APL Apollo Tubes Limited (533758) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the APL Apollo Tubes Limited Q1 FY '21 Earnings Conference Call, hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nehal Shah from ICICI Securities. Thank you, and over to you, sir.

Thank you, Raul. Good evening, everyone. On behalf of ICICI Securities, I welcome you all to the conference call of APL Apollo Tubes Limited to discuss the Q1 FY '21 results. From the management, we have Mr. Arun Agarwal, the COO of the company; Mr. Deepak Goyal, the CFO; and Mr. Anubhav Gupta, Chief Strategy Officer of the company. I would request Mr. Anubhav Gupta to start the call with his opening remarks, post which we can then proceed with the Q&A session. Over to you, Anubhav.

Thanks, Nehal. Thank you all for joining in today. Good evening. We are also joined by our Chairman, Mr. Sanjay Gupta, over the call. He will be happy to take the questions later on. So to start with the Q1 FY '21 performance. It has been quite an eventful quarter of our lives. We are glad to share with you that we have proven resilience in these difficult times. And we have emerged stronger than ever before out of these difficult times. Now we are future ready for -- in the coming months as the demand in the Indian economy recovers over the next 2 to 3 quarters. To face the crisis, we worked on 4-point agenda, which helped us to come out of the crisis with much proven resilience: number one was the lighter balance sheet, reduction in bad debt, reduction in debtors and reduction in inventory; number two was the lower fixed costs in the overall organization; number three was the market share gains and volume ramp-up as we had seen the opportunity to gain market share from the weak competitors; and number four is the profitability levels returning back to the pre-COVID levels. So coming to point number one, if you see our quarterly results, we have reduced our debt by 55% where we have reduced our debtors by 75%, and our inventory is also down by around 10%. This is -- this was possible because we switched to cash sales model, which helped us in faster collections. And it helped us reduce the overall debt in the system. Number two was the lower fixed cost. We worked across the verticals, be it the employee cost, be it the establishment cost, and of course, the interest cost, which was a result of the lower debt. So overall, fixed costs are down by 20% to 25% in the first quarter. Number three was the volume ramp-up. So our plant started operationalizing from 22nd April. Our first plant started in April 2020 -- 22nd April. And over the next 10 days, all our 10 plants were fully operational. So that really gave us a head start versus our competitors, and we could start gaining the market share. Number two was the -- our strategy on rural sales. Because of the reverse migration, which had happened in the month of April and initial May, we believe that the rural sales will outperform the urban sales. So we highly focused on the rural sales, and we triggered our distribution network in the rural areas, and we started servicing our distributors aggressively to catch the rural sales. Third reason for high market share was, of course, the unorganized sector, which was struggling because of the cash crunch, because of the liquidity, because of the supply chain constraints, whereas our organization was much resilient to face all these difficulties. And number four was, of course, the replacement of structural steel tubes versus conventional construction methodology, where we see big switch to our high-efficient products, which were replaced from conventional structures like steel angle, gutter channel, aluminum profiles, the wooden products, et cetera. So this helped us ramp up our volumes quickly in month of May and June. If you see, bulk of our sales came in last 15 days of May and full 30 days of June. And there was very strong growth, if you compare June 2020 versus June 2019. And we are glad to share that the momentum continued in the month of July as well. Now the fourth strategy is to work on the profitability. Now we have lighter balance sheet. We have ramped up all the volumes. And now we will work on improving the profitability for our products. Talking about the Q1 performance. The main highlights were, of course, the balance sheet numbers, where we cut down the debt, we improved our net working capital cycle to 10 days versus 20 days in March. There was a big improvement in operating cash flow, which was around INR 5 billion. In whole of FY '20, we generated that much of cash flow, which we could generate only in the first 90 days of the financial year. And in terms of P&L, there was volume decline of 40% Y-o-Y, which resulted, in EBITDA, a decline of 60% Y-o-Y. But I think what needs to be highlighted here is the reduction in the interest cost, which was down by 25% to INR 210 million (sic) [ INR 212 million ]. And we believe that these cost efficiencies, which we could work at the establishment costs, at the employee costs, at the other fixed costs and at the interest cost level, these should be continued over the coming quarters, which will aid our overall EBITDA margins. Lastly, it is currently difficult to give any guidance for the full year of FY '21. We are monitoring the situation on a daily, weekly basis. Last -- in the last 2, 3 weeks, there were multiple lockdowns in multiple cities across India. So we are quite watchful of this current situation, and we are changing our strategies accordingly. So far, it has worked quite well for us, and we are hopeful that -- and that the momentum, which we gathered in month of May and June, we should continue over the coming quarter, ending September 2020. With this, we would like to open the floor for the Q&A session.

