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

Ladies and gentlemen, good day, and welcome to the APL Apollo Tubes Investor Update Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anubhav Gupta, the Chief Strategy Officer of APL Apollo Tubes. Thank you, and over to you, Mr. Gupta.

Thanks, Margaret. Good morning, everyone. Thanks for joining us on this APL Apollo investor Update Conference Call on such a short notice. I'm Anubhav Gupta, Chief Strategy Officer of APL Apollo Tubes. I'm joined by my fellow colleagues, Mr. Deepak Goyal, the Chief Financial Officer of APL Apollo Tubes; and Mr. Rahul Gupta, the Managing Director of Apollo TriCoat Tubes Limited. We are glad here to discuss about the recently announced merger of Apollo TriCoat and Shri Lakshmi Udyog Limited into APL Apollo Tubes. After our short presentation, we will open the floor for Q&A. I would request all the participants to restrict your questions towards only this recently announced transaction and not any other business update. Let me start with our presentation now. I have segmented our presentation into 3 broad categories: number one is the basic contour of the transaction; number two is the strategic rationale, why we have done this; and number three, the benefits to shareholders of both the companies. So coming to the first segment, which is a broad contour about the transaction. It's a plain vanilla merger of Shri Lakshmi Metal Udyog is 100% subsidiary of APL Apollo Tubes and Apollo TriCoat Tubes, which is 56% subsidiary of Shri Lakshmi Udyog into APL Apollo Tubes Limited. As per the fair valuation done by a big 4 consultant, KPMG, we have derived at a valuation of 1:1 swap ratio of 1:1 for both the companies. So Apollo TriCoat shareholders will get 1 share of APL Apollo Tubes, once the merger is complete. This -- the fair valuation is 16% upside to Apollo TriCoat's last closing price and 25% premium to the 3-month average -- daily weighted average share price formula. For APL Apollo Tubes, the new share capital increased by 10.8%. So we are talking about around 10% dilution for APL Apollo Tubes. As for the new shareholdings, the existing shareholders of APL Apollo Tubes will hold 89.2%, and the TriCoat shareholders will end up owning 10.8% in the consolidated merged entity. The promoter shareholding will fall to 33.5% from 37% today because of the dilution after the new shares will be issued. We expect this transaction to get over by third quarter of FY '22. This is based on a simple assumption that the Board has already given approval for the merger. Now we will approach the exchanges, SEBI and NCLT, after which, the shareholders and creditor meeting will take place. For that, the second motion petition will be filed, and then we should expect the final order. As per the consultants, we should be able to finish this by December 2021, plus/minus 1 or 2 months. The merger will be effective from date of 1st April 2021. So FY '22 should be the full year of consolidation for APL Apollo Tubes. And lastly, this transaction is tax neutral for all the 3 companies, which are involved in this transaction. Coming to the strategic rationale, why we have done this. So like I said, it's a simple plan vanilla transaction, and we have done this with a thought of achieving 8 objectives here. Number one is simplified group structure with a single listed entity, APL Apollo Tubes Limited. Number two, to create a structural steel tube giant in India into a single company with capacity of 2.6 million tonnes. This makes our company, APL Apollo Tubes, among the top 5 global steel tube companies. Number three, stronger platform for growth. We have already seen the kind of growth, which we have demonstrated over the last 10 years. So the single platform will give further boost to create a strong platform for growth. Number four is the solid balance sheet and greater financial flexibility for our group, which will help our shareholder reward in future. Number five is to increase the cross-sell opportunities between the 2 companies, where we think there are a lot of synergies. Number six is the cost synergies between the 2 companies that is at the plant consolidation level. We have 4 plants of the group in NCR Delhi. We have 3 plants for the group in -- near Bangalore area. So we see some consolidation taking place there. There will be synergies in the distribution costs, there will be synergies in the go-to-market costs as well. Number seven is the product synergies, what we believe is going to take place after the merger of these companies. Number eight is the brand synergies what we see after the merger because, right now, the 2 companies are spending separately on creation of brands. Once we have the combined budget, the impact could be much, much higher and superior. Now coming to my third segment, which is the benefits to the shareholders for both APL Apollo Tubes and Apollo TriCoat Tubes Limited. So coming to APL Apollo first, this whole transaction is EPS accretive, ROE accretive, margin accretive, innovative, a value-added product addition to APL Apollo's portfolio. The B2C-centric approach, which Apollo TriCoat has got so far, it will help boost overall brand equity for APL Apollo Tubes. And for Apollo TriCoat shareholders, the benefits would be, number one, faster expansion due to increased size of the company. The derisking of earnings, today, 75% of earnings come from single product category, which is designer tubes. Number three is the balance sheet strengthening with bigger scale, which will again lead to faster expansion. Number four is the ability to introduce new technologies into structural steel tubing. And number five is increased brand spend for creation of a bigger and larger brand, Apollo, into structural steel tubing. So with this, we would like to end our presentation, and we can open the floor for Q&A. Margaret, please go ahead.

