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

Good afternoon, everyone, and very warm welcome to APL Apollo Tubes Q3 '21 Post Results Earning Call, hosted by Motilal Oswal Financial Services. On the call today, we have APL Apollo Tubes management team being represented by Mr. Sanjay Gupta, Chairman and MD; Mr. Deepak Goyal, CFO; Mr. Arun Agarwal, COO; and Mr. Anubhav Gupta, CSO. So we'll begin the call with the key thoughts from the management team. Thereafter, we'll -- we will open the floor for Q&A session. I would now like to request the management to share their perspective on the performance of the company. Thank you, and over to you, sir.

Good evening, everyone. Thank you, Sumant for the introduction and hosting us for the call. Thanks, everyone, for joining us on this quarter 3 FY '21 earnings call. It is a real pleasure to be here and discuss our third quarter performance with all of you. When we started the third quarter in month of October, we were carrying a very strong momentum with us from the previous quarter. So we had a very simple strategy in our minds, and we stuck to the basic plan, which was working capital enhancement, cost control, value addition and branding. Today as we speak, we are highly relieved with our performance. And at this time, we are excited as we enter into the last quarter of very eventful financial year of FY '21. A few highlights, which I'd like to mention on third quarter performance are: Number one. Our net working capital cycle remained under 10 days for the 9 months FY '21. This is, again, the best in the building material industry. Our net debt now stands below INR 200 crores, which is down from INR 780 crores as at March 2020. Second is our 9-month FY '21 sales volume, which is at par with 9 months FY '20 sales. This is despite the fact that we had 45 days of disruption in the month of April and May. So we are talking about 15% to 16% growth in the financial year of FY '21 so far. What we are witnessing here is a natural pool in the industry for these stronger brands like APL Apollo because our competitors are suffering from the supply chain constraints and some of the raw material shortage as well. Number 3 is, we will do the continuous efforts from our side to expand our rural distribution network and improve the serviceability for the rural clients. We are glad to share that we have added around 15 new distributors in quarter 3 in the Tier 2 and Tier 3 towns of India. We also opened 2 warehouses in the Delhi NCR and Raipur regions to cater to the rural market. And we are going to open 2 more in West India and South India soon. Number 4 is the continuous decommoditization of our sales volume, our product portfolio. In third quarter, if you look at our value-added products contributed 60% of the total sales volume. This is quite commendable when we look back 4 years ago when the value-added products were contributing 40%. So we have reversed the situation from 40:60 to 60:40 in the last 4 years. And these value-added products have EBITDA spread of 4,000 per tonne and more. Number 5 is the EBITDA expansion by INR 1,200 per tonne on Q-o-Q basis. This is despite the fact that the raw material prices in the third quarter went up by INR 6,600 per tonne for us. At the same time, our net selling realization improved by around INR 7,800 per tonne. This means that we have been successfully able to pass on all the raw material price hike to our customers. And the price hike has been perfectly kind of absorbed by the market in the third quarter. Other factors which contributed to the EBITDA margin expansion by our brand equity premium, which we have started getting and the cost into measures, what we have been taking since right from month of April after the pandemic hit in the country. Number 6 point is our ROC, ROE, which is touching 25%. This is, again, despite the fact there is an element of weak first quarter in the 9-month performance. If we annualize the current run rate, which we achieved in 2Q and 3Q, we are touching almost 30% ROE, ROC. So again, this is quite heartening to share with you that our core business models -- which had a strong ROE, ROC profile, now we are able to demonstrate it on consistent basis. Lastly, on the value addition front, I'm glad to share that we are going to start a cold rolling mill in Mumbai and 2 GP lines, pre-galvanized line in Raipur and 1 galvanization line in Hyderabad. So again, this will add to our value-added portfolio in the coming quarters, and we continue to look out for such opportunities, which will enhance our dominance going forward. With this, I'd like to open the floor for Q&A.

So we have a 3, 4 participants who has already raised hand. So Mr. Saurabh, you can go ahead. Mr. Saurabh, you can go ahead. Mr. Sujit, you can go ahead. Sujit Jain?

I hope I'm audible.

Yes.

Sure. So Sanjay and team, congratulations, very good set of numbers. This realization of [69, 341] in this quarter, you have mentioned supply chain disruptions with smaller peers. And that would have helped. How sustainable these are? Any inventory gains in this quarter? You had spoken about operating per tonne, eventually reaching 5,000. We are already at INR 4,780 for this quarter. So how will be the journey of OP per tonne from here? And one quick question is also on some of the entities that are there. What is this entity Blue Oceans Projects Private Limited in terms of its business? And one last quick question is on a company-owned by your brother, where that company is also using the same brand and the advertising spend that we do Apollo pipes, I'm talking about, actually helps them also. But I don't think they contribute anything in terms of the brand building spends that we do.

