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

Ladies and gentlemen, good day, and welcome to the APL Apollo Q1 FY '22 Results Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pallav Agarwal from Antique Stockbroking. Thank you, and over to you, sir.

Yes. Thank you, Prerna, and good evening, everyone. Welcome to the 1Q FY '22 earnings call of APL Apollo. We have the senior management of APL Apollo with us, and I would like to thank them for giving us the opportunity of hosting this call. I will now hand over the call to Mr. Anubhav Gupta for his opening remarks. Over to you, Anubhav.

Thanks, Pallav. Thanks, everyone, for joining in here. Good evening. From our side, we have Mr. Sanjay Gupta, the CMD; Mr. Arun Agarwal, the Chief Operating Officer; Mr. Deepak Goyal, the Chief Financial Officer; and myself, Anubhav Gupta. It gives us great pleasure to be here and discuss our Q1 FY '22 performance with you. Before we start our Q1 presentation or opening remarks, I would like to update on a few things. Number one is as an exercise to strengthen our Board, we have appointed Mr. Ameet Gupta, the Whole-Time Director of Havells India in our Independent Board today. We are sure that his experience to run India's largest consumer electrical firm will help APL Apollo in areas like market penetration and distribution expansion, organization buildup and brand building. And the second update is regarding our corporate governance standards, which again, we are continuingly strengthening these standards. So in our recently published report on ESG, we have articulated our ESG framework, which talks about what APL Apollo stands today and what we want to achieve over the next 5 years. We have identified 13 material issues, which we believe are important for us in alignment of the expectations of our stakeholders. A few goals which we have set up are, for example, 0 cases of violation of code of conduct, all plants to have significant access to renewable energy, rain water harvesting at all plants, and 0 liquid discharge facilities everywhere and 0 incidents of noncompliance. So we have published the full report and submitted to the exchanges, and the same is available on our website. We'll be happy to get any feedback regarding the same. Coming to the Q1 performance, it was again an eventful quarter as the pandemic has hit again in the country after 6 months of normality. Our team's experience of handling the pandemic last year had helped us this time around. We sailed through the quarter pretty well and reported the highest ever quarterly EBITDA and net profit. A few highlights from Q1 FY '22 results. Number one is the volume decline of 16% on Q2 basis, of course, because of the lockdown towards the end of April and early May, and it took time for things to get back to normal levels. Number two was the raw material cost, which went up by INR 5,000 per tonne for us. At the same time, our net selling realization went up by INR 8,500 per tonne because of 2 reasons. Number one, here is the value addition mix improved to 67% in Q1 versus 57% for full of FY '21. So this resulted in better realizations. And second is some of the benefits to our group, which were coming from the backward integration for some of the products. When we talk about the volume decline of 16% for ourselves, some of our industry peers they reported Q1 earnings. We saw that their volumes are down from 20% to 25% on a Q2 basis. So this does demonstrate that APL Apollo would have gained some market share here. Our working capital remained intact at 7 days with stable net debt. So our philosophy of cash preservation and higher working capital efficiencies, we continue to work towards that. Our EBITDA per tonne was INR 6,800. Again, this was highest ever. We will see how much of this is sustainable, but we are not too much surprised with this number, given that our global peers generate EBITDA per tonne of INR 10,000 to INR 15,000 if you look at our global peers in Japan and U.S. and Europe. However, our business plan for next 3 years is still based on EBITDA per tonne assumption of INR 4,000 to INR 5,000. Our cash flow remains strong because of working capital efficiencies. So our CapEx into Raipur project continued, and that project is doing well. Tricoat merger is on track. We recently got no objection letters from both exchanges. Hopefully, we should be over with this process by end of FY '22, and the whole restructuring exercise will also be completed soon. Our efforts to create a new market for heavy structural tubes have started to pay off as we are getting good inquiries, and we could also kickstart some live projects. In our presentation, we have given details about the -- some of the off-season plants, what are being constructed using the tubes, Apollo tubes. And we also got an inquiry for 2.2 million square footage of hospital development from one of the state governments and happy to share that all those designs are 100% using tubular sections. Our long-term growth strategy remains unchanged, which is based on value addition, cost control, innovation, new market creation and brand equity enhancement. We believe this would help us deliver double-digit volume growth over the sustainable next 3 to 5 years. Our Raipur project is on track. We are focusing on 2 products, 500x500 square diameter tubes and color-coated tubes. So hopefully, we should be able to start the production within this financial year and these 2 products could contribute a good chunk in FY '23. With this, Pallav, we should close the remarks, and we can open the floor for Q&A.