[Operator Instructions] The first question is from the line of Kush Joshi from Kitara Capital.

Yes. And thank you for the opportunity...

Sorry to interrupt you, Mr. Joshi. Your voice is very low. Can you please speak a bit louder?

Hello? Is it fine now?

It's better.

Yes. And congratulations for the team. Just a couple of questions. So can you just elaborate on the synergy and how long-term the APL Apollo will benefit out of this merger?

Right. So Kush, like we mentioned that the synergies. There are like 3-point synergies, what we have figured out. Number one is the cost synergies. Number two is the product synergies. Number three is the brand synergies. So coming to the costs. Again, there are 3 points where we are going to work over the next few quarters. One is the plant consolidation. Today, APL Apollo group has 10 plants. 8 are with APL Apollo, 2 are with Apollo TriCoat. Within the NCR region, which is like 50 kilometers from New Delhi, we have 4 plants, 3 from APL Apollo Tubes, 1 from TriCoat. And again, near Bangalore city in South India, we have 3 plants, 2 in APL Apollo Tubes and 1 in Apollo TriCoat. So since we are also expanding our rural distribution reach very aggressively, We are looking to add new warehousing capacity so that we can service our rural distributors in a much efficient manner. So we'll see that if some of the plant and machinery could be installed at single location and we can vacate that space for the warehousing capacity. This we have done in the past within APL Apollo Tubes 2 years ago because we used to have 4 plants in NCR, and we consolidated those into 3 plants. And we are seeing that because of that warehousing capacity, which has come up, we are able to serve -- service our north market in a much more efficient manner. The same formula we might apply again in the north region after TriCoat plant is merged and in the south region also. Then the distribution cost, Kush, because right now, both companies, they have their separate teams who are servicing distributors, so if there is a single team going after the distributors and selling the products under a single umbrella, there will be a lot of distribution cost savings, so what, again, we have foreseen. And third, which is very important, Kush, is the go-to-market costs because if you see the track record of APL Apollo and TriCoat, these are all innovative products for what we have treated the market, right? So it becomes very important for our marketing team to go and educate the fabricators who are the influencers in our value chain. Right now, what's happening is TriCoat team is having its own go-to-market cost, and APL Apollo is having its own go-to-market cost, which we believe, if combined, again, there can be a lot of efficiencies, which can be brought. So this is on the cost side basis. As time goes by, we will be able to give you more clarity on the quantum of the cost saving, what we are anticipating once this whole exercise is done. Then second is product synergy, Kush, where, again, we are very excited about the home decor product range, right. So TriCoat is already having products like designer tube socket for the home decor range. And in APL Apollo Tubes, we are going to have color-coated tubes, where we are already setting up a mill and new APL plant. So combination of all the products within the home decor range, again, these are very high value-added products. And then we can have a specific marketing strategy to push these products into the channel, educate these fabricators about this product and ultimately getting the pull from the market. And number three is the branch synergies, Kush, where, again, both the companies have been very aggressive in the last 2 years to push for the brand equity. Right now, both companies are having separate brand budgets, brand budget spends. But once this is merged into single entity, we are looking at a lot of efficiencies that within a combined single budget, the return, what we call ROI on the brand spend, that is going to improve significantly.

And that, with this taking into picture TriCoat product lens is where we are trying to be a bit deferred expansion plans. So whether they'll accelerate the expansion plan as the balance sheet becomes stronger post this merger, so what is the outlook there?

Yes. Kush, very -- pretty much because -- Margaret, I'm having like echo in the background. Can you please check?

Actually, it's coming from the line of Mr. Joshi. I will mute his line, so please go ahead.

Right. So Kush, yes, I mean that is, again, one of the strong objectives, what we are trying to achieve here because we think that TriCoat will be on a much faster expansion mode after the consolidation of balance sheet because, right now, if you see the product portfolio of TriCoat, we have Chaukhat plant in the north region, and we have designer tubes and in line -- galvanizing line in the south region. So if Chaukhat, which has been a flagship product for TriCoat, if we have to go pan-India, it will take us 5 years to set up a plant in west and in east, south, of course, we could do brownfield expansion. But now with already established plant base for the group, it's -- it becomes very easy and fast to expand the capacity for the flagship products of Chaukhat and plank. So yes, we do believe that the expansion for TriCoat is going to be much more fast now.

[Operator Instructions] The next question is from the line of Dhruv Jain from AMBIT Capital.

Hello. Am I audible?

Sir, you are audible but not very clear. [Operator Instructions]

Yes. Can you hear me now?

Yes. This is better.

Yes. Okay. So I had one question, and that was with respect to the valuation of the transaction or rather the timing of the transaction. So just wanted to get a sense from the management that why the transaction right now. I mean your market of TriCoat was a -- TriCoat was a much smaller company in terms of market cap earlier. So what is the thought process there, considering it was already a subsidiary?