So Sujit, coming to the first point, which is on the improvement in the net selling realization for APL Apollo. So if you look at our last 3, 4 years performance, our EBITDA per tonne was in the range of INR 3,000 to INR 3,500 per tonne, right? This was on the back of our ongoing continuous expansion, we increased our capacity from 1.3 million tonne to 2.6 million tonne during this period. So as we were expanding capacity, the fixed costs were loaded upfront and our margins were not able to improve as our core business, margins were anyways improving. Now that our capacity is almost stabilizing at 2.6 million tonnes, and we are already hitting 75% utilization levels, you are seeing the continuous margin improvement in the last 2, 3 quarters. Now coming to the third quarter phenomenon. So if you look at steel prices, they have gone up by 20%, 30% in the last few months. This is not because of the reason that the demand in India has gone up so fast. It is also because of there is raw material shortage, steel shortage in the country because all the industries, user industries, whether it is construction, whether it is tube producers, whether it is consumer durables, whether it is automobile, the demand for steel is going up. But -- so the shortage -- so there is shortage of steel raw material. We being the dominant player, we obviously have solid ongoing relationship with the steel producers in the country. So we -- so we are getting our committed volume from them. Whereas the competitors, they sometimes they struggle to procure steel from the steel producers. So since there is shortage of steel, there is also a shortage of tubes, what we saw in the third quarter. Similarly, we were looking at electrical companies. They have been saying that players who are importing from China, they are having issues in our supply chain, et cetera. So same thing is being witnessed in our industry also. So when there is a shortage of steel, tubes, our realization tends to go up because we are able to service our distributors, we are able to meet their requirements. So the regular sales discounting, which takes place in a normal scenario, that goes away in such a phenomenon when we being the dominant player, we are able to service our clients. So that's what you are witnessing this -- you have witnessed this in third quarter. That being said, we believe that given that we are at 75% utilization levels, the value addition portfolio is going up for us. We believe that we should be able to generate INR 4,000 to INR 4,500 per tonne kind of numbers, EBITDA spread numbers over the next few quarters, which were in the range of INR 3,000 to INR 3,500 for the last 2, 3 years. So I think there is a structural change what we are witnessing. Of course, I mean, if things continue to remain good, definitely, we wound be in that INR 4,000 to INR 4,500 category on a more sustainable manner.

And question about this entity, Blue Oceans Projects Private Limited business?

Blue Ocean is a 100% subsidiary with no revenue generation. It owns a plot on which a corporate office is being built up.

Okay. And the legacy issue of a company-owned by brother of the promoter family using the brand without contributing to the time spend.

So Sujit, see, I mean, it's a separate company, which is into PVC business, right? And they have a separate brand, and they are separate brand spend also, right? I doubt that they are benefiting much from like what we are spending. Their business model is totally different. Their set of distributors is totally different. And whatever creative, et cetera, they are using, they are spending on their own cost. So we are not benefiting -- we are not providing any benefit to our sister company about Apollo Pipes Limited.

I think our ad spend would be INR 40 crores. I don't have their numbers, but it will be small. The logo and brand, everything is same. If you visit their website, they also talk about the brand spend that is done by the brand on key sporting properties in India. That is where the question was.

So Sujit, I mean our brand spends have been INR 40 crores, INR 50 crores, we have been talking about. Even they are spending around INR 10 crores on an annualized basis, right? And they may increase their brand spend. We have no say in their business model. It will be unfair to say that, I mean, we are -- either they are benefiting from our time spends or we are giving any benefits to them.

But you're saying the common brand will be used, and that is what the understanding is?

Yes, that's...

Because they are using the PVC sector, we are using in the steel. And these are the settlement in the family, at least 20 years back.

Which means you will not enter PVC and they'll not enter steel?

We have -- we are not targeting to enter in the PVC business in the future business or in the next 5, 10 years. Because we have a lot of scope in the steel.

Sure. And one last question is on working capital cycle. Is this a sustainable cycle?

Yes.

So cycles of this 8, 10 days? Or this is because of a peculiar situation that you just explained?

No, no, no. Working capital cycle is, however, sustainable cycle. Even we are targeting more squeeze on these numbers.

[ Kirthi Jain ], you can go ahead. [ Kirthi ] you can go ahead.

Hello? Am I audible?

Yes.

Yes. Congratulations to the management team for excellent, consistent performance like always they do. Sir, my first aspect is, I have seen in the recent times, you have done lot of innovation in the YouTube or in the Google Search Engine optimization. You have done a lot of digitalization. I can see just if I search earlier, APL Apollo, normal things used to come. Now like full search engine optimization work is done and a lot of strategy is being done behind that. Sir, just if you can highlight, what are the new changes which you have brought in the digitization space? And what further more steps are you taking to make it more similar to something like Asian paint kind of thing you are being doing? What more initiatives you are doing so that we become the best in this digital reach to the customers? That's my first question, sir.

Thanks, [ Kirthi ]. Could you also introduce yourself with your company name, please? And Sumant, can you also introduce next caller with his company as well, please?

[ Kirthi Jain ] from Sundaram Mutual Fund.