[Operator Instructions] The first question is from the line of Saurabh Patwa from HDFC.

I agree it's a very great set of numbers and plus the commentary which you provided, that is also very positive. I just wanted to understand one thing. So this quarter, the proportion of TriCoat volumes compared to the APL volumes was significantly higher as the fall -- there was not as big as the fall in the other products. So -- and since April, I think TriCoat has a significantly higher EBITDA margin, which is almost 2x currently. So as the proportion of TriCoat decreases, or you may say, other way around, as in the normal products volume increases, do you see some pressure on margin there? Because if we exclude this quarter, so just to a minus b, so that -- and so the -- so that gives the EBITDA of the core -- of the key APL products close to INR 2,500 compared to INR 2,000 -- almost INR 3,000, which you have reported. So I just wanted your thoughts on the same.

So Saurabh, if you see the sales momentum in month of May and June, right, we could gather very aggressively the Kerala and coastal markets of India, okay? This was the peak season for galvanized products, right? And if you see the signature product of TriCoat, right, it really gathered -- it really gained momentum last year. So it continued when the -- when there was lockdown coming off, right? There was pent-up -- good pent-up demand. And we could aggressively cater to that market. And that's why the proportion of TriCoat was higher in the Q1. And the thing was visible in the APL Apollo results also, right? So we have one plant there in Bangalore. So that performance was also equally good compared to like what you saw in TriCoat.

Oh, my question was slightly different, Anubhav. See, I'm just trying to understand and simplify that x of TriCoat our EBITDA per tonne comes to close to around INR 2,500, right? But as proportion -- as volume increases...

Saurabh, just one thing here. You please include the other income while calculating the EBITDA per tonne.

But that's not operating, right?

No. It is operating because it's all the export incentive which we receive, right? So it is part of the operational income. You please include that. So if you include that, our EBITDA per tonne was around INR 3,000 for the Q1, excluding TriCoat.

And including TriCoat, how much it would be then?

INR 3,200.

Okay. So then the impact will be lower in that case?

Yes, yes. So if you...

How much -- so what would be the breakup of other income in terms of -- how much of...

So I think 90% of other income is...

Are export incentives.

Yes, is export incentives.

The next question is from the line of Viraj Mehta from Equirus PMS.

Congratulations for great set of numbers. Just the only question I had, sir, was around the market share. Considering the volume growth that we have seen in May and June and the growth that you're also seeing in July, what will be in your view -- I mean, before the lockdown, you were saying that our market share is around 40%. So A, if you can tell us what is the run rate of the market as of today? And what will be your share roughly in that?

So how we see is, Viraj, for example, after -- before COVID, say, market was about $100, right? Our market share was 14%. So we were at $40. Now after COVID, today, market is operating at $80. But our market share has become more than 50%. So we have already crossed $40 because of increase in the market share. So industry is down by 20%, 25%, but that got compensated because of our improvement in the market share. So today, we are operating at 50%.

The next question is from the line of Pallav Agarwal from Antique Broking.

Congratulation on a good set of numbers. Sir, I have a couple of questions. First was on the steel prices, there have been reports that they can exceed by almost INR 2,500 to INR 3,000 at least per tonne. So will this help in any way in supporting our spreads in the next quarter?