[Operator Instructions] The first question is from the line of Raj Mehta from Raj Mehta & Associates.

Congratulations for a very good set of numbers. So my one question is with respect to the EBIT margin. There was a sudden increase if you compare on year-on-year also and quarter-on-quarter also. So what led to this significant increase in EBIT margin? And given you, in opening, you have mentioned that you will maintain your guidance of EBIT margins around INR 4,000 to INR 5,000. So even our value-added products are getting increased year-on-year, the percentage share is increasing year-on-year, you are not changing your guidance. So can you just give a brief about those things?

Yes. Good afternoon, everybody. What happened in the last quarter, in the last few years, whatever the downstream big companies are in the country go into NCLT. And all the plants are taken over by the steel plants. And some of our value-added products there, which we are producing our own backlog integration raw material, they increased their margins in these products. So our margins are go high. But today, we are not sure the industry [Foreign Language] maintain that PA. [Foreign Language] go down by the margins. So maybe we slightly -- this margins are relegated to us. We are just watching the situation for the next 1 or 2 quarters, then we can comment on this margin percentage, we can increase.

Current margins, to sustain on are difficult right now.

I can [Foreign Language]. Number two, [Foreign Language] volume growth [Foreign Language] volume growth [Foreign Language] pandemic [Foreign Language] volume [Foreign Language]. So I'm not sure given the volume [Foreign Language] volume [Foreign Language] but margin [Foreign Language] we are not sure. But we are [Foreign Language]. So we are not want to lose our market share. But we are confidently announce [Foreign Language] maybe announce [Foreign Language]. But we are not looking for the margins too much. We are looking at the total return [Foreign Language], how much market share we can gain. Because last year, if you see our -- before the corona, our margins are INR 3,000 to INR 3,200. Aggressive investment is not possible. I committed [Foreign Language] margin, INR 7,000 [Foreign Language]. We don't want to give this type of pressure. Our main aiming is to reach the volume of 4 million tonnes. So the tonnes sold today, this is not possible to go 4 million tonnes with this margin. Maybe tomorrow, this will be happen. So today, our main focus is what are we earning on the total amount of EBITDA and what type of volume we are capturing and what type of market share we are gaining.

Okay. And sir, this is a question [Foreign Language] Apollo Tricoat [Foreign Language] Maharashtra side [Foreign Language] products [Foreign Language]. And so [Foreign Language] volume growth, so Apollo Tricoat [Foreign Language]. So going forward, [Foreign Language] by the end of this year. So next year onwards [Foreign Language] products [Foreign Language] expectation.

[Foreign Language] projects [Foreign Language] because of the tax benefit in this project. We have a tax benefit of 15% of income tax from the government because of the new project. So during [Foreign Language] CapEx. So [Foreign Language] CapEx [Foreign Language]. So market [Foreign Language] Central India [Foreign Language] all India [Foreign Language] after the merger.

Okay. And sir, last question. [Foreign Language] government orders [Foreign Language]. So [Foreign Language] value-added products [Foreign Language] normal [Foreign Language] basic [Foreign Language] EBIT margin [Foreign Language] EBITDA per tonne [Foreign Language] lower [Foreign Language] government contract.

[Foreign Language] market [Foreign Language]. So that I can assure you [Foreign Language] [ 7,000 ], [ 6,000 ] [Foreign Language]. Something happens, this is not dependent on anybody else, this is dependent on us. Because [Foreign Language] these products are our innovative products and new products, monopoly products [Foreign Language]. Still we are working on this developing this market to be our study. We build up our [Foreign Language] area. [Foreign Language] area [Foreign Language]. Our [Foreign Language] area [Foreign Language]. [Foreign Language]. So [Foreign Language] building code [Foreign Language] Indian. So the clean method [Foreign Language] and we are still almost 10 to 15 buildings from [Foreign Language]. We are very hopeful the next -- the 2 months [Foreign Language]. They are very near market develop [Foreign Language] real estate subsidiary development some time. And [Foreign Language] environment [Foreign Language]. So it's [Foreign Language]. But unfortunately, India [Foreign Language]. India [Foreign Language] or margins can move out of both [Foreign Language].