Thanks for the question. So if you look at our marketing strategy in last few quarters, whether it is digitization or it is outdoor or it is TV commercial. Our main focus has been to cater to the residential side of customers. Because if we map our product applications, we find out that almost 50% of our products are going inside the residential houses, whether it is an independent house concept in India or it is a condominium concept or it is a good housing concept in Tier 1, Tier 2 towns. So we have had very focused marketing strategy in the last few quarters where we want to make our brand more visible to the end consumer who is actually using our products. So this goes by the simple fundamental, [ Kirthi ], like 20 years ago, we would not have imagined that today, we will go and buy a branded paint or branded tile or branded cable and wire or branded plywood, right? So we have seen evolution of these building material companies who have created a very strong brand in their respective spaces. They came and tried to connect with the consumer, educated consumer about their brand, about their differentiation, about their quality. So we are inventing the same wheel here in the structural steel tubes. We having 50% market share here. So it's our responsibility to consumerize this structural steel tube space in India. And these efforts were kick-started in 2019 with our IPL launch and launch of TV commercial after hiring of Amitabh Bachchan as a brand ambassador. So we are just continuing on that particular platform. And as we go into a few more quarters, you will see more aggression from us to reach to the end consumer in a big way.

That's good to hear, sir. I suggest you continue to spend even more, invest more than, I would say, given the new interest rate and [indiscernible] everything is there. And balance sheet is also debt-free. I would suggest that you can furthermore invest and that would be great, sir. And my second question is with regard to, sir now in steel, what we are seeing is something like Tata Steel is bringing now Tata Pravesh and Tata Pravesh Store. When will we see an APL Apollo store, sir, in your view?

Kirthi, we already started. [Foreign Language]. We are looking the response from the market. And in the TriCoat business, we are totally focusing on how do we go into the total solutions like doorframe solutions, electrical solutions and the rooftop solutions. We are working in the -- now started working on the small way. I think in the coming years, we are totally converted into the solution provider in this company.

[Foreign Language]

[Foreign Language]

[ Harshil ], from AUM Fund, you can go ahead.

Yes. I just wanted to ask, so [Foreign Language] quarter [Foreign Language] volumes are pretty flat now, basically Y-o-Y basis [Foreign Language]. So any specific reason for that?

No, no. [Foreign Language], but if you see our 9 month numbers, this is almost equal to last year. Number two, in the beginning of the year, because we have organized supply systems, we've not taken the target of too much [Foreign Language] pandemic time [Foreign Language] some raw material shortage also we have in the third quarter [Foreign Language]. For this year, we have [Foreign Language].

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] We are more focusing to increase the margin. [Foreign Language] we have already captured 3.6 lakh tonne. This year, we have close to 2.5 lakh tonne or 2.4 lakh tonnes. So our focus is, but how to increase the margin in this company to provide us a total solution to customer.

Okay. As of today, [Foreign Language]

[Foreign Language]

[Foreign Language] Okay. And going ahead [Foreign Language] fully acquired Apollo TriCoat?

[Foreign Language]

Yes. [ Bajad ], you're next and request all participants to restrict yourself only 2 questions per participant.

Yes, Sanjay, first of all, congratulations to the entire team for doing such a fabulous job. You are a great entrepreneur to the country, and we wish you all the best in near future.

Thank you, sir. Thank you.

I just have one question, sir. The way you scaled up APL Apollo Tubes in the last 10 years has been phenomenal. You had -- as you said in this con call right now, you plan to create a complete solution for TriCoat also by at the end of the day. Can we see TriCoat in the same direction as APL Apollo Tubes? Or will there be a room where the growth stops somewhere or the other? I just wanted to know a long-term vision for the company, sir.

[Foreign Language]. I think this electrical solution market is very big in India. [Foreign Language]

Mr. Ankit, you can go ahead.

Yes, Ankit Merchant here from Reliance Securities. First of all, congratulations to the team for putting up such a great effort. And I'm very confident that these numbers will also continue in the near future. So sir, 2 questions, one is related to the steel prices. we have seen that steel prices went up quite significantly in the quarter gone by. And there are already -- right now, there are a lot of risk, which is coming to the HRC prices and where will it be. So sir, just wanted to know -- understand from your perspective that how would see HRC prices go in the near future? And how would it impact our P&L? Also, if you could help us understand over the next 2 to 3 years, what would be the CapEx plan for us?

Whatever the sell prices [Foreign Language].

Sure. Just a follow-up on the first question. One is regarding that what we have witnessed on the ground is that since these prices have moved up quite significantly, there is a bit of demand slowdown, which has come in over the last 15 to 20 days. [Foreign Language] So are we witnessing that thing in the last 15, 20 days in our company?

Yes. From last 15 days, [Foreign Language] there is no replacement [Foreign Language] they have to buy. So we are not worry [Foreign Language]

Sure. And the price cut, which we have taken of close to INR 2.50, INR 2 or something per kg do you think that it should propel the demand in the near future?

For the demand purpose, we have no worry. We are sure [Foreign Language]

Sure. And just a follow-up on the second question related to the CapEx plan. Can we expect almost INR 200 crores of CapEx every year from year on?

[Foreign Language]

Yes. Saurabh Patwa, you can go ahead.

