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APL Apollo to acquire Shankara's 200,000 MTPA tube manufacturing unit in South India for Rs. 70 crore

Posted On: 2019-04-15 13:22:14

APL Apollo Tubes Limited (APL Apollo), India's leading branded steel tubes manufacturer, today announced that it has entered into an agreement with Shankara Building Products Limited (Shankara) to acquire its 200,000 MTPA tube manufacturing unit based in South India for a total consideration of Rs. 70 crore. The Company proposes to fund this acquisition through internal accruals.

The acquired facility has established manufacturing lines for GI pipes and GP pipes, which are APL Apollo's high margin and value-added product segments, improving portfolio of these products will enable increased revenue and volume contribution of value-added segments while also leading to steady improvement in operating margins.

APL Apollo's existing manufacturing units catering to the southern markets are operating at over 80% utilization levels. In addition, Shankara being the second largest player in the South India market, the Company believes that this acquisition was an excellent opportunity to build and consolidate market share of APL Apollo in South India markets. Further, it will also enable APL Apollo to add further capacities at attractive valuations, given the strong demand outlook over the next few years. The Company anticipates to ramp up volumes at a healthy pace in the acquired unit, which is currently operating at ~40% utilization. The target is to improve the operating efficiency and the utilization levels of the acquired unit to APL Apollo's standard of 80-85%. Furthermore, Shankara has agreed to purchase 2.5 lakh tonne pipe from the Company in FY2020, which will assist volumes, as well as entered into an arrangement to buy exclusively from APL Apollo going forward. APL Apollo will be able to bring down costs related to raw materials, operating costs, and transportation costs owing to economics of scale in the region. This should further lead to a quick turnaround of the facility and will enable APL Apollo to achieve a payback period of less than 3 years.

Commenting on the operational developments, Mr. Sanjay Gupta, Chairman of the Company said, "I am pleased to announce that we have entered into an agreement with Shankara to acquire its 200,000 MTPA tube manufacturing unit based in South. The plant complements our existing operations in Bengaluru and Hosur and will further bolster our manufacturing capacity to meet the growing demand for steel tubes and pipes in South, East and South-Western markets. With improved production of our high-margin products of GI and GP pipes, we expect to further enhance our profitability going forward."

Across all its established lines, the Company operated at close to 85% utilization in Q4 FY19. To further enhance capacity, the Company undertook certain de-bottlenecking initiatives at the latest Direct Forming Technology (DFT) lines. This led to capacity enhancement of 1 lakh MTPA, taking the DFT capacity to 6 lakh MTPA and the total capacity to 2.1 million MTPA.

In Q4 FY19, APL Apollo registered its highest-ever sales volume of 418,355 MT, higher by 39% YoY from 300,830 MT in Q4 FY18. This, translated to a 19% volume growth of 1,339,174 MT in FY19 as compared to 1,130,305 MT in FY18. The growth in Q4 FY19 was primarily driven by strong demand recovery in the value-added product segments of hollow section pipes particularly Direct Forming Technology (DFT) pipes, Pre-galvanized pipes (GP) and Galvanized Tubes (GI) pipes. The Company continues to witness a healthy volume performance across product categories and remains confident of registering strong sales momentum of over 20% in FY20 as well. Further, addition of increased production of GI and GP tubes through the acquisition, will further enhance volumes for APL Apollo, going forward.

Shares of Shankara Building Products Ltd was last trading in BSE at Rs.538.7 as compared to the previous close of Rs. 527.1. The total number of shares traded during the day was 99108 in over 4209 trades.

The stock hit an intraday high of Rs. 558.3 and intraday low of 520.5. The net turnover during the day was Rs. 53776132.

Shares of APL APOLLO TUBES LTD. was last trading in BSE at Rs.1451 as compared to the previous close of Rs. 1469.05. The total number of shares traded during the day was 548 in over 95 trades.

The stock hit an intraday high of Rs. 1464.9 and intraday low of 1441.85. The net turnover during the day was Rs. 796423.

Source: Equity Bulls

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