Just one clarification that we are not bidding in the government tender. Okay, government tender will be on -- by one of the EPC contractors, and our customers will be that EPC contractor. We will not deal directly with the government here.

So there will be no pressure on working capital. You will maintain this working capital?

Yes, that is right.

The next question is from the line of [indiscernible], an individual investor.

Sir, congratulations to all Apollo teams for a good set of numbers. Sir, I have 2 questions. One question is that Apollo has issued [indiscernible]. And now [indiscernible], what will the impact of these shares on the profitability ratio and on EPS? And second question the working capital of INR 28,000 [indiscernible]. Sir, can you please explain how we have drastically reduced our working capital while our peers are having a bad problem with their working capital management [indiscernible].

So we could understand your second question, which we will address now. Later on, you could repeat your question number one. So coming on the working capital, see, I mean we could reduce working cycle in 2 areas. One is the debtors. Second is inventory. In debtors, if you see that right after COVID lockdown last year, we switched to cash and carry model, okay? Wherein from 35 days of collections, we reduced our collection days to 3 to 5 days. And the whole system got switched to cash and carry model, okay? And this has been sustainable, and we believe this will remain sustainable in the future because our distributors are earning higher margin from the cash discounts what they are getting and it is giving them better ROCs, right? So for them, it's more money on the table, they are happy to do that. Second is on the inventory side. Earlier, we have expanded our capacity from 1.3 million tonnes to 2.6 million tonnes. We used to -- we had to keep a minimum raw material inventory in our factories, right? So from the volume, as the volume has ramped up in next -- in the last 2, 3 years where we have taken 15%, 20% growth. So the inventory levels have not gone up in the same proportion, right? So in number of days, it has reduced, okay? So these are the 2 reasons that why our working capital cycle improved. And we believe that this should remain like that, below 10 days.

Sir, in cash and carry model we are collecting...

[Operator Instructions] The next question is from the line of [indiscernible] from Wealth Managers India Limited.

Congratulations on the quarterly performance. I have 2 questions. One is, like, regarding the [indiscernible] market size. I mean APL Apollo did around 1.6 million tonnes in FY '21, so which was at around 50% market share. So the derived market size would have been around 3.3 million tonnes. Whereas in the annual report, it is mentioned that it's expected to rise to 13 million tonne by FY '23. So roughly is it going to double every year to reach that number by FY '23? And the -- another part is, like, to maintain the 50% market share, APL Apollo will have to be roughly on 6.5 million tonnes of volume in FY '23. So whereas the capacity currently is 4 million tonnes. So if the capacity addition is still from 2.6 million to 4 million tonnes?

So [ Amrita ], what we have mentioned in our annual report is the potential of this industry, if we have to match India standard with other country standards, right? So if you look at the -- if you analyze other countries like U.S., Europe, China, Japan, over there, the structural tube industry represents 10% of the total steel consumption. For example, globally also, the total steel consumption is 1,800 million tonnes, and the structural tube industry globally is around 180 million tonnes, which is 10%. But in India, if the steel consumption is 100 million tonnes and the tube industry is only 3 to 4 million tonnes, right, between only 3% to 4%. As we are creating the market for our tubular products, you have seen how we have grown in the last 10 years, 25% volume CAGR. No building material industry has grown at this space. Why we could grow higher than other building material industries because we were creating new markets for our products, right? So India also at some stage has to go at 10%, like what we mentioned about these buildings -- 300 buildings what we target to have constructed using tubes. So that percentage will improve from 3%, 4% to 4%, 5%, 6%, 7%, 8%, 9%, 10%. And eventually, when it goes to 10%, and as per the government data of the steel, the government wants to, like, double the steel -- triple the steel capacity in India from 100 million tonne to 300 million tonnes. So that's the potential we are talking about. That if steel consumption goes to, say, 300 million tonne in 10 years, so the potential of our industry is 30 million tonnes. That's what we had implied, right? We are not saying that industry will grow. We are saying that could be the potential of this industry.

Okay. My second question is like from 2.6 million tonnes to 4 million tonnes will be mostly coming from the [indiscernible] steel pipes, large clientele pipes and the Raipur plant, right? So beyond that, I mean, what is the maximum capacity like expansion which APL can do in brownfield and before it has to do greenfield CapEx?

