WAYS2CAPITAL STOCK TIPS : APL Apollo Tubes Gains 3% On Acquisition Of Tube Manufacturing Unit

APL Apollo Tubes shares rallied 3 percent in the morning on April 15 on the acquisition of tube manufacturing unit in South India.

“Company entered into an agreement with Shankara Building Products to acquire its 2 lakh MTPA tube manufacturing unit based in South India for Rs 70 crore,” the steel tube manufacturer said in its BSE filing.
The acquired facility has established manufacturing lines for GI pipes and GP pipes, which are APL Apollo’s high mar 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 said.
The company proposes to fund this acquisition through internal accruals.
APL said Shankara has agreed to purchase 2.5 lakh tonne pipe from the company in the financial year 2020, which will assist volumes. The company has also entered into an arrangement to buy exclusively from the company going forward.
“We will be able to bring down costs related to raw materials, operating costs, and transportation costs owing to the economics of scale in the region. This should further lead to a quick turnaround of the facility and will enable the company to achieve a payback period of less than 3 years,” APL said.
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