Right. So Dhruv, this question reminds me of a very popular American song by American band, which is Never Too Late. But anyways, see, I mean if you look at Apollo TriCoat 2 years ago, right -- TriCoat, of course, the valuation, the market share was much lower, but it had 0 profit 2 years ago. Today, this company, if you analyze the 9 months' performance, 9 months of FY '21, and given April, May were bad due to lockdown, this company was going to generate almost INR 100 crore net profit if we annualize 9 months' number, which are already in the public, right? And this is despite the 60% utilization, right. So TriCoat, in the 9 months, had done volume of 160,000 tonnes on a capacity of 350,000 tonnes. So on a 60% realization, the company is almost at INR 100 crore annual run-rate, okay, number one. Number two, 2 years ago, this company had 0 ROE, 0 earnings, 0 ROE. Today, on annualized numbers, you can see the ROE is again 40% and, again, with the simple fact that the utilization levels are like, what, 60%. So what -- the consideration here is that even at today's valuation, whatever APL Apollo is giving to TriCoat, this transaction is EPS accretive for APL Apollo, it is ROE accretive for APL Apollo, it is margin accretive for APL Apollo. And today, the fourth reason I would like to highlight here is that both businesses are going to complement each other's growth, right, in the longer term. The scale at which APL today -- so scale was not a problem for APL Apollo, but the kind of improvement in the financial metrics, what APL Apollo has given in terms of the EBITDA margin expansion, in terms of the volume growth, in terms of the ROCE expansion, in terms of the working capital enhancements, in terms of the debt reduction, in terms of the value-added product addition and in terms of the brand equity enhancement, right. And if you look at the TriCoat, the weight has ramped up in last 7, 8 quarters, what we -- what the management had time to deliver on the performance. So both the companies are going to complement each other, Dhruv. That's our main rationale to merge the companies today.

Okay. And my second question is more with respect to operations. So I believe that earlier, TriCoat was operating as an independent company. So now that in about 8 to 9 months from now or a year from now, TriCoat will get merged into APL Apollo, so will it continue to exist as a separate brand? Or -- and how is it going to be operating under the APL Apollo umbrella, the employees, the top management? How is going to be the transition? So your sense on that.

Right. So the TriCoat team is well equipped to -- well equipped with B2C-centric approach, Dhruv, right, because that was new product category which came into TriCoat, which are more B2C centric products, like Chaukhat, Plank, designer tubes, right? So we are going to/be in need of this team very much in the future. So then, even when this entity is merged into APL Apollo, like I said, APL Apollo itself is working on its new product category into home decor segment. So color-coated tube is one product, which is going to come from the house of APL Apollo. So we do believe that the whole team can be fully absorbed, right? And anyways, Dhruv, if you look at TriCoat metrics, the employee costs, the marketing costs and even for APL Apollo, right, so we have been working on very lean structure anyways, Dhruv, right? Our employee costs with the revenue size we have in the building material space, you will see that's very, very minimal compared to any other building material companies. So I don't think that absorption of the talent from TriCoat will be a challenge because we are going to have a new product segment, which is going to be a big revenue contributor for the group, which is home decor category.

And the brand cost? So will the TriCoat brand remain? Or then all the products will be termed as APL Apollo?

So that's a decision we get to make, Dhruv. We are evaluating. So we are talking to our marketing agency, creative agency, whom we have taken help to come out with above-the-line brand change for the last 2 years. So I guess give us some time, we will be able to have much more clarity that whether it's going to be a single brand, APL Apollo, or we want to stick with Apollo TriCoat as well, give us some time to come back on this.

So the next question is from the line of Urvil Bhatt from IIFL.

Just a follow-up question on the synergies part. So how much time are you thinking will it take to realize these synergies? I mean just broad time lines. You mentioned about plants to consolidate, 4 plants into 3 or extend the warehousing facility in NCR. So just want to understand how much time are we looking at executing this. And also, if you can highlight the quantum of savings that can -- that we are targeting. And second question is, I mean, if you can just give the specific time lines of various approvals that are needed. You mentioned December as tentative time line that you're targeting. But if you can provide the specifics about each approval, that would be helpful.

Thanks, Urvil. So coming to the time line for synergies. So see, I mean we are already on the drawing board what needs to be done, right, once we have all the approvals in place. So how we are planning is that once we are through with the regulatory procedure, we should have all the plans ready with us, right? And the execution time would be 12 to 18 months, right? So whether it is at the plant consolidation level, warehousing capacity increase or distribution costs is something which can be like realized within 3 to 6 months as well. Go-to-market, again, it's a long drawn process, which could take 12 to 18 months. Product synergies could be immediate because by the time we are anticipating this merger to be finished, we will have color-coated tube line, which will commence by end of FY '22. So then again, that's a low-hanging fruit, which we'll want to take up quickly. Brand synergies, again, it is going to be like low-hanging fruit because immediately, we will want to merge the brand spends together and have a combined big budget to go aggressive on the brand equity announcement.