So our Raipur project, which is our 11th plant, that is all greenfield, okay. The color-coated tubes and the 500x500 square diameter tubes are coming there, right? So Raipur is a good hub to produce tubes in India because of the geographical advantage and availability of raw material also. Okay. So yes, I mean around 1 million tonne could come from Raipur, I mean, over the next 3 to 4 years. And the balance, 0.5 million, could come from to brownfield expansion. So as of now, our business plan is the based of 4 million tonnes, right, once we have the capacity next 2, 3 years, then we'll see which one plant we can go for brownfield and what we can do greenfield. But I think we have enough on our plates today -- on our table today to focus on 4 million tonnes. And beyond that, give us a few quarters, right? We will see how the volume goes up, how the capacity comes online, and then we'll come and tell you what's the plan beyond 4 million tonnes.

Okay. So just a clarification, the Raipur plant includes the color steel pipes and large [indiscernible] pipe. So it is around what is the capacity of the Raipur plant coming up?

So as of now, what we have on our table is 200,000 tonnes of each mill, right? So from 2.6 million tonnes, we'll go to 300,000 -- 3 million tonnes by FY '22. Total future plan of the Raipur plant is almost close to 1.1 million to 1.4 million tonnes.

The next question is from the line of Shaleen Kumar from UBS.

Sir, congratulations on a very good set of number, and your team also. So sir, the INR 4,000 to INR 5,000 tonne guidance, I think even if I use the current mix on the past quarter, you guys are crossing the INR 5,000 -- around 2,500 tonnes. So do you think you will go back to the fourth quarter [indiscernible] per tonne. [indiscernible].

My answer is not key. I'm going to INR 4,000 or INR 5,000 per tonnes because with this growth and volume maybe [Foreign Language] milestone [Foreign Language] first half almost [ 9, 9.5 ]. So [Foreign Language] because of the lockdown. [Foreign Language]. [Foreign Language] margins [Foreign Language] margins. [Foreign Language] margin impact. [Foreign Language] margins gain due to [Foreign Language]. [Foreign Language] amount. [Foreign Language] third party. [Foreign Language] We can do the best, we try to do the best.

So Shaleen, the point here is the absolute EBITDA, okay, which you to be say INR 100 per quarter 3 years ago, okay, which moved to INR 125, then INR 150, then it jumped to INR 200. And now we are doing INR 250, right, for the last 2, 3 quarters. The plan is that we sustain the run rate, the absolute EBITDA run rate, which is like above INR 200 around INR 250.

[Foreign Language], Anubhav. [Foreign Language]

We are trying for that. This, we are trying for that.

Very good, very good. [Foreign Language] because this is very, very positive, right? [Foreign Language]

[Foreign Language] This is not my nature. [Foreign Language]

[Foreign Language] hospital or oxygen plant [Foreign Language]. So you're dealing with the contractor here, right? So how does it work? Like, do you have -- because -- is this like readily a large quantity you will be dealing with. So make your order, working capital, which means what are the terms here?

[Foreign Language] building hospital [Foreign Language]. [Foreign Language] hospital, hotel [Foreign Language]. Like a 16-storey building [Foreign Language]. [Foreign Language] 800 square. [Foreign Language] [ 500 million ] [Foreign Language] that's all. [Foreign Language] 2.4 million tonnes. [Foreign Language] 4 million tonnes, 1.4 million, 1.5 tonnes [Foreign Language]. [Foreign Language] Tricoat, Apollo ROC, ROE [Foreign Language]. [Foreign Language] sky is the limit, no limit [Foreign Language]. But today, unfortunately, market [Foreign Language]. [Foreign Language].

You can look at Slide 38 in our presentation. We have given the names, capacity, margin, everything for our global deals. That's...

[Foreign Language] then create a market, then enjoy the situation.

The current participant has just moved out of the queue. We will take the next question in the meanwhile. That's on the line of Bharat Shah from is ASK Investment Managers.

Sanjayji, heartiest congratulations. More than just the outstanding profitability, which is taken by good supply that was to you. But what I am most impressed by is the [indiscernible] intelligent engagement with the changing marketplace. That's a hallmark of a great entrepreneur. So where we're really delighted is to how the company is engaged in dealing with the changing landscape, creating a space for retail and carving out brand-new opportunities. Phenomenal. I must appreciate. I basically wanted to put appreciation on the table.

Thank you, Bharat-bhai. Thank you very much.

Please comment [Foreign Language] Market share has improved, especialty sharing the overall pie has improved. When you look at competitively on the competitive landscape, what are the key impressions that come to your mind today? And when you think about it over next 3 to 5 years?