So Pallav, if you look at the steel price trend, after the lockdown was lifted, there was a decline in the steel prices. So in last 1 or 2 months, what we have been hearing is that steel prices have come back to the pre-COVID levels, right? So industry is now adjusting to the pre-COVID levels. And of course, I mean, see, if you look at our business model, if steel prices go up or down, our volume, if you see last 10 years, last 5 years, last 3 years, last year also, we have always grown at 20%. In all these years, steel cycle, there would have been different cycles of settle down cycle. So I think it might impact 1 or 2 months, plus or minus. But if you look at the broad-based basis, 2 quarters, 3 quarters, it gets quite normalized. So our -- so there is no change in our strategy for the sales if steel prices crash by 10% or they go up by 10%.

Okay. And I mean, it's very impressive on the working capital reduction that you all have achieved. But once sales volumes start increasing and normalizing, would this working capital level go up partly also because [indiscernible] the steel prices have gone up so the raw material inventory absolute value would go up. And if the activity levels improve, can you just manage with cash sales? Or you would have to extend some credit period going in?

So Pallav, July was quite a healthy month for us, okay, if you compare it versus June or if you compare it versus last year July, right? And our net working capital cycle remains similar to what you see it in 30th June balance sheet.

Okay. So given that we don't have any CapEx -- major CapEx this year, so this level -- net debt level of about INR 350 crores or thereabouts, is it sustainable? Like can you end the year FY '21 at these levels?

So we think that it should come much lower than what you see on 30th June. Every quarter, you will see a decline in that because of the improvement in working capital. And of course, see, first quarter, you see our EBITDA was only INR 70 crores, right, versus we were doing INR 150 crore of EBITDA before pre-COVID levels. So when we return to those levels, there will be a lot of cash flow generation in the system from profits. So that is yet to play out.

Okay. Fair. So sir, just lastly, if you could just give us, what are the current Q HRC levels -- what levels are you roughly?

So, see, I mean, we won't like to share this sensitive information, but before COVID, the HRC prices were around INR 39,000 -- INR 38,000, INR 39,000 per tonne, and they have reached to similar levels.

The next question is from the line of Ankit Merchant from Reliance Securities.

My question is related to the cash sales component. So what we have seen on the ground is that few of the dealers are quite happy with the cash sales because the tonnes or discount per tonne is actually -- earlier, which used to be given, that has actually -- for some of them, it was not helpful and for some of them the cash is quite helpful. And another point which is coming across is that because of our change in strategy, the other competitors are actually trying to give higher credit so that they can push the sales. So do you think that going ahead that could become a challenge for us considering our market share and a few of our dealers could be switching to that model or to our competitors?

Sanjay Gupta this side. Ankit, [Foreign Language] 40% to 50% [Foreign Language] business [Foreign Language] you can say committed [Foreign Language] 50% [Foreign Language] almost INR 1,500 to INR 2,000 tonne [Foreign Language] EBITDA [Foreign Language] we have a brand in the market. We have a lower purchase cost in the market. And we have lower personnel costs in our company. We are working similarly, like [Foreign Language] Apollo Metalex, Lakshmi and TriCoat with a high value rate product. Now we are slowly and slowly changing APL also with the high value-added products. So we are very hopeful in the coming year -- months and years. We improve our margin by adding the value-added products. So -- and we can increase our margins as well as volume [Foreign Language] helpful [Foreign Language] basic market [Foreign Language] boss already [Foreign Language].

Sure, sir. But one question which was coming out or a few of the dealers were saying that because of this change in policy -- earlier, you used to sign a MOU with most of the dealers and used to give them some targets and some incentives also for completing those targets.

Yes.

Yes. And now that strategy has been changed, okay? Now you're offering upfront cash discount if you were -- if the dealer is procuring goods from you.

Yes.

Okay. And if the payment is done in advance.

Yes.

Okay. Now there are a few other dealers also who are not happy with this particular cycle because their cash flow is getting impacted. And some of them are suggesting that if this way the situation continues, then they might have to switch to some other competitors. So I'm not sure that these particular dealers are either very small for us or probably they were not contributing too much to our volume growth as such. So that was my question.