Understood. That's helpful. And if you can give the specific time lines of the various regulatory approvals, that would be helpful.

Right. So see, the time line, again, right now the immediate process is to reach out to the regulators, which are steady here in both the exchanges, right? And then we move to NCLT. So -- and after NCLT, we will have shareholder meet and creditor meet, right? So I think this will take like around 6 months max. And then we will have like second-motion petition filed with the various agencies. And then finally, we would expect the final outcome. So, Urvil this also like very simple plain vanilla merger, right, which involves like only 3 companies. One company is anyway 100% owned by APL Apollo Tubes today, and then 56% is owned by the subsidiary of APL. And we do believe that both of the shareholders are going to benefit from this. So I think it shouldn't take beyond December 2021. But yes, I mean we are remaining cautious. So I guess later, by FY '22, we should be able to finish the process.

Next question is from the line of Ankit Gor from Systematix.

Anubhav, firstly with -- so it's not direct to this transaction, but indirectly, we'll appreciate. Firstly, Anubhav, what's the outlook of TriCoat for next 2 to 3 years? And related to that, I'm not sure that after a merger, you guys will provide a separate number of TriCoat or not. So how do we track these synergies? And how do we track TriCoat's performance after the consolidation or after the merger? That's my first question.

So Ankit, see, I mean TriCoat today, like I said, 9 months, capacity utilization was 60% with a volume of 160,000 tonnes on a related capacity of 350,000 tonnes. So what as a business line we had projected was that in next 2 to 3 years we will be able to fully utilize that 100% realization. right. So that's the business plan and you can do the math in terms of EBIDTA per tonne, what we are going to have with 60% realization EBIDTA per tonne what it can move with 100% realization levels. right. The company is almost like 0 working capital days. And whatever that impact it had on December balance sheet, again we were anticipating that it's going to become debt free very soon right. So business plan would remain as it is. In fact, what we are anticipating is that it will be into a fast-track mode because some of the products where we were thinking that how we will scale this up. right? Chaukhat has been such a successful product for TriCoat within like 3, 4 quarters of launch, we were selling 250,000 Chaukhat tubes per month. Our product was going in to 40,000, 50,000 pools every month. But it was like, again, sad to know that it was only in the North market, right? So now if we have to expand into Western market, Eastern market South market, we can use at APL Apollo infrastructure to install those profit tube mills, right? So it will only fast track it. And as far as the tracking of TriCoat is concerned, I think segmentation, we will have to consult with our auditors and consultants, how it's going to be done. But I think for the benefit of everyone, we can disclose the TriCoat number separately. I mean, we don't mind that. Of course, we'll have to check with our auditors and consultants. But if at all, TriCoat numbers will come into home decor category. That's what we are planning right now, right? So -- and synergies benefits. Today, you know the EBITDA per ton -- anyways, we are doing line by line consolidation. When we are reporting consol APL Apollo numbers, right? So today, the EBITDA per tonne for 9 months was INR 3,950 assuming we close FY '21 at some number, FY '22 at some number, if there is improvement, you are seeing year-on-year, that means the synergies are coming into play. So I don't think there's going to be much of problem for the analyst on the Street to check if synergies are working out or not.

Sure. My next question was very much related to that. Better product mix of APL Apollo -- APL TriCoat was getting reflected in EBITDA per ton since it was line by line. So we'll see major the acceleration of probably major accretion will happen on applied side after PVT. So minority interest will get no cost. Right. So on a margin side, if we really see, we are already getting a better product mix in our existing numbers. There'll be some cost savings, which may reflect in, which will reflect in EBITDA per tonne as well, right, after this merger?

Yes.

[Operator Instructions] The next question is from the line of Kashyap Jhaveri from Emkay Investment Managers.

A couple of questions. One, like you highlighted, this merger is going to be EPS accretive, margin accretive for APL Apollo from day 1. Just wanted to understand, in first 9 months of this year already, TriCoat is contributing almost about 24% of the consolidated EBITDA, and which still, in -- if I look at even quarter 3, on annualized business, there is still spare capacity available there. So in terms of this 10.8% dilution versus 24% already contribution, if I look at PAT level also, it's higher than about 11%, 12% contribution. What was the deliberation on the spare capacities on both the sides, which resulted into this ratio where the APL Apollo is -- looks to be benefiting a lot, whereas Apollo TriCoat actually seems to be probably a bit of a loser in that sense?

So, Kashyap, if you look at -- I mean, the number which you are saying that it is contributing 24% to my PAT anyway. So what -- so 56% is already owned by APL, right? So then you have to cancel that.

No, no. I think even at an EBITDA level for that matter, its whole thing is consolidated, right? So my EBITDA as of today as APL Apollo shareholder includes 100% of -- which I will retain and for which I'm doing about 10.8% dilution.

