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

Ladies and gentlemen, good day, and welcome to APL Apollo Tubes Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Lahoti, Emkay Global Financial Services. Thank you, and over to you, sir.

Thanks, Avirat. Good evening, everyone. I would like to welcome the management of APL Apollo and thank them for this opportunity. We have with us today Mr. Sanjay Gupta, Chairman and MD; Deepak Goyal, Director Operations; Anubhav Gupta, Chief Strategy Officer; and Chetan Khandelwal, Chief Financial Officer. I shall now hand over the call to the management for the opening remarks. Over to you.

Thanks, Amit. Thanks, Emkay Global for hosting APL Apollo for its quarter 1 FY '26 earnings call. I welcome all the participants and thanks to all the participants for dropping by. Q1 performance for APL Apollo Tubes was definitely below our expectations. The sales volume should have been higher by at least 5%, but there were various reasons why we could not achieve the target set by ourselves. Number 1 reason is the continued slowdown in the macro environment, which is evident from the weak industrial production data from the government side, as we know that for April and May, the IP growth was mere 2% to 3% and the expectations for quarter 1 FY '26 GDP growth is also a bit on softer side. Reason number 2, which resulted in loss of volume was the elevated geopolitical tensions which were -- which hit our volumes in two ways; number one, India-Pakistan war, which impacted the Northern state volumes for almost 1 week. And then in the last 20 days of July, the Middle Eastern war between Israel and Iran, it led to lower volumes in the Middle Eastern market and it set our export volumes also from Indian mills. The reason is the early onset of monsoon wherein the construction activity got halted, whether it were ongoing projects or the commencement of new projects, everything gets slowed down because no one was expecting that the monsoon should start or would hit the country within June month itself. And lastly, what we are witnessing is the softer money supply in the system, which is leading to the reduction in the buying power of our dealers and the stockist because their money is also stuck with the agencies and EPC contractors were working on the government projects. So what we are seeing is that the buying power of our channel partners has gone down a bit. Coming to the EBITDA spreads for the quarter 1. Of course, they are up Y-o-Y significantly. But on Q-o-Q basis, they are down by like INR 250 a tonne. And the reason for that is, of course, lower volume, which led to negative operating leverage and INR 100 per tonne is impact from the onetime notional expense led to ESOP, which increased our employee cost. Coming to the ongoing quarter. Things remain sluggish as compared to quarter 1. But we do believe that the second half of FY '26 should be pretty promising. By that time, the monsoons will get over and the government spends would also turn into the actual money supply into the system, which will increase the buying power of our channel partners. At the start of the year, during Q4 FY '25 earnings call, we had guided for 15% to 20% volume growth for FY '26. However, we believe this is slightly unlikely given the softer start to the first half. So we believe that the sales volume for full year should increase between 10% to 15%, assuming the macro environment does not worsen from the current levels. As you know that APL Apollo started its brand premium strategy in January of 2025 wherein we are focusing on maintaining EBITDA spreads. So what we believe is that once the demand environment comes back or it recovers, APL Apollo is ready with its capacity, its product line, its distribution network, it's brand pool. So volumes will come on its own. There is no point chasing volume at the cost of EBITDA spreads. So that's why we are not into the push strategy as of now. We are -- our focus is to continue to generate higher EBITDA spreads and elevate our APL Apollo brand in the customers' mind. And thankfully, we are pretty successful. Now it's been 7 months. We started this -- we implemented the strategy, and it is going fine so far. For the full year, we are hopeful, we are confident that EBITDA spreads should be between INR 4,600 to INR 5,000 per tonne, which is significantly higher than FY '25 EBITDA spreads of below INR 4,000 a tonne. Now in the mix of this economic slowdown, we continue to focus on our long-term capacity expansion plans, and filling the gap, so where we believe that we can take our capacity from 4.5, 5 million tonnes to 7 million tonnes in the next 2 to 3 years. So there are like 4 areas where we are working. Number 1 is expansion in the newer markets, which are Eastern India and Dubai market. So in Eastern India, we are putting up two plants with capacity of 500,000 tonnes. In Dubai, we are expanding capacity by further 200,000 tonnes. In South India also, we are coming up with 400,000 tonnes of newer plant, where existing products are fully utilized the capacity. Then second area we are focusing on is the expansion of new products wherein we are adding 500,000 tonnes of coated capacity and 100,000 tonne of heavy structural tubes. The third area which we are focusing is on export sales from Indian mill. So that's why we are planning to set up a plant in Bhuj, Gujarat area. And the plant will be majorly focused towards export sales and then it will also feed the Gujarat market for localization. And lastly, we are also working on putting up capacity for specialty tubes wherein we believe that 300,000 tonnes, 400,000 tonnes of multiple product categories can be created over the next 2 to 3 years in the nonstructural space. On the balance sheet front, we are net cash and our working capital days remain prudent in single digit. By end of FY '26, we shall be sitting on much larger cash surplus, what you see today. And lastly, proud to tell you that we have achieved -- our plants have achieved 72% of power consumption based on renewable energy, which states our heavy commitments to our ESG goals. And we target to take this contribution from renewable energy to 80%, 85% over the next 2, 3 years. And this not only helps us in meeting our ESG targets, but also reduces the overall power cost for the company, which right now is 0.8% of the product value continues to go down, and it gets aligned with our cost optimization strategy. Amit, that's all from our side. We are open to take questions now.