Yes. Sir, a great set of numbers, congratulations for the same.

Thank you.

Sir, I'll have just 2 brief questions. One is how much of our sales would be now distribution led?

Almost close to 85%.

And do we track secondary sales?

Yes.

So how would be the current relationship between the secondary sales? And basically, I'm trying to understand what the system inventory as you -- because there is some shortages, et cetera. So how this current system inventory would be compared to, say, maybe 1-year before when there was no concerns on supply, et cetera?

No, no supply [Foreign Language] almost 30% to 35% cut down [Foreign Language]

[Foreign Language] okay, okay.

[Foreign Language]

[Foreign Language]

[Foreign Language]

Okay. And sir [Foreign Language] as you mentioned, [Foreign Language] EBITDA, 25% we'll be doing as CapEx, so what are the plans for the other balance? Because now our working capital requirement has come down very dramatically. And we expect the same to continue going forward also. [Foreign Language]

[Foreign Language]

So are we trying to formalize this through dividend policy? Or it would be more of a continuous process?

[Foreign Language]

So we have a next question from Madhav Marda from Fidelity.

And congratulations on a very good set of numbers. So my question was that, if you could just highlight on the new product launches that the company is planning going ahead, the new high-margin one, if you could just give us some sense around that?

Thank you, Madhav. Now regarding the high-value products, Madhav, we are now coming with 2 new products line, one is a color pipe. [Foreign Language] I am putting our own facilities for color coating in the narrow width to cut down our cost of color pipe. Then to produce the color pipe [Foreign Language]

And one other thing, [Foreign Language] can you tell us like [Foreign Language] we become the market leader, just a bit of flavor?

[Foreign Language]

Yes, [Pratik Singhania], you can go ahead.

Am I audible, sir?

yes, yes, Pratik, please carry on.

So firstly, if you can highlight a bit more into the CapEx plan, like you said, you are planning to do CapEx in Mumbai, Raipur and Hyderabad. Can you enlist...

No, no. Yes, yes. Yes, please, go on. Please go on.

Yes. So can you enlist that you had mentioned that in the opening remarks. Mumbai, you said like you'll be adding soon...

Pratik, Raipur and Mumbai [Foreign Language] already, we started to galvanizing line, which is increased our pre-galvanizing tube capacity. And 1 cold rolling plant is going just, I think, a month of Feb, May or March beginning [Foreign Language] this plant is already started. Anubhav just missed in the opening remark and [Foreign Language]

So by end of FY '22, we'll be at like 3 million tonnes of capacity?

Yes, yes, yes. We are targeting a month up by the ending of 2021, '22, we close to 3 million tonne capacity.

And in this color coated pipes and heavy structure pipes, are you planning to do any new application for these pipes?

Yes. [Foreign Language] replacement of the old application also. And the heavy [indiscernible], this is totally new application.

So what exactly it will be used for?

Yes, heavy structural is used for the PV sector and the real estate for the bigger building commercial building. And the bigger airports, [Foreign Language]

Sir, but you are known to introduce fancy and new product at a much competitive price compared to what product?

Yes. [Foreign Language]

[Foreign Language]

[Foreign Language]

Pratik, if you look at -- if you compare steel with stainless steel, it is almost 2, 3x cheaper. If you compare steel with aluminum, again, it is 2, 3x cheaper. So wood also today it is 20%, 30% cheaper steel compared to wood. So I think all these product categories, what we are targeting to replace, there is still a lot of margin, even if our color coated tube will be expensive than a normal black tube or galvanized tube.

Right. Right. Agree. And sir, in terms of the...

Yes, yes. Please carry on.

Sir for our working capital cycle, this 10% of discipline that we have currently. This will be in place even if we see a 2, 3 years of, say, low growth phase for the company in future, even despite that, you will continue to stay at 10 days of working capital cycle?

Yes, yes, Pratik 100%. We are targeting even SKUs this also or more [Foreign Language]

Okay. [Foreign Language]

[Foreign Language] whatever we got the order, we make in 3 to 4 hours.

[Foreign Language]

[Foreign Language] I'm just focusing on my business line.

We have our next question from Bharat Shah from ASK.

First and foremost, heartiest, congratulations to the entire team. The fire and the entrepreneurial spirit that the APL has displayed. So really, really delighted. Secondly, knowing that you are an entrepreneur who constantly looks ahead and wants to see the picture ahead, how do you see APL Apollo looking like over 3 to 5 years in terms of key and important dimensions, which are at the top of your mind?

First of all, thank you Bharat [Foreign Language] for appreciating us. Bharat [Foreign Language] first time, we are coming to achieve our numbers and number goals [Foreign Language]. So I very hope glad to say given the first time [Foreign Language] quarter-on-quarter, I can't give the same result. [Foreign Language]

No, no, I fully appreciate all the things that you've done to tighten the working capital when things were tough and chips were down to have courage to change the distribution footprint, tighten returns and to actually achieve it. Also your innovation focus, custom build products so that you continue to stay ahead of the competition. So growth will sequentially come from 3 elements: One will be the growth of the volume led by innovation in custom build products; b, will be the improvement of the margins; and c, will be improvement of capital efficiency because more innovative products will give a bigger bank for the buck being spent. So on those 3 over a 3 to 5-year time frame, some kind of bare minimum, what you think is a size of opportunity before us in both APL's preparedness to harness that opportunity. Some kind of feel for those 3 parameters would be helpful.