Bharat-bhai [Foreign Language] because of that, so I can't take their names [Foreign Language]. But [Foreign Language]. The steel industry [Foreign Language]. [Foreign Language] [ 1 million ] to [ 1.4 million ] pent up [Foreign Language] every year. 100% [indiscernible] [Foreign Language] net product, net segment in every year. [Foreign Language] market develop. [Foreign Language] market develop. [Foreign Language] #2, #3 players [Foreign Language]. [Foreign Language] steel price has increased in the last few months early, lots of products are on the stand basis. [Foreign Language]. Number two, long products, flat products [Foreign Language]. [Foreign Language]. But it's like there's forewind in whatever we are doing. [Foreign Language].

Thank you, Ji. The second and last question. If you think about next 5 years, not today, but over next 5 years. What is it that excites the most which is not visible and in numbers today in APL Apollo or in the industry? Something which is not even a tip of iceberg today, but it can be a game changer when we take a longer-term view of the business?

[Foreign Language] excited for the year. [Foreign Language] almost 15%, 14% year-over-year. [Foreign Language] one sided market may happen [Foreign Language] if you believe me, [Foreign Language] do 100% or not in India. Or all worldwide [Foreign Language] market size is not revenue. What the market size is less. [Foreign Language] targeting is 2 less than the market. [Foreign Language] I am targeting 1 less than the market. [Foreign Language] excited for the year. Number two, [Foreign Language] I'm not seeing the routine work at all. So [Foreign Language] guidelines [Foreign Language]

This is a fantastic attainment. And i.e., hallmark of a great organization is [ resilience and projectability ]. I think under your leadership, the whole APL Apollo team, this is a remarkable, remarkable journey. The first quarter is, without doubt, really very good. But just stating a fantastic journey. Congratulations [indiscernible]

Thank you, Bharat Bhai. Thank you very much, sir.

The next question is from the line of Sujit Jain from ASK Investment Managers.

Sanjayji, congratulations, especially on the margin [indiscernible] [Foreign Language] annual report, like the aspiration presently of 24-hour delivery service. [Foreign Language] Second, [Foreign Language] Zekelman 19% margin. So I saw that in your presentation. What [Foreign Language] But basically, [Foreign Language] how does the end customer and his architects quickly finds the APL Apollo products [Foreign Language]? And [Foreign Language] Or after that, as a homebuilding company, I think is the next step where you'll understand your customer far better because I'm sure [Foreign Language] the end customer, end architect aggregator [Foreign Language]

[indiscernible] Can you repeat the [indiscernible] You finished very quickly. [Foreign Language]

Can you repeat the first question? Sorry, we missed it.

48 hours delivery; annual report aspiration, 24-hour delivery. Second one...

Yes. Yes. Yes. I now the -- but 48 delivery system, if -- there is simple effect, what they did in the 48 and 24-hour delivery system in the raw material of our company. Now we are concerned to dispense the material within 6 hours from our plant to getting the orders. [Foreign Language] So if we have met 24-hour time, then clearly, we have to supply the material in 24 hours, any type of material. [Foreign Language] This is the question number -- first question. Number two, the deferment. Last -- before the corona, I visit the [Foreign Language] building supplies [Foreign Language] India building markets, [Foreign Language] we are studying on. We are trying to push the play in the markets. [Foreign Language] EBITDA margin, [Foreign Language] double digits [Foreign Language] we are working very hard. We have a plan, EBITDA margins double digit [Foreign Language].

Right. And the third question was on the [indiscernible]

[Foreign Language] Anubhav is working on mainly on this. Anubhav can answer this.