Yes. Ankit, [Foreign Language] what we are doing, it is [Foreign Language] 25% to 30% dealers [Foreign Language]. But we are very friendly to our dealers. [Foreign Language] banking [Foreign Language] channel financing [Foreign Language] arrangement [Foreign Language] they can take the discounts from the company [Foreign Language] comfort [Foreign Language]. And banks are on our goodwill. Without our recourse, we are giving to dealers [Foreign Language] credit [Foreign Language].

Sure, sure. Okay. Okay. That's helpful.

[Foreign Language] target [Foreign Language] distribution network [Foreign Language] whatever we are managing. We have a very wrong relationship with our dealer network. We are very hopeful [Foreign Language] percentage [Foreign Language] I can say [Foreign Language] dealer [Foreign Language] we have a brand, we have a good basket of variety in our pockets. And we -- our people are very friendlier and -- friendly with our dealer network. So I don't think there is any problem. Financial [Foreign Language] problems [Foreign Language] channel financing [Foreign Language].

The next question is from Amber Singhania from Asian Markets Securities.

Hello. Can you hear me, sir?

Yes. Yes, yes, go ahead.

Just a couple of clarification, I wanted to understand the math. When you say that the industry is down by around 25% during the COVID time and we have gained our market share. But when I compare the volumes, our volumes have degrown by around 47% on a like-to-like basis, ex of TriCoat. So just wanted to understand, sir, how do we understand this? Is the industry growth -- degrowth is much higher than this number? Or the 25% number, how should we read it? That is my first question.

First thing is that we had operated only 45 days out of the -- in the first quarter. So the operations started gradually, 1 plant at a time and as per government guidelines. So the first plant that we were going to start was in Raipur on 24th of April also. But gradually, the operation has expanded. And so the volumes -- the volume that you see is only for 45 days working. That is half of the quarter. So in half of the quarter, we could have 55 -- we had 55% of our normal sales. So that explains that first question that how -- if I have achieved 55% in 50% of the time, that means I have achieved more market share. There is no doubt that in any industry, the demand has shrunk due to lockdown. Even today, everything has not opened up.

So Amber, Arunji's point is that when we say that market is at $80 versus $100, this is 40, 45 days of operations, excluding the lockdown basis.

Okay. Got it. But is -- the market has declined by 25%, right?

Yes. After it started operating.

Okay. And secondly, just wanted to understand, during this quarter, we had seen the fluctuations in the raw material prices on the downside as such. So if you can just give a rough number, how much we might have incurred on the inventory side because generally, if I calculate, we keep around 2 lakh tonne of inventory. And even if INR 2,000 per tonne decline we factored in this quarter, then it worked out to be around INR 40 crore-odd kind of number. Am I correct on the math?

No, Amber, this is totally incorrect maths. See, I mean, if you look at our working capital improvement, it is at the general level. It is also at the inventory level, right? So the number which I said, the inventory level which we are operating at, today, they are much lower, right? And when I'm producing in a month -- in a particular month, if I'm producing more than what inventory I'm keeping in my system, I can never have a major inventory write-down or gains, right? So we are working on this model. That's why we have always been highlighting that we are making our company shockproof. We keep lower inventory. We produce more. Steel price go up, down, it doesn't impact us. We work on our manufacturing EBITDA per tonne.

But the inventory which you were having just before the lockdown, so were we able to pass on those thing? How we accounted for that because there must have been some lockdown you might have incurred in Q1?

What happened was that we have started sales from 22nd, 23rd April, right, yet the steel market was still not operational till first week of May. So we had that 10, 15 days window, where we cleared our high price, inventory high price, right? So all the high price inventory, we could offload through sales. And when steel prices started adjusting to the market price, our inventory cost was also low. The new inventory acquisition cost was low. So if you look at full 90 days, there were hardly any inventory gain or loss because today, our system is operating at such an efficient model where the inventory in the system, which is lying, our monthly sales are higher than that number.

Okay. And just lastly, on the TriCoat side, I understand it's difficult to gauge a demand at this juncture because of COVID and all. But at a company level, how are you planning to roll out TriCoat in a much wider platform because it's been just four quarter we have started. So what are our thoughts and plans for taking TriCoat, on a pan-India level, much more deeper penetration? And what are our targets on that account over 3- to 5-year period?