[Foreign Language]

So would it be fair to say, 3,000 to 4,000 [Foreign Language], which we have now lifted 4,000 to 5,000...

Yes, you can...

[Foreign Language] we will be able to think of something in the band of 6,000 to 8,000 band in the 5-year time stamp?

Sure, Bharat [Foreign Language]

[Foreign Language] what are the key things that you are thinking about marketing, sales, technology, R&D techniques, et cetera. Can you throw some more light?

Bharat [Foreign Language]

Fantastic. Congratulations again, Sanjay, really proud of how you have gone about.

Thank you, Bharat.

Dhruv Jain, can you introduce yourself?

Yes, Dhruv from AMBIT Capital. Sir, congratulations on a great set of numbers. Sir, I had about 2 questions. So one question with respect to the costs. We have seen that unitary costs have gone down by about INR 200 per tonne. [Foreign Language]

Dhruv, this is going on process [Foreign Language]

Dhruv, can you put your mic on mute, please? Because we are hearing the echo.

Yes [Foreign Language]

Okay, sir. And I had one more question with respect to the mix. We have seen that light structures, I think in first quarter[Foreign Language] is now about 83,000 tonnes. And so apart from that also, we've seen significant change in the mix. So how can the mix evolve going forward? Can say pipes like GP, et cetera, also improved their mix from going forward and given the light structures, et cetera?

Dhruv, first quarter [Foreign Language]. You can tally with the second quarter, compared with the second and third quarter. So second quarter [Foreign Language]

Amber Singhania, you can go ahead.

Can you hear me?

Yes, yes, yes, please carry on.

Congratulations to the entire team for a good set of numbers and continuous reporting the excellent set of numbers since many quarters. Small question from my side. One, we have definitely seen the EBITDA growth in Y-o-Y as well as Q-o-Q almost to the tune of 1,200 to 1,400 tonnes. You have briefly touched upon the cost savings, which we have done via towards power and freight. Can you also give some color about what kind of benefit we might have got because of product mix change and steel prices change, just rough color on that part?

No. Our major impact come from the value-added product [Foreign Language] Like if you see the Q2 and Q3, our value-added product from 53% to come to 60%. 7% [Foreign Language] We can say like that -- now we sweep with the waves [Foreign Language].

Okay. Got it, sir. Sir, secondly, you mentioned about the capacity addition of 2 new lines. One is the 500 square and the color pipe. These are 2 new different product lines. But at the same time, the current product lines are also reaching full capacity utilization in due course of time. We are already at 75% plus. So any plans to add capacity in the current line of products also?

No, at least for next one year, no.

So sir, how will we address the growing demand on those current products basket? Because these new 2 lines will be catering to the new product line all together?

Yes. [Foreign Language] We are not to hurry to [Foreign Language] we have the infrastructure [Foreign Language]

Won't we miss out on the improving demand scenario on that part because we won't be adding new capacities on the current product line. And the demand is definitely growing on that sector. We are also planning to take more market share. So without adding capacities, won't we miss out on that growth?

We go for the outsourcing model [Foreign Language]

Okay. But sir...

Light asset model and outsourcing model [Foreign Language]

Okay. So sir, in new products, we don't expect any major CapEx happening in at least next 2 years on that part. Am I right?

[Foreign Language]

Great, sir. Sir, just lastly, one thing, if you can give some color about the guidance for next year, if any, in terms of -- volume we have shared about 20% growth, but what kind of EBITDA we are looking for next year in that part?

[Foreign Language]

We have our next question from Ankit Gor from Systematix.

[Foreign Language] And what are we -- whatever we are trying to do with our entire value chain [Foreign Language] data will be the key for us. To see what product going where, which region requires what product, that will also help and plan our production schedule accordingly. So sir, [Foreign Language] what are we trying to do to have a better data control or [Foreign Language] so we'll have a more control over entire production, schedule in production like [Foreign Language]

Ankit, we have already SAP system [Foreign Language] we have lots of things we are doing on this data work [Foreign Language] We are also developing the app -- Arun, you can tell how we work...

We are in the process of developing an app, which is still underway, which will take care of the concern that you have raised. But as of now, we have -- everything is on digital mode. We have SAP and all the data that we require for our current affairs that is being catered to. But going forward to take it to the next level, like dealers' data and dealers' interaction. So we are coming up with an app, which will be an interactive portal for the dealers. And there, we will have more, say, real time information.

Sure. And sir, [Foreign Language]

Distributor is our very strong part. At least from last 30 years, they are with us. [Foreign Language]. I believe on my principal suppliers of raw material, I believe on the -- my channel partners, I believe, on my organization. [Foreign Language]

Sure. [Foreign Language], if I have heard it correctly. [Foreign Language]

[Foreign Language]

Right. So consider sir, [Foreign Language] can we consider for full year FY '22 [Foreign Language] can we consider that number?