So on -- see, I mean the question which you asked was that how can an end user -- how can an end user look at the Apollo products and get the things built at his home, okay? So we have to showcase our products, right? And then we have to connect that customer to the nearby fabricator, who can go in and do the work. So we have seen that some of the players in the building material industry, like paints and -- they have been doing this. So on -- not on the same order, but pretty much inspired by that. We have already developed the app, okay, where we have categorized the applications into 8 categories, okay, for example, doors, okay, gates, furniture, then window frames, right? So there are like 8 categories, and there are 250 designs, okay, to start with. Those 250 designs are like 3D rendered designs, which you will want in your beautiful home, okay? And then we are enrolling the fabricators pan-India. We have started this exercise today, as we speak. There are 10,000 fabricators, which have already got enrolled now on that app. And the target is to take it to 100,000 in next 1 year. So once we hit 40,000, 50,000 pan-India, 150 cities, we can launch the app, right? And then see, I mean, today also there are applications in your home, right, from the main door, the steel gate when you enter, then there is handrails, there are staircase, there is door chokhat, there is window frame. There is furniture. There is balcony fencing, handrail. Then you go on your terrace, there is a beautiful shade, servant quarters. In the -- on the ground floor, there could be car garage, car park. All these is made on tubes, right? So we have to showcase the designs, right? That anyway, we have been doing this in your place, and we are giving you beautiful design, which will give you new ideas. And then we will connect you to the nearby fabricators. And then at the same time, we are giving the skeleton design to the fabricator for whatever design that you would select. So for him, it is a very easy job just to buy the tubes from the nearby retailer, and can do the work as per the design, which is already available free of costs to the fabricator. So that's what the attempt we are trying to do, we are trying to make. And in next 2, 3 months, we should be ready with the soft launch. Initially, we will do our digital marketing. Once we have some active user base, then we can go for the [indiscernible] as a payer branding for this. So it will help us in 2 ways. One is that the fabricators, they will get new leads because of this app, right? So they will be more than happy to buy Apollo products. And second, we will go more -- we will go near to the end customer, which is our ultimate goal, right. Which before like when we started 3 years ago with appoint -- 2 years ago with appointment of Amitabh Bachchan as our brand ambassador as sponsoring APL. Now is the third year that we are sponsoring [indiscernible] capital. So the ultimate goal is that we go as much near to the end consumer, which our other building material peers have done wonderfully in the last 15, 20 years.

This 24-hour delivery will make it really unbeatable trend. And Anubhav, clearly, this app will make our company truly a homebuilding company.

Thank you very much, sir. Thank you very much.

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

Congratulations for a very good set of numbers, especially in a challenging time. So just want to understand, I mean, how has been the demand recovery in June and July? I mean I can understand April may well like impacted because of COVID. So just trying to understand how has been that recovery. And what kind of volumes will be guiding for FY '22?

Yes. Now recovery July also so, so. Other things looking better than July by 50% to 30%. In the first quarter, we had done 3.7 lakh ton. We are starting for the Q2 about 4.5 lakh ton. And the Q3, we are targeting 5 and Q4 5.5. So I think total, we close to 1.8 million ton to 2 million ton. Our business plan is 2 million ton, but we are -- in the first quarter, we trailed by almost 75,000 ton. So we see if we can achieve this number or not, but we are surely 1.8 million ton we can cross.

That is great. That would be great. Our second question is on Tricoat. I mean the Tricoat EBITDA has jumped to almost INR 11,700 per ton. So just wanted to understand what is the driving factor here. Earlier, we used to do around INR 7,600, INR 7,800, and that suddenly jumped in this quarter. So just wanted to understand whether we have launched new products or there has been -- the inherent demand has been very strong. Or is there some other factor influencing this EBITDA number?

Certainly the -- one of the advantage about ILG. From last quarter, we started the ILG and slowly, slowly, we are adapting the ILG product. Number two, if you see our Apollo product also in coated tubes, our margins are high in the Lakshmi metal and Apollo metal also. So like that in the market signature types in Tricoat, the margins are also very good. So this is a result to further margins.

Okay. And this should be sustainable broadly around these levels because these are all your premium products. And so I think, I mean, compared to your commodity-grade product, this should be more or less stable margin business, right?

Yes.

Understood. Understood. And finally, last question is what is your debt balance at end of 1Q? And because of the higher steel prices that you have been seeing over the past few months, I mean, what kind of incremental working capital requirement will be there in FY '22 on an absolute basis? I can understand a number of days, we are broadly stable at 7, 8 days, so that's fine. But on the absolute number, I mean, if you can just give some direction, that will be great.

No, I don't think so we increase our debt. Because the whatever profit we are earning, we are managing from the -- and now my mindset and my culture, it's not acceptable that definitely I can increase my debt. My maximum price to decrease the debt, not increase. [Foreign Language]

So sir, so all the increase in steel price, will be better off now in better inventory...

Steel prices are now already very stable. Where the first increase for steel prices, [indiscernible] this is highest steel prices. Even the [indiscernible] prices, so they're reducing there.

Okay. So up next the debt -- sorry, sorry. Go ahead, Anubhav..

