekhar Yadav

Shekhar Yadav

It was only during the third semester in Engineering that Shekhar overheard a Gujarati guy in his class discussing stocks. After a few discussions with him, he realized that this was what he wanted to do in his life.
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