So if you look at TriCoat, see, there are 4, 5 products on which we have worked on, right? So there are 2 products which are particularly going well in the South market, and there are 2 products which are going well in the North market, all right? So Signature and Elegant are mainly in the North market -- and South, sorry, and Plank and doorframe are in the North market. So we -- so TriCoat has 250,000-tonne capacity today, right? And in the December quarter, we already did around 48,000 tonnes as the quarterly sales. So if you annualize it, we already achieved 80% of our capacity utilization. There could be marginal increase in capacity over the next few quarters. So I think on the current model, some products for North and some products for South, we should be doing okay with TriCoat. There is no need per se to take it pan-India level or to be highly, highly aggressive. We have a strong business plan for the next 2 years, where from the current existing network, today, we have 80 distributors. We will achieve this 300,000 tonne kind of capacity utilization number over the next few quarters.

Okay. Okay. I have one more question, if I may ask. So one thing on the -- on our largest customer, Shankara. So I just wanted to get some color. What kind of decline you have or what kind of offtake we have seen in this quarter vis-à-vis last quarter? And what is the outlook on that account? How are you are planning to bridge that gap because they are one of the largest customers for us?

No, Amber, I don't think this is the right platform to talk about it. We'll skip this question.

The next question is from the line of Saurabh Patwa from HDFC.

It's very heartening. Actually, the export number -- it's a follow-up question on my previous question. As you mentioned that almost 90% of current quarter other income is from export incentives. So last annual report, which I have hand off, it's highlighted that we had INR 8 crores of export incentive in FY '19. So what would be that number in FY '20 and in this quarter, exports? It's very heartening actually to see -- I mean yes.

So when I told you 90%, that was in FY '20, that was credit to FY '20 numbers.

Again, yes, so what will be the export number in FY '20 and the previous quarter also?

So we -- Deepakji?

Yes. It's an amount of government grant on the concessional interest on EPC, export packing credit. So it's 3% convention is there. So that amount is there.

So Saurabh, our other income last year, FY '20, was INR 21 crores. Out of that, INR 18 crore, INR 19 crore was export incentive.

Which is largely the interest subvention on exports.

Yes.

How much was the actual export number just in -- just for the bookkeeping part?

Saurabh, one second. This is not guidance for the interest. This is -- government is giving us 3.05% or 3.60% of incentive of MEIS and 2% of [indiscernible] product. So total, I think 5% is we are getting from government also on the sales.

Okay. Okay. Yes. And that is on the which numbers, sir, just export number, just for the bookkeeping fact, FY '20 and current quarter? So if you have that handy?

Normally, it's been around 5% of our overall sales.

The next question is from Kedar B from Composite Investments.

My first question is regarding the advertising and the brand-building initiative that the company had started last year. Now in light of the accelerated market share gains that we have seen post COVID, so is there any updates to the policy? Or are we continuing with what we had planned last year?

So if you see the market share gain, post-COVID level, you see is we can gain, but you need to also understand that even last year, FY '20, our volume growth was 24%, right, when industry has not grown at the same pace. So the advertisement campaign, which we started in February 2019, it started playing out for the full 12 months, right, where we increased our market share from 36% to 40% by end of financial year. And then, yes, in last 3, 4 months, because of lockdown, it has accelerated. So last year, our branding expenses were around INR 50 crores. This year, Q1, was very, very minimal, okay? And now that sales are coming back to normalized levels, we are drawing the strategy, how do we see next 9 months to spend on the advertisement. But as the sales have normalized, we will definitely go on the advertisement, but not as aggressive as we were in FY '20.

Okay. Okay. Fair enough. So coming to my second question, so given the kind of efficiencies that we've been able to get out in terms of optimizing working capital, and hopefully, if the current trend continues over the next 12 to 18 months, there may be a day where the company actually becomes debt-free. In that case, are we starting to think about what the capital allocation policy is going to be going forward? So do we plan on increasing the dividend payout? Or do we have, let's say, plans for doing some inorganic expansion? Any thoughts on that front?