No, but 10.8% dilution is 4 -- 44% sales which I'm going to buy from the market, right? So you...

Of course. Let's say, if I look at even half of that, today, I'm already getting 12% contribution from Apollo TriCoat, whereas I still have about almost 30%, 40% spare capacity, which I will be utilizing later on, for which probably, in fact, I'm not paying it also as an Apollo -- APL Apollo shareholder I think...

Kashyap, that is with APL Apollo also. APL Apollo is also...

So in terms of spare capacity, how was that handled? That's the question actually.

So on both the sides -- no, Kashyap, so both the products in this both the -- products in both the companies are different, right? TriCoat, so there is no overlap between APL Apollo products and TriCoat products today, right? So APL Apollo has its own product portfolio, which is utilizing -- which is being utilized at 60% capacity today. TriCoat has its own product portfolio, again, has been exactly at 60% capacity today. Both will ramp up. APL Apollo will ramp up on its own, TriCoat will ramp up on its own. Once they are merged, the synergies will only come into play. And then what we are trying to do here is to make a greater home decor product segment for the group, right, which will be combination of TriCoat products, which are already established, which are already having a very strong demand scenario. Over and above, we are going to have a color coated tube from APL Apollo, right? So this makes a very strong home decor product portfolio for the group. That's what we are quite excited about. And within that, the go-to-market strategy, the dilution strategy, the brand equity enhancement strategy, that's where you're going to have a lot of synergies.

And as of today, when you look at go-to-market expenses for both the companies, as a percentage of revenues, would they be virtually same? Or would it be slightly higher in case of one, which is like more of home decor versus the other one, which also includes some higher churn.

TriCoat is higher, Kashyap , TriCoat is higher today.

Okay. And would you be able to -- for 9 months, if you can give some percentage number, if that's possible?

Yes. So TriCoat, the overall brand spends are INR 500 per ton.

INR 500 per tonne. Okay. And last question is on -- a clarification. In the beginning, you made a remark about this swap ratio, where you mentioned about average of the stock price for a certain months, if you could repeat that particular. I sort of missed out on that.

That is 3 months weighted average daily price.

For both the companies?

For TriCoat. I mean for TriCoat if some -- if you look at the formula 3-month weighted average for TriCoat share price and the APL share price, which it was at the time of Board meeting, it was 25% income.

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

I'm just taking a bit ahead from the last question. So the TriCoat -- do you think there was a scalability issue for API TriCoat and with this merger, that scalability should issue is gone?

So -- no. So Rahul, there was no issue as such, right? I mean, TriCoat started from 250,000 tonne capacity, we took over the plant in 2019. And the first quarter of FY '20, we started the production in sales. So within like 7 quarters till December 2020, it had 2 quarters disrupted due to lockdown. And we -- and in third quarter, we could do 70,000 tons of run-rate volume, right? So -- and in meanwhile, during the lockdown, we increased the capacity from 250,000 tonnes to 350,000 tons. Right? So there was no issue as such a, right? The point we are trying to make here is the scalability will fast-track now. It will be quick now, right? Because if you have to go and setup a greenfield plant, it's going to take 2 to 3 years versus if you do brownfield expansion, it's like 6 to 9 months. So -- but it was not an issue. It was never an issue. It is just that with this synergy coming into place, it is going to be very, very fast-track mode.

Okay. And if you -- in the terms of distribution reach, in TriCoat and APL Apollo, what is the difference right now? And how much of common dealers would be there?

Right. So Rahul, today, APL Apollo Group has almost 800 distributors, right? And TriCoat today has, in total 100 distributors, which I would imagine, like 60%, 70% would be common and 30%, 40% will be exclusive for TriCoat.

Okay. And in terms of geography, is there any particular geography that TriCoat is facing an issue. Where the TriCoat is not penetrated and which can now fast-track.

So Rahul, I mean, because of this year geographical presence of the plants of TriCoat today, which is North centric and South centering. These are the markets we are strong. And West in East market where we couldn't penetrate much because of simple fact that all the capacity was being absorbed in the markets closer to the plants.

Okay. In terms of pricing power, does anything change after this is TriCoat?

No, Rahul, again, because of the simple 2 facts. Number one is the pricing power is because of the innovative nature of the products, right? So as long as that is there, it won't impact, whether it is being sold under Apollo TriCoat brand or APL Apollo brand. Number one. Number two, what we are excited about is that once the combined cash spend budgets come into play, right, the kind of impact it's going to make on the consumer mind and our channel partners' mind that again will play an important role in lifting the overall -- or maybe maintaining the pricing premium, which today is existing.

And just a little more in terms of general update. So how has been the Jan, Feb? How has been the momentum?

No. Rahul, please let us stick to the questions from the deal itself, right? For general updates, please -- I mean it's only 30 days left for quarter to end. We should talk about once the quarter is over.