Our debt as at 30th June is INR 200 crores. This we have given in the presentation. The net working capital cycle stays at 8 days versus 7 days, okay? So to answer the question on any increase in the absolute net WC, right? So I mean you can calculate that my net working capital days has gone up by 1 day. Okay. One day in like -- in over a turnover of INR 2,500 crores, that means the overall WC would have gone by only INR 15 crores, INR 20 crores, not much even with the increase in the steel prices, right? So today, I mean, on this system where we are sitting, okay, 2, 3 days of net -- if we are able to sustain like WC below 10 days, then I mean INR 30 crores, INR 40 crores, here and there won't impact us at all. And this is the amount that -- by which our debt has gone up from INR 200 crores to INR 150 crores -- from INR 160 crores in March 2020 -- 2021. So I guess, I mean, you shouldn't worry too much on this absolute net WC. Because we are very much sure that our debtors of 4, 5 days inventory of 20, 25 days, that is pretty much sustainable on very, very long-term basis.

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

And it's good to see that the company is pioneering new product categories. I just wanted to understand one very broad question that as we're entering new product categories and launching new products, like, what is the step we're taking so that we're creating that competitive advantage? That if a new peer in the industry wants to launch a similar product, how many years before they can reach to the level of APL Apollo. Or like just how do we build that competitive advantage around these new products? [indiscernible]

Well, see, I mean there are like 5 -- at least 5 factors, okay, which one has to consider. Well, my peer has to go into the product category where like I'm into. So one is the -- one is the distribution network, okay? I mean today, we boast of 800 -- of having 800 distributors. If you look at our peers, I mean, there would be like 200, 300, 1/3 of our size; in terms of number of members, [ 30, 40 ]. And yes, I mean, even...

[ 30, 40 ].

Yes. So even if we go like very, very aggressive, that will be also be like below 100, right? Then second is the availability in terms of the plant locations, right? Our competitors, they won't have more than like 2, 3 plants at all. Today, we are running 10 plants and the 11th plant is under construction, okay? So I mean it is very easy to procure raw material and put up a mill and produce the tube. But then to sell that tube in the shape, in the size, which is -- for this, like demand is there in the market, number one; number two, to have the distribution channel, okay, to sell your product; number three, to have the full demand in terms of brand, which the end customer would ask for; and lastly, the logistics, the supply chain management to be able to complete the whole transaction. So I guess -- I mean when we are sitting at 2.6 million ton capacity, we're talking about 1.8 million, 2 million ton sales volume in FY '22. My immediate competitor is like doing 300,000, 400,000 ton in success in tubes per annum, right? So difference is like 4, 5x, okay, than my nearest competitor. Now to get into a new market, new product segment, the first thing, what needs to be done is to have the distribution network and the brand to be able to sell. Now for example, we are talking about these heavy structural tube, which are going into hospitals, oxygen plants, right? You think any government agency or any contractor, any consultant would recommend any sub-par brand? Okay. APL Apollo has been working for the last 7, 8 years to get a brand approved in thousands of government agencies, departments and private contractors and private developers, right? So for them to get this brand registered itself, it still will take 5 years, right, for them to be able to sell the product for such high reputed projects like hospitals, oxygen plants. We are talking about [indiscernible] hotels, commercial towers, malls.

First of all, they want the product now.

Right. Yes. So I think -- and that's been our strength, right? So all the products, what we have worked on for the tubes, et cetera, it's been like 5 years, 7 years, we create the market, we get the product and then they copy. So the gap is 5 to 7 years. And going forward, even for these new products where we are working, it's not going to be less.

The next question is from the line of Darshit Shah from Nirvana Capital.

Possibly and certainly, you keep surprising us with your numbers every quarter. So many, many congratulations for that.

Thank you.

Sir, my question pertains to the newer products you're [indiscernible] on higher structural achievement, which you are in conversations with a lot of government agencies and other developers and all. So sir, I'm -- what is the stake you are getting paid market development [Foreign Language] I mean if you can throw some more color around that.

I mean the [indiscernible] products are mainly -- they really can mainly can create for themselves there. For our [Foreign Language] other than [Foreign Language] Can you believe it [Foreign Language] it can cost almost INR 125 crores [Foreign Language] this project is almost close to INR 200 crores per [Foreign Language] I will definitely comment that [Foreign Language] which we will really find out of course how we [Foreign Language] because basically to me this is a easy process. [Foreign Language] next 3, 4 year [Foreign Language] 8 to 10 years [Foreign Language]

And I mean I'm -- with your, say, confidence, experience, pretty sure you will develop this market very soon here. And so many...