So I think the first target is to become 0 debt, whenever that happens, and then we will discuss with our Board, with our shareholders, that how can we utilize the capital. But first target is to become debt-free.

Okay. And there appears to be a possibility that we could do it within the next 12 months, correct, barring any unforeseen circumstances?

Yes.

The next question is from the line of Abhilasha Satale from Dalal & Broacha.

So you mentioned that the market is down 20%, 25% in Q1. So I just want a deeper view, like how has that improved in Q2? Like how are you seeing current circumstances overall, how the volumes are in the current year as compared to pre-COVID level, yes.

So July, we could start on a very strong note, right? We had a very strong momentum from June end, and we could sustain that momentum in month of July. See, there are 3, 4 things which we are targeting. Number one is, like I mentioned, the rural sales, right? The rural versus urban split for us before COVID was 40% rural, 50% urban. Today, 60% is rural and 40% urban, right? So we had -- I would say we had sensed that the rural sales will outperform urban in India for the first 6, 9 months of this financial year. So we went aggressive on our rural distribution network. Number two was the market share gain from the unorganized sector, okay? There are a lot of small players in the industry who were struggling with these supply chain constraints, who were struggling because of the cash crunch or liquidity crunch in the system. So we knew that there is weak -- we targeted the weak competitors, and we attacked the -- that market aggressively, and we gained market share there. Number three is that structural steel tubing, if you see, it is providing solutions cheaper compared to the conventional products. So just to give an example, a PEB building, a pre-engineered building structure, which is built on conventional steel products, which are H beam, high beam and angles and channels, if you converted it to a tubular building, okay, building which is 60% made out of APL Apollo Tubes, high diameter, high thickness tubes, the weight of the building comes down by 30% to 40%, which results in the project cost savings by up to 10% to 20%. So this trend is also emerging in the time when contractors, developers, everyone is trying to save cost. So it has become very easy for us to promote the idea of tubular construction in India, which anyway, we were trying to do before COVID. So it has helped us to market this product aggressively, and we are already seeing the benefit. So these 3 factors helped us gain market share and perform much better in month of July compared to any competitor or the industry.

Okay. But do you see like industry is also emerging faster than expected in post-COVID -- from Q2 as unlocking happens?

I would say so. If you -- I mean, that data is also available. If you talk to players like Larsen & Toubro, Shapoorji and Pallonji, some real estate companies like Oberoi Realty, et cetera. So I mean, they do talk about that almost 80%, 90% of their sites are now operational, right? Large developers like DLF, most of its sites in Gurgaon are operational now. So I think industry is also coming back to normalized level. But still, I would say it will be down by 10% to 20% compared to pre-COVID level.

The next question is from the line of Rahul Agarwal from ICICI Prudential Life Insurance.

My first question is basically with respect to demand bifurcation in terms of which product categories we are seeing most demand in, where the recovery is the strongest. And secondly, in terms of these players, so which are the smaller players that we are saying we gained market share from, are we looking at acquisitions at any of those fronts? That's the first question.

So first thing, Rahul, if you see our product portfolio, there are 3 categories which have performed well for us in the last 3 months: number one is Apollo Structural, which is hollow section tubes, right; number two is Apollo Z, which is galvanized tubes for coastal markets; number three is TriCoat series. So these are the 3 products which form almost 80% of our volume. So we have seen demand revival across these 3 product categories. 45% of our sales come from residential construction, whether it is urban or rural. Then 20% comes from the commercial, which is mainly urban and -- or semi-urban. Third is infrastructure, which, obviously, we saw some revival in month of July. June was not good for infrastructure. But July, we saw some uptick in the infrastructure projects. We saw some inquiries coming in. So I think -- and all the 3 categories, Rahul, whether it is Apollo Structural or Apollo Z or Apollo TriCoat, so they cater to all these 3 segments in some way or the other. So it's a mix of revival in residential, in commercial, in infrastructure, and in all these 3 products, which are positioned in their own manner, they benefit out of that.