[Foreign Language]

Next question, I want to see...

Yes. Ankit, sorry, we have other participants also.

Sumant, please carry on [Foreign Language]

Sir, quickly [Foreign Language]

[Foreign Language]

Right. Right. [Foreign Language] Lastly, sir, Apollo TriCoat [Foreign Language]

[Foreign Language]

So we have our next question from Devvrat from Capital Group.

Yes, Sanjay ji, firstly, congratulations on a solid set of results. I had one quick question. Over the last few years, your working capital cycle has been declining fairly steadily. But can you just walk us through what exactly happened this year? Like what -- why did it improve so much this year? And how sustainable is this going forward?

Sir, first of all, when the pandemic time come, I were almost a debtor of INR 500 crores in my book, sir, and almost INR 300 crores is -- my bankers are to take from my customers. Almost total -- if you see, my total exposure is almost close to INR 800 crores, okay. For INR 300 crores, we have no recourse. They never show in the balance sheet. But morally, I'm aware this is -- my dealers are giving to INR 800 crores. And that time, in the month of April, I have a very poor response from the market to collect the money. Everybody is saying [Foreign Language] that time we -- in-house, we have decided, whatever thing, [Foreign Language] we can't take the risk, either material go to sell or not sell. We have to go with the cash and carry model. This -- the month of April, whatever is the response come from the market [Foreign Language]. But that time, the same time, we appreciate our channel partners [Foreign Language], they are also giving the -- like we are giving the credit to them, they are giving the credit to their customer also. They also realized they are in the wrong path, they are also corrected them very soon. And in the month of May and June, we got very good response from our channel partners. And all are saying to me, Sanjay Ji, we are very grateful, we are very thankful to you, [Foreign Language]. So now we -- our total ecosystem is changed. Not Apollo is changed. The whole industry is changed. So I think this is the main reason.

And your cash and carries continued even now? [Foreign Language]

Yes, likely it will -- from last 15 days, our sale is less. Dealer sales -- channel partner sales is less. But I'm seeing my debtors numbers, they are remaining same. There's no increase in the debtors.

So we have a next question from Abhishek Ghosh from DSP.

Can you hear me? Hello?

Yes, Abhishek. Please carry on.

Okay. Okay. Sir [Foreign Language]

Sorry. Sorry. Whatever the -- if you see the -- for the Southwest and North zone, we are very strong in this part. But in the East zone, we are [Foreign Language] I think, another 10,000, 15,000 retailer sector [Foreign Language]

So almost 20%, 30% addition [Foreign Language]

[Foreign Language]

Okay. Okay. Okay. So sir, [Foreign Language]

[Foreign Language] total solution provider [Foreign Language]

[Foreign Language]

Yes.

Okay. Okay. Sir, [Foreign Language]

[Foreign Language]

Okay. [Foreign Language]

Possible, when we are talking long term [Foreign Language]

Sure, sure, sure. Sir, [Foreign Language] it will be helpful, sir?

I think [Foreign Language]

So Abhishek, like we were having this survey from our fabricators who are using our products, we did survey with around 30,000, 40,000 fabricators. So almost 30% of fabricators are saying, I mean, all those fabricators are saying that 30% of their end consumer is coming and asking for Apollo Tubes, whether it is from residential side or from engineering construction side or from a large contractor or from a real estate developer side. 30% of his clients are coming and asking for APL Apollo brand.

Lovely. Great. Just lastly [Foreign Language]

Maybe.

We have a next question from Bhavin Chheda from Enam Asset Management.

Yes. This is Bhavin from Enam Holdings. Congratulations, Sanjay ji, it has really been exciting to track your company for more than a decade. [Foreign Language]

Thank you Bhavin for remembering so long to me. Thank you.

[Foreign Language] So it's a really exciting journey.

[Foreign Language]

[Foreign Language]

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[Foreign Language] Very few entrepreneurs in India are able to execute what we have done. And now I think from year on, sir, [Foreign Language]

[Foreign Language]

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Sir, I think the margin expansion [Foreign Language]

[Foreign Language] I have no doubt and no -- I'm very clear [Foreign Language]

Right, right, right. [Foreign Language] this is very good. So this -- he my one question was, I think in terms of SKUs, [Foreign Language] you are 50% market share, but I'm sure that [Foreign Language]

[Foreign Language] we are not making tubes, we are crafting the steel. [Foreign Language] Every quarter, we have to make 3 to -- every month 3 to 4 new type of sales [Foreign Language] just we developed this new piece. [Foreign Language]

[Foreign Language]

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[Foreign Language] every month we are focusing minimum 3 steps [Foreign Language]

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We have our next question from [ Amar Mourya ] from ALFAccurate.

Yes. Sanjay ji, I have only one question. Like you indicated that the discounts which we had reduced because of the pent-up demand. What is the quantum of that and how sustainable these practices are?

