18
My Best Pick
22 December 2017 / Outlook BUSINESSN
ever in my wildest dreams did I
imagine that one day on these
pages I will be recommending a
steel pipe company as my invest-
ment pick for the year. And yet here I am doing so,
fearlessly and shamelessly!
Eight years ago, driven by prejudice of what I con-
sidered a commodity play, I had turned down an op-
portunity to buy 50 % stake in APL Apollo at less than
# 100 a share. The stock, has since, turned out to be
a multibagger and now trades upwards of # 1 , 900 a
share. I turned down this opportunity because I made
a cardinal error of judgement: I did not believe in the
exceptional vision and entrepreneurial capability of a
man called Sanjay Gupta. Today, I treat the same man
with undiluted reverence and place him on par with
the very best entrepreneurial stalwarts of our coun-
try. Gupta deserves probably even greater respect:
unicorns run by other revered entrepreneurs are busi-
nesses which are more easily amenable to branding,
and many of them occupy the services space such as IT
and fi nancial services, but Sanjay’s towering achieve-
ment is that he has created a very desirable consumer
brand from a commodity-style manufacturing play.
In 2008 , when I met Gupta he was barely 38 years
old. Rustic, unpolished and with no management de-
gree to buttress his resumé, he did not inspire much
confi dence — but how wrong was I in grossly under-
estimating him. Over the next few years, this unas-
suming young man would transform his fl edgling
company into a steel processing powerhouse where its
products would command a premium in the market
place and make APL Apollo a brand to reckon with.
The manner in which he went about this transforma-
tive journey is the stuff that case studies at leading
business schools are made of.RADICAL TRANSFORMATION
The fi rst thing that Gupta did was to hire the best man-
agement talent. Unlike many founders who are afraid
to yield to professional managers, he unhesitatinglyplaced them as heads of critical functions and empow-
ered them. Today, the company is run by professionals
with a strong emphasis on research and development
besides product innovation. Once this pillar was put
in place, he went about transforming this mundane B-
to-B business into a customer-centric B-to-C business.
Three key measures helped him achieve this trans-
formation. Gupta scouted across the world for the
best technology, adapted it to Indian conditions, and
made product innovation as the hallmark of his com-
pany. Today, his latest import, the direct form tech-
nology (DFT), allows APL Apollo to save as much as
4 % on raw material costs, thus allowing the company
to ramp up its operating margin from 5. 8 % of sales
to almost 8 % of sales.
Customers are no longer restricted to pre-deter-
mined sizes of steel pipe but can order sizes custom-
ised to their needs. APL Apollo was the fi rst company
to introduce pre-galvanised pipes and coated pipes.
This customer-centric focus extended to developing
new applications across several sectors—construc-
tion, railways, automotive, roofing for affordable
housing—enabling the company to grow at 27 % CAGR
over the past fi ve years, which is three times the av-
erage industry growth of 9 %. Cost-eff ectiveness was
the single-minded focus as Gupta expanded capac-
ity strategically: APL’s plants were set up across the
country so that the company could stay close to its
customers and, hence, incur the lowest logistics cost.MAKING OF A POWERHOUSE
Today, APL Apollo is the leader with 13 % market
share. The company’s industry-leading growth is
largely owing to its core strategy of focusing on in-
novation, branding/distribution and capacity ex-
pansion. Over the same period, earnings expanded
at 24 % CAGR. The company is looking at increasing
its capacity by 54 % to 2 million tonne by end of the
current fi scal. This will include the addition of DFT-
based capacity, which is expected to result in supe-
rior products and shorter delivery timelines.Note: Market related data as on December 1, 2017; Financials for
FY17; Consolidated fi nancials considered wherever applicable
Data: Ace EquityCY17 RETURN117%
TTM P/E (X) 33
stock price#1 , 981
pat# 146 cr
M-CAP#4,701cr
ROE22.66% roce21.85%
net sales#4 ,545cr