The next question is from the line of Abhishek Gosh from DSP.

Yes. Just one thing. Earlier, Mr. Rahul Gupta's domain and functionality was more towards Apollo TriCoat. And now that the kind of -- with the proposed merger, how does his kind of things that he looks at, does it change because now it's a merged entity, there will be a lot of commonality? So if you can just help us understand that.

So Abhishek, I mean -- so today, if you look at the time line from today, right? It's at least 9 to 12 months since this whole procedure is going to take place. So anyway, for 12 months, we have a clear responsibility of running this company. Number one. Number two, after -- even after the merger, right, like I said, there was a clear business plan for Apollo TriCoat that we had to utilize 350,000-tonne of capacity for TriCoat in the next 2 to 3 years. So that would remain as it is, right? We are not going to jeopardize our plan to, like, to meet the target, what we had set for Apollo TriCoat. So I guess for next 2, 3 years, the clear objective for Rahul would be to utilize 50,000 tonne of capacity. Over and above, we are being very aggressive on the home solutions side, right, wherein we want to get into the solution offerings, right, within the territory of the products like the designer tubes, right, which are going to be home roofing solutions in the costal markets. Number two is Chaukhat wherein you want to go into ready Chaukhat solution and/or solutions, right? So that's a new vertical, what we are going to work for the group. And with this, a merger... [Technical Difficulty]

Sorry about that, sir. You may go ahead.

Yes. Sorry. So yes. So that new segment of home solution is going to get a major, major boost after the merger because then we can use the infrastructure, which is the pan-India. We can use the distribution network pan-India. We can use the go-to-market route, which, again, is available pan-India.

The next question is from the line of Bhavin Chheda from Enam Asset Management.

I think I believe you must have some kind of study before the merger about the synergy benefits. So any initial or rough estimates on synergies?

So I guess -- I mean, of course, like I said, we are already doing that. We have done that. We believe that it could -- I mean on the face of it, what as management we can tell you is it's -- it is going to add like at least 5% to the EBITDA per tonne today, and that's a minimum of what we are looking at.

I think in previous calls, you said that the INR 3,000 per tonne EBITDA has already moved to a kind of INR 4,000 per tonne level. So this adds another 5% to that steady state?

Yes. So that's like around INR 150 per tonne.

Okay. And secondly, you also mentioned that it's a tax-neutral kind of merger. So -- but I believe there were some losses which you were carrying in TriCoat. So has that been kind of adjusted or that's not meaningful?

Yes. So whatever losses TriCoat had, that has already been nullified against the profits, what this company has delivered over the last 7 quarters.

The next question is from the line of Madhav Marda from Fidelity Investments.

Yes. I just have a question on the home decor solution, which you has been emphasize on the call. I'm assuming that maybe next 5, 7 years, if I sort of think, will home decor become like a big focus area for the company sort of to push the B2C portfolio, and then we'll have more new launches coming within home decor apart from the color-coated tube and the designer tube et cetera?

So Rahul -- sorry, Madhav, see, this is a natural path for the group today because like we have been constantly highlighting that 50% of our products are anyways going inside the residential homes or complexes, right, apart from commercial and infrastructure, what we have, okay? so when we have 50% of our products going into residences, it makes very much sense for us to keep on premiumizing, to keep on selling more and more value-added products, right, for that category. And today, I mean if you look at TriCoat, which today is like 20%, 25% of the volume today for the overall group, so that proportion is -- anyway is going to be much, much bigger over the next 4 to 5 years. And I mean the simple basis of this thesis is that, I mean, 50%, 60% of our products are going inside residential houses.

Understood. Understood. And then there will be more new launches that we are sort of working on more new SKUs that will come within home decor, like that's this idea?

Yes. Yes, definitely, right? So we already have like too much on the plate today, I mean, apart from like ramping up of TriCoat products over the next 2, 3 years, then there's color-coated tube category, which we are going to start from let's say, late quarter of FY '22. So once that portfolio gets stabilized, there will be more SKUs, definitely, yes. And second that around these -- around this segment, we are going to work on these solutions as well, right, offering the end-to-end solution. So yes, I mean we are quite excited about this whole portfolio model.

And just last question on this. In this home decor products for structural steel tubes, I'm assuming competition would be quite limited here that we would say versus our -- the other -- some of the other portfolio that we have.

Right. So home decor, if you see today, like which is consistent of designer tubes, Chaukhat, tube, Plank tube and color-coated tubes. So yes, I mean these are almost monopolistic products for the group.

The next question is from the line of Bharat Shah from ASK Investment Managers.

Yes. For the 9-month, TriCoat accounted for how much of the profits of APL Apollo?

So today, Bharat, if -- I mean assuming -- like APL Apollo, without TriCoat today, TriCoat is contributing around 22%, 23% of the profits, and 56% is already with us. So the minority, which goes away, is around 13%.