I think [Foreign Language]

Okay. So sir, [Foreign Language] would be the discount?

[Foreign Language]

So we have next question from Kashyap Jhaveri from Emkay Global.

[Foreign Language] I -- sort of in the initial remarks, I had pretty bad audio. So I could not hear -- none of the opening remarks, actually I could hear. So not sure if you have highlighted this. But across the product lines in our presentation on Slide #12, we have seen EBITDA per tonne expanding by almost 20% in some of the product lines. So if you can probably explain what has driven that? I am not too sure whether you said that in opening remarks or not. And if I were to sort of look at the EBITDA per tonne expansion in this particular quarter, it's largely driven by that number rather than probably product mix. And you have also given capacity on the last column in that particular slide also. And looking at that number versus utilization as of today, it looks like if this EBITDA per kg were to remain the same, this is probably the peak EBITDA per tonne that we could probably do on the peak utilization. Is that assumption also correct? So these 2 questions.

Kashyap, if you see our presentation, the product portfolio, we have segregated that into 6 products, okay? Within structural there are heavy, light and general. In GS, it is rustproof and sheet, then TriCoat and then galv. Okay? So coming to the heavy structure and structural, okay, right from FY '16 to Q2 of FY '21, the EBITDA per tonne has been in the range of INR 3,900 per tonne to INR 4,100, INR 4,200 per tonne, okay? So that is what we have maintained on selling high diameter, high thickness tubes. Q3, we will come later, okay? Right? Then coming to light structures. It has improved from INR 3,500 per tonne to around INR 4,000 per tonne. Again, this is a gradual improvement over the last 3, 4 years as we expanded our capacities here. So we are -- we benefited from the capacity utilization and operating leverage gains, right? General structures is like highly commoditized business, where the margins have been in range of INR 2,000 per tonne to INR 1,500 per tonne over the years. Now -- then Apollo Z, the coated tubes, they have been in the range of INR 5,000 to INR 6,000 per tonne. Again, there's a gradual improvement because our brand in coastal markets became very strong for zinc coated tubes. And also some of the capacity utilization has helped us with the operating leverage gains. TriCoat, it started from Q1 of FY '20. Right from Q1, it was generating INR 5,500 to INR 6,000 per tonne EBITDA spread. Until Q2, it was in the same range. Galv is our tube, which is outside our structural range. It is more into agri and industrial. Applications, here, we don't have as much dominance as what we have in the rest of the portfolio. So our margins have been in the range of INR 4,500 to -- INR 4,500 only, they have not moved much like our other products. Now coming to Q3, what we have seen is that the raw material in the Q3 went up by INR 6,600 per tonne on Q-o-Q basis, okay? And the net selling realization improved by INR 7,800 per tonne. So this INR 1,200 per tonne is almost improvement in the gross profit per tonne. And this is what has flown into the EBITDA, right? So this INR 1,200 increase in Q3, again, has come across the product categories, be it heavy, be it light, be it Apollo Z or TriCoat, all the product categories. And the reason for this is the natural pull what we saw in Q3, right, so that aided our margins by INR 400, INR 500 per tonne. Then we had benefit of cost control of around INR 200 per tonne. Then INR 100, INR 200 per tonne is because of -- I mean, the balance INR 500, INR 600 per tonne is because of the value addition, right? From 55% value addition, we reached 60%. So that's the mix of the improvement in EBITDA per tonne in the quarter 3 over Q2.

So just one question here, Anubhav. So when you say that if I look at your gross margins, per kg, gross margin per kg has almost gone up by about INR 1,160-odd per tonne on Q-on-Q basis. My question is that what drove this? Was it that there was scarcity of the material in the market and we could dictate the prices there. Because it seems like on the cost increase on the raw material side also, we have been able to get a very strong markup on that also, which has actually gotten totally added to our gross margin per tonne. So is that the reason why this would have happened?

Yes. So it's a mix of 3 things, mainly, okay? One is, of course, the pull, what we are talking about; second is the value addition; and the third is the cost control measures what we did right from the month of April to October, right? And also, I would attribute some of it to the brand equity, brand premium, what we have started getting, right? All our investments right from April 2019 till November, December of 2020, that is also adding on to our margin as our brand equity is becoming stronger.

And during the quarter, how much -- so would the price increases across product line be similar to the -- within the categories...

No. So here, the categories where we are more strong, like heavy structures, light structures, here the spread increases more than the raw material increase.

Okay, okay. Yes. And just one clarification, as I was highlighting. So let's say, we have across various product lines, utilization is anywhere between 75 -- sorry, 78% or 80-odd percent, barring heavy structure and to some extent, in the Apollo Z. So assuming ceteris paribus, this is the margins that -- so anything with relation to product or let's say, change in the value-added number is now more or less there in this INR 4,700 a tonne because across the product lines, now the utilizations are virtually similar?

No, so I didn't understand question...