Okay. And in terms of the smaller players, they were stronger in the Tier 2, Tier 3 setup or metros?

Metros.

Okay. So given that metros have not bounced back that much, once the metro start bouncing back, would we start to see a little lower growth than the industry going forward?

You mean for APL Apollo?

Yes, yes, yes.

I don't think so, Rahul, because right now, our rural network has become very strong, number one. Number two, urban, also, if you see, right, I mean, in month of July, we have seen all the major metro cities which got opened up, barring, say, Mumbai or Ahmedabad, but even they started opening up in late part of July. So obviously, we can't disclose numbers for month of July, but whatever we could achieve in month of July, it doesn't say so.

Okay. And what about touch points? How has that increased for last 2, 3 months?

So touch points, I mean, we have a network of 800 distributors who cater to 40,000 retailers pan-India, okay? Before COVID, I would say, 400, 500 were very active distributors for us. Today, that number has gone up by 100, 150.

Okay. Okay. So I'll just go back to my previous question. I tell you the context in which I was asking that. So we have been a major gainer for the unorganized-to-organized transition. And we have gained market share in a significant manner. What I'm saying is the unorganized in this industry was more prevalent in metros. So once metro start to bounce back, which is expected in the coming months, I was just trying to wonder whether this market share gain, could it be extended much, much more in the coming months is what I was trying to understand from you.

Rahul, Sanjay Gupta this side. First [Foreign Language] advantage [Foreign Language] like Poona [Foreign Language] Bangalore [Foreign Language] firstly, we did to -- delivery to -- delivery in their warehouse. [Foreign Language] Poona [Foreign Language] Bombay [Foreign Language] Bombay [Foreign Language] Poona [Foreign Language] Poona [Foreign Language] Kolhapur [Foreign Language] mix [Foreign Language]. So again he is giving a loading/unloading charges, ends up credit cost on this. [Foreign Language] mission [Foreign Language] supply chain system [Foreign Language] plant [Foreign Language] direct Kolhapur [Foreign Language] business [Foreign Language] EBITDA margin [Foreign Language] cost industry [Foreign Language] competitor [Foreign Language] I am very, very hopeful [Foreign Language] model [Foreign Language] supply chain model [Foreign Language] maybe [Foreign Language] market share [Foreign Language] But I'm very hopeful [Foreign Language] structure [Foreign Language] or after COVID [Foreign Language] structure [Foreign Language] it may be that this is a game changer for the APL Apollo.

The next question is from the line of Dhruv Jain from AMBIT Capital.

Sir, just one question, with respect to the margins or the product light margin disposal that you guys had given. In that DFT, the Apollo Structural DFT, which is our hollow section, that the margins have significantly dropped through the last third quarter. So I mean, even if you see Q-on-Q, margins have significantly dropped. So is it because that we have passed on some discount to distributors to improve our volumes? Or what's been the case? And that -- even in, I think, normal hollow section and black pipes also, that's been the case.

No. Dhruv, so actually the benchmark for Q4, okay, if you -- the March quarter, you're talking about...

No, no. He's talking out Q2.

Q2.

So yes. So see, December quarter, if you see Q3 FY '20, that was our best quarter, okay? Now Q4, March quarter -- Dhruv, see, what I'm trying to say is that the product-wise EBITDA spreads, okay, whether for June quarter or for March quarter, we don't take these as benchmarks because March quarter had the full 15 days of revenue loss, okay? So because of high fixed costs, the margin across the total categories was low. And again, Q1, June quarter, the INR 6 crores was quite high compared to the revenue loss. So Dhruv...

If I -- yes. No, sir, if I use that benchmark then, I think we have improved our margins in GP despite having some sort of -- I mean, about a 36% volume loss in this quarter. So I mean, how do I look at this?

Because for our over Apollo Z category, after lockdown, in whole of coastal region, it was mainly APL Apollo which was dominant to supply the product. So we could charge the premium in the market because there was very limited supply from the competitors.

Okay. And considering that July has been healthy, as you highlighted, how do you see your CapEx going forward considering that we will -- I mean, considering that subsequent quarter should be hopefully better than the first quarter, so how do you see CapEx and possibly your advertisement costs going forward in this year?