So basically, the APL profits are 100%, then a, they are INR 23 more, the INR 123 becomes after all consolidated profit.

Yes. So INR 123 is 100% of TriCoat and then the minority, which goes away is INR 10.

Okay. INR 123 is 100% for TriCoat?

Yes, yes.

So at least 13% minority moving away, 10.8% dilution, essentially, right?

That is right.

The next question is from the line of Amber Singhania from Asian Market Securities.

Just a couple of things. Can you hear me?

Yes. Please, go ahead.

Yes. So first thing is, when you said that post this merger, it will be easier and much faster in terms of expansion in Capex. So just wanted to know, will we wait to utilize the current unutilized capacity first before going on any further expansion on this home decor side? Or we will be expanding simultaneously with the other region wherever we have gaps on in terms of presence of TriCoat products as of now?

So Amber , what we are planning to do here is that the products where the capacity is already at a constrained level, like, okay, like for Chaukhat tubes, that is one low-hanging product line where we should definitely be able to scale it up. But then, yes, I mean, like I said, TriCoat has 350,000 tonne of existing capacity, which is yet to be utilized over the next 2 to 3 years. So that remains as it is. And number 3, Amber, is the point that the color-coated tube, which will start from the house of APL Apollo. Once that segment gets created, right, with like lower SKUS. See, it's all about offering SKUs to the distributor, right? So once you have -- at one end, you have Chaukhat tubes, another end, you have designer tubes, then you have color-coated tubes, then you have products like Plank, which are innovative, again, ceiling and boundary wall solutions. So with the broad-based SKU range, that whole exercise becomes very easy and it gets on the fast-track mode automatically. Right. So I guess, like I said, 1 year, over the next 12 months, we are very clear that the both companies will try to achieve the targets what we had set up during FY '21. That's for next 12 months. Then once this merger is -- our merger process is complete, we will be ready with our synergy plan, right, because that's, again, which is very critical for us as management. So we will start implementing the synergy plan. And at the same time, we will -- we would have identified the products where we want to fast-track the expansion, right? So that's how we are looking next 12 to 18 months for ourselves.

Okay. Second, in terms of reporting segment post the merger, so currently, the TriCoat segment, which we mentioned separately, would there be any reorganization on that part, wherein the other home decor products on other segments will come and sit on this particular segment on APL Apollo TriCoat which we currently report? And how do we -- how will we be able to match it like-for-like basis? Will you give us pro forma on that?

So like I said, we are still discussing with our auditors and our consultants. Right now, the regulations are so strick for the auditors that they don't want to comment anything since they at least have like -- they would've heard from the exchanges and LLC, et cetera, before they start communicating how the reporting would go on. But like I said that we want to -- we may want to convert TriCoat into a home decor category, which will be addition of APL Apollo products, right? But yes, I mean for the benefit of analysts on the Street, we would be okay to give TriCoat a numbers for a while if anyone has any clarity to get. I mean we are okay with that.

And lastly, on home decor side, if you can get us some color about how big is the market today. What rate it is expected to grow and whether we believe that home decor will be the major value driver going forward. So if you can give some color about the overall market pie and how it is growing and what is our share in that overall business as of now. As far as home decor is concerned.

So Amber, if you look at the home decor segment, right, so see, the philosophy here is that what our products are replacing with, right? So they are replacing old, conventional construction products like the angled channels, wooden structures, aluminum profile, which are expensive, which are not fire resistant, right, which are not termite proof, right? These are the benefits, which our products are offering to the end customer. So that's how, I mean, these products are being accepted. Number one. Number two is the fact that all these products were innovated and launched by APL Apollo Group, right? So there was no existing market, which was already there, right? So we launched the product, and we created the new market for these products, right? We created the need for these products. People were happy using wooden door frames, right? But we offer steel door frame and which are closed-ended tubes, which are again superior than the open-section steel doors frames, which were available in the market, right? Easy to install, cheaper, 2-hour installation, right, termite proof, fire resistant. 10 years -- after 10 years of installation, you can still sell your steel door frame at a cost much higher than what you paid for because of the steel price inflation, right? So all -- and I'll talk about designer tubes, right? So embossing and putting designs on the tube, again, I mean no one is doing that in India except Apollo, right? Color-coated tubes, I mean you can check in the market, no one is doing that. Now this is on the lineup when we launch pre-galvanized tubes, our Apollo Z, right? Earlier the Apollo market was black tubes, right? And we shifted that market to coated -- zinc-coated tubes, which became our Z category. Today that's contributing 25% of my top line today and more than 30% to my bottom line. So now we will premiumize that zinc-coated into like a further color-coated tubes, so that's a constant market-creation activity, what we keep on doing, Amber. And with both the companies coming on the single platform, I think that platform will become even stronger.

I understand the opportunity is pretty big. I just wanted to get some color in terms of quantum, if we can put it in any kind of size, which it can be on the other one, but that's fine. I understand the faster developing sector -- segment on that.