[Foreign Language] 10 years [Foreign Language]

So it is a very huge project. Government has already launched Ahmedabad, Mumbai and that is getting extended to Delhi. And they are talking about Delhi to Calcutta and all. I mean everything is on the table. There are already -- the design consultants and all, they are -- we are in discussion with them. So we expect that demand to come up late by -- sometime late this year. And it may continue for the next 10, 20 years, hopefully.

Sir, if [Foreign Language]

[Foreign Language] diameter [Foreign Language] which is not available to the competitors as of today. We're talking about large diameters for which we are already, very shortly, where our capacity is going to get started. [Foreign Language] It has to be no hindrance zone. So the use of steel will be immense there. And I think it may -- we may fall sort of capacity to serve that demand.

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

Excellent opportunity. You continue to surprise us over the last decade and generate good shareholder returns for all the stakeholders. Sir, just on the quarter 1 margin, which is again surprising. And was there an inventory gain element? Or you're guiding sustainable margins now inching towards INR 7,000?

No, no, no. Already as we tell earlier, this is -- I don't think this is sustainable. Not only is this -- maybe this is sustainable, but importantly, this is -- I'm not sure because there is a lot of factors for these margins. Some of the factors are in our hand and some of the factors are in the external hand. So I can't right now -- not the person to comment on this. But for the margin, where we tried to consult but [Foreign Language]

[Foreign Language]

[Foreign Language] But the margin is sustainable [Foreign Language] But right now, I'm not the person to comment on.

Right. Sir, second is also your presentation has been very good and detailed in where the company is heading. So it's very knowledgeable. So one of the slides, you have mentioned the different applications where currently aluminum profile is used or concrete is used, which can be possibly replaced by structural steel tubes opportunity. Which are those areas where you are already working on or [Foreign Language]

[Foreign Language] Today, we are selling almost [ 6,000 ] [Foreign Language] So [ 2.5 lakh ton ], we are selling every month. [Foreign Language] overall market [Foreign Language] both together primary and secondary market. [Foreign Language]

Okay. Okay. Okay. So sir, [Foreign Language] we have been very strong growth over a decade, normally at 22% to 23% CAGR [Foreign Language] So large part of the growth was also driven by you creating -- you have expanded the industry side as well as large shift in from unorganized to organized. [Foreign Language] unorganized sector [Foreign Language]

I think almost nil. After the industry growth [Foreign Language] cheap material and costly material. [Foreign Language]

Thank you. Mr. Pallav Agarwal, over to you, sir.

Can we entertain one last question?

Sure.

Okay. Can he go ahead, Anubhav?

Yes. Yes, yes. Sure, go ahead, Pallav.

Yes. Okay. Then just one last question.

Okay, sure. The next question is from the line of [ Vara Nadura ] from [ Safe Enterprises ].

Congrats on a great set of numbers. Sir, my one question is regarding our plans for cash utilization. In last few calls, you've mentioned that for the more commoditized products, you don't want to expand that capacity. You want to expand capacity for more value-added products.

Yes.

You also mentioned that we will use outsourcing to smaller player for more commoditized products. Yes, was just trying to understand how working capital will become here. So how will we use this cash in the next 3, 4 years?

[Foreign Language] outsourcing [Foreign Language] We are -- till now, we are doing 1 ton since last year. This year, between 1.8 million to 2 million ton. And we have a capacity of 2.4 million, 2.5 million ton capacity already. First, we utilize this capacity, then assess demand for [Foreign Language] low value product [Foreign Language]. Number one. Number two. [Foreign Language] I'm also one of the investors. I'm already -- frankly, if I speak on those [Foreign Language] but this year, we had done a mistake. [Foreign Language] So have gone back on track [Foreign Language]

Ladies and gentlemen, this was the last question for today. I now hand the conference over to Mr. Agarwal for closing comments. Over to you, sir.

Yes, sir, I would like to thank the management team for the very detailed explanation on the call. Sir, any closing comments from your side?

Thanks, everyone, for joining in here, and we look forward to speak with you in our next interaction when we report second quarter results. Thank you, everyone.

Thank you.

Thank you. Thank you, members of the management. Ladies and gentlemen, on behalf of Antique Stockbroking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.