Let's say, in case of light structure, our utilization on quarterly basis now is almost 78%, in case of Apollo Z, the roof structure, it's much about 75%, in case of TriCoat is about 80%. So across the products, our utilization is more or less now similar, right? So the product mix, at least in the broader categories won't change materially once we reach the peak utilization?

Yes, that's right. So you only deduct the standard, which is general structure. Other than that, it will be in the same proportion. Sumant, 2 more questions, please, and then we'll wrap it up.

Yes. So the next question from Aashish Upganlawar. Aashish can you introduce youself?

My name is Aashish. I'm calling from InvesQ Investment Advisers. So my question is on Apollo TriCoat. So it's been a phenomenal kind of achievement to ramp up that business in such a short span of time. And the levers that were there, it's been product expansion, plus you were concentrating on north region. So my question is, how are you at the ground planning to better on these aspects -- on regional expansion and on the products? And so basically, I'm trying to understand where the top line is moving from here for the company?

So Aashish, if you look at TriCoat portfolio, today we have 3 main products: One is the Chaukhat; second is the designer pipes; third is plank. So these 3 products, Aashish, they are being manufactured in India for the very first time. They are being marketed in India for the very first time. In fact, 2 of these products, Chaukhat and plank, forget India, they are being produced and marketed anywhere else in the world, okay, but India. So because of the highly innovative nature of these products and, of course, after it became baby of APL Apollo Tubes, it got access to the brand equity and the distribution network. We have seen very strong ramp-up here. We got this company with capacity of 250,000 tonnes. And within one year, we had to increase capacity to 350,000 tonne because the demand and utilization levels were very strong. So Q3, of course, we hit 80% utilization. Our -- I mean, target is that we are able to demonstrate 350,000 tonne on an annualized basis in year FY '23 with EBITDA spread of much higher like what we have achieved in the 9 months so far, right? So once we hit that 350,000 tonne, at the same time, we are building a new business here, which is the solution-driven business. So within Chaukhat, we are going for Ready Chaukhat solution and Ready Steel Door solution. And with Designer Pipes, we are going into roofing solution in the coastal markets and East market of India. So this will be like non-CapEx-driven business, where we will have tie-ups with fabrication units. And we will launch our solution offerings in these 2 categories. Apart from that, we have in line galvanizing technology, which came with the company when we acquired it. But of course, because of the technical -- lack of technical assistance owing to -- because the U.S. technicians couldn't travel last year. But now through video conferencing, we are -- our team in Bangalore has been successfully able to kick start the production. And now after a few weeks of teething troubles, we should be able to streamline that manufacturing also, right? So I guess, for next 2, 3 years, we have clear goal of achieving 350,000 tonne on annualized basis, the run rate launching the 2 solutions in door and roofing solutions. And third, kick starting the in-line galvanizing technology, which will be, again, first product -- first kind of product in India to cater to the Electrical Conduit segment. So I think TriCoat is all set for the next 2, 3 years with these 3 goals in our minds.

Okay. So looking at the goals that you have set for APL Apollo and 20% plus kind of volume numbers, TriCoat would map that kind of numbers or it can be higher given the new nature of this business and lot of...

Aashish, this is very unfair to compare Apollo volume and TriCoat volume, right? Apollo product portfolio is very different and TriCoat product portfolio is very different, right? So both product categories have their own opportunities and own growth potential, right? So we have mapped TriCoat products into door, roofing and electrical conduit solution. So whatever opportunity size comes, we will cater to it, right? I don't think it's the right idea to compare Apollo product line with TriCoat product line because they are very, very separate.

Okay. Okay. I was just trying to basically see are the targets similar or are targets different?

So target for APL, Sanjay ji has already said that we are looking at 20% -- we are looking at 2 million volume landed in FY '22 for APL Apollo. For TriCoat, we are saying that we would do 350,000 tonne in volume and solution products by FY '23. Yes, so 20%, 25% growth in TriCoat also over the next 2 years.

So the last question from Kunjan Gupta. Please introduce yourself.

This side Kunjan Gupta from Client First Wealth Management Private Limited. Congratulations for whole figure, and then good to know that you are setting up a plant here. Sir, my question has actually already been answered. Only I want to know about the TriCoat, that -- you said that the 11% margin right now is there. So how much we can increase from here, the margin? Just approximately?

So Kunjan, I think you shouldn't look margin on a percentage basis here. You should look at the EBITDA spread, right? When we started the company in Q1 of FY '20 the reported EBITDA was INR 6,000. And in Q3 of FY '21, we reported EBITDA of INR 7,800 per tonne, right? So there has been a gradual improvement in the margin spread. And Sanjay ji -- for everyone's benefit, Sanjay ji did highlight that TriCoat has potential to go to INR 8,000 or INR 9,000 per tonne EBITDA spread.

Yes. Thank you, Anubhav, and thank you, Sanjay ji. So we'll have our closing remark.

Thanks, Sumant. Thanks to your team for organizing this webinar. And I would like to thank all the participants who have joined us on this occasion. Look forward to see you again during Q4 earnings result call. Thank you so much.

Thank you. Thank you everybody.

Yes. Thank you, everyone, and thank you, Anubhav.