Can we have the last question please now.

The next question is from the line of Nitin Bhasin from AMBIT Capital.

Small question. You mentioned in the beginning that you want to take TriCoat's sort of reach to every part of the country to these multiple plants that APL has. Can you give a sense on how easy or difficult and the resources required to manufacture or finish TriCoat products in the APL's other locations? What are the challenges for that? How is it possible or not? If you could give some sense on that. That's it.

So Nitin, I mean, I think this question came earlier. So if you look at TriCoat business model today, right, we have 2 plants, 1 located in North India, which is like 40 kilometers from New Delhi, where we are doing 2 products, Chaukhat and Plank. And then we have a second plant in Bangalore, which is a much bigger plant. It has, again, 2 products. One is designer tubes, which has 2 brands, Signature and Elegant. And number two is then galvanizing tube, right? So that plant is still under stabilization mode. Now the product, which is coming from North plants, right, Chaukhat and Plank, so these products have created their market within the northeast, right? So Chaukhat, I mean before the expansion, capacity expansion to 350,000 tonnes, the Chaukhat capacity was 50,000 tonnes. and within 3, 4 quarters of launch, we hit 50,000 tonne sales volume run rate, Nitin. When I say that we are selling 250,000-tonne Chaukhat tubes every month, which is going inside 50,000 homes every month, that is only in the north market, right? Similarly, Plank, if you see, it's a very innovative rectangular tube, which are -- which has been used for multiple applications inside any house. Again, it found some market near to the plant, right, which is mainly NCR and UP Uttar [indiscernible] belt, right? So it hasn't even moved to Rajasthan yet, okay? Similarly, the designer tubes, which are being created or which are being manufactured in South India, they found their market within the South India itself, right? So hardly any designer tube is coming to North India from our south plant. So when I say that it will all get into fast-track mode, I meant that if TriCoat had to go and set up a plant in west today, right, it's a minimum 2- to 2.5-year procedure, right? So we -- I mean we are already doing a new Raipur plant in APL Apollo. It seems like 3 years since we conceptualized the idea, we start acquiring land, right? So it's a 2- to 3-year process minimum. Now what says, if I have to install a Chaukhat tube in our plant of APL Apollo, which is 50 kilometers from Mumbai in our Murbad facility, I mean we need to order Chaukhat tube, right? It's going to be a long-term expansion. The time reduces to 9 months to 12 months, right? So if we have all the infrastructure ready, we have paid for [indiscernible] expansion, the time reduces from 3 years to 1 year. So that's what we mean that the expansion of TriCoat would be on fast-track mode. And then again, this may not be relevant for all the 4 products, right? So the immediate low-hanging product line, what we are able to get is the Chaukhat and the designer tube.

The next question is from the line of Sanket Goradia from PVC Investments.

v Yes. I just wanted to kind of get your sense on we've been talking of the brownfield expansion, helping us -- will do things faster. So any indication on volume growth? And two would be -- my second question would be that now that we are at 33%, any indication of plans you want to highlight on maybe what's the thinking of the promoters and with this new shareholding?

So Sanket, coming to the point number two here. Yes, of course I mean the family holding has come off to 33.5% from 37%. But I think what the decision as a promoter group and the management working with them, the whole idea was to create a structure, steel tube giants under a single company, right, and with a very, very simple simplified group structure, right? So yes, I mean equity dilution is a small, like not a disappointment. But then the philosophy, this promoter group has worked on, Sanket, is small equity, beautiful equity, right? And this is the philosophy, which we are always going to maintain, right? I mean look at the American companies like Facebook, Amazon, Netflix, Google, Tesla, all these promoters don't own more than 10%, 15%, 20%, right? But those companies -- I mean the shareholder value creation that those companies have demonstrated. So we're always inspired by that, Sanket. And the philosophy will continue to be like that for us in the future.

Sure. That's helpful to know. And just if you could just put some color on the volume. Do we understand that we'll have a faster volume growth than what we had earlier estimated because of this amalgamation?

And you see, it should happen. It should happen. But I mean too early to comment on any numbers. But yes, I mean you know our history is some case, right? 27% volume CAGR for last 10 -- 5 years, up 20% volume CAGR. We have seen more years of GST implementation, demonetization, NBFC crisis, GDP falling -- GDP growth falling below 5% and also the lockdown period, right? So I guess this will only like fast-track or I mean, it would definitely give some boost to the growth to what we are already going to demonstrate. But yes, I mean, difficult to give a number today, but yes, it should be higher.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Anubhav Gupta for closing comments.

Thanks, Margaret. Thank you to all the participants. I would like to extend our gratitude on behalf of the management, as you could all join on this call on such a short notice. And we look forward to speak to you again during our Q4 FY '21 earnings call. Thanks, everyone. Thank you so much.

Thank you. On behalf of APL Apollo [Audio Gap]