Dhruv, regarding the CapEx, this year, we have no major CapEx plan. We are just listing our facilities this year. Like we have a 2 -- we acquired a company in Hyderabad, Shankara, who will be the 2 -- galvanic line will be 2 galvanic line there. But [Foreign Language] markets are, the freight cost is very high. Now we are shifting from Hyderabad to -- 1 line to Bombay and 1 line to Raipur plant. Like this type of [Foreign Language] like today, my capacity is almost 2.5 million tonne, 2.1 million, 2.2 million tonne in APL Group and 3 lakh tonne almost in TriCoat. [Foreign Language] credit cost [Foreign Language] we have a big plot in Raipur, almost -- we acquired 300-acre land last year. We have no focus [Foreign Language] nonvalue-added product [Foreign Language]. We are like [Foreign Language] 500 square [Foreign Language] all over the world famous [Foreign Language]. India [Foreign Language] there is no facilities [Foreign Language] the company has decided we are not going -- in the future we are not going on that basis. [Foreign Language] 2.4 million, 2.5 million tonnes [Foreign Language]. But [Foreign Language] it's too early [Foreign Language]. We are giving INR 1,600 cost. [Foreign Language] 500 raw material [Foreign Language]. So total is INR 2,100 cost. [Foreign Language] So my margin improved by 2% [Foreign Language] almost INR 1,200 [Foreign Language] INR 1,200 [Foreign Language] INR 800 [Foreign Language]

Sir, this was very helpful. Sir, just one follow-on question to [Foreign Language]

Next year. Next year. [Foreign Language] 20% [Foreign Language] pre COVID [Foreign Language]

[Foreign Language]

[Foreign Language] due to my product range [Foreign Language]

Inventory.

[Foreign Language] with full variety service [Foreign Language]

And Dhruv, just to your point on how do we see market for high-diameter tubes, right? So whether it's 300x300 which is currently with us or the 500x500, which we will get by next year, so we are working with structure engineers to develop this market. So what we have found is that 1 square foot of construction, whether it's a warehouse or a factory shed or any infrastructure project, 1 square foot of construction will require 1.2 kgs of APL Apollo high-diameter tubes. So you can imagine the kind of -- the 1 million square footage of warehousing construction or industrial shed construction. We think it can be a 200,000, 300,000-tonne annual market size for high-diameter tubes, 200,000 to 300,000 tonnes.

And we are putting up capacity for how much?

So we have capacity to cater to this demand after we get 500x500 square.

[Operator Instructions] The next question is from Madhav Marda from Fidelity.

My question was -- I think first question is on the margin side. So I think Sanjay sir has mentioned that we can bring down the freight cost to INR 800 per tonne. I think this is about INR 1,200 per tonne right now. So that basically can happen on our entire volume by the end of the year? Or is it some part of the volumes?

Yes, on the entire volume.

Okay. Sir, it's a very good reduction that 1/3 of the freight costs going down, right? That's...

Yes. Boss, so I am very unhappy with me [Foreign Language]

Okay. Okay. [Foreign Language]INR 4,000 per tonne EBITDA per tonne that we can -- you're targeting. So basically, INR 400 then comes from freight and then the balance comes from other elements like branding and other...

So freight cost, value addition, branding, all the 4 thing, my target is not INR 4,000. My target is reaching INR 5,000.

[Operator Instructions] The next question is from [ Deepak Mehta ], who is an individual investor.

My question is already asked. So I will ask some questions. So talk about the innovation and new products. So what can be the picture with these products in next 3 to 5 years? What we can [Technical Difficulty] sir?

Those new products [Foreign Language] our marketing people are not traveling. [Foreign Language] without traveling and without doing the fabricator needs and a lot of the ground work [Foreign Language]

[Foreign Language]

[Foreign Language]

Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

Thanks, everyone, for your time. We look forward to see you again during the second quarter conference call. Thanks, and have a nice day.

Thank you.

Thanks.

Thank you.

Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.