[Operator Instructions] The first question is from the line of Amit Dixit from Goldman Sachs.

Just a couple of questions from my side. The first one is regarding the slowdown that you mentioned in your opening remarks appears to be transient. But how is the competition building up, particularly from your peers and in the general structure category, if you can highlight that? And do you see this payables buildup largely because -- possibly because of your cash strain on your dealers essentially. So do you see it going away in H2? So just wanted your thoughts around the same?

So see, I mean, if you look at our general category, okay, we mentioned this general category because earlier, we were making EBITDA spreads below INR 2,000 a tonne, right? Now it's been 2 quarters that the EBITDA spreads are near about INR 2,800 a tonne, right? So we are able to increase our margins by almost INR 1,000 a tonne in the last 6 months. So it's no more commodity, right, because -- and you can see that the volume also, it has not declined in last 6 months. So the market has absorbed this price hike, right? I mean -- and in next few quarters, you will see that this general doesn't remain general, okay, because everything is making superior margins. So this suggests that there is no competition in this space, even when we have increased our pricing. And this bundle also takes account of products manufactured in Dubai, right, because this is as per the sizes, correct? And in Dubai, at the same size, we also make INR 4,000, INR 5,000 per tonne EBITDA spread, right? So I think -- I mean, as a strategy of decommoditization, we are pretty much on track. And whatever we are producing in range of 50 by 50 to 100 by 100 mm range, right? APL Apollo has created its own niche own brand in this segment. The competition is playing almost now INR 3,000 per tonne below pricing levels, right? So we don't feel the heat from the competitors at this price point. And on second question, you talked about payable days, right?

Yes.

So payable days are not related to the stress at the dealer level. If you see our receivable days, it remains unchanged quarter-on-quarter basis. Creditors, of course, have come down because we generated cash, right? So we just kind of like paid 2 steel mills in advance, right? And we did get some benefit also on cash purchases.

Okay. Fine. The second question is essentially on the employee cost. So you mentioned that there was a onetime impact of ESOP. So possible to quantify that? And what could be the sustainable employee cost? Also, is there any element of dealer incentives in the other expenses?

Right. So that notional ESOP cost was INR 6 crores, right? So the -- going forward, you can assume INR 88 crores -- INR 87 crores, INR 88 crores to be the sustainable quarterly employee cost, which should come around eventually INR 600 to INR 700 per tonne, right? Right now, you would see it at INR 800, INR 900 a tonne. But the absolute employee cost will not go up from current level, and it will settle around INR 600, INR 700 a tonne.

Okay. Okay. And dealer incentives, any element in this quarter?

No, no. So no discounting, nothing.

The next question is from the line of Vikash Singh from ICICI Securities.

Sir, my first question regarding your 10% to 15% volume guidance. Even if you look at currently, since the last year, second half was heavy, our asking rate is still closer to 900 Kt or more. So -- and you talked about the slowdown, which usually takes time to reverse. So just wanted to understand then which are the pockets from where we are generating this confidence of meeting that 15% kind of the volume guidance?

So Vikash, I mean -- so there are 2, 3 areas right from where we will get the volume. Number 1 is our exports and Middle East, which slightly got impacted in month of July due to the war, right? So that volume will recover in quarter 2. We have already started seeing that from July right? That is one big pocket where we are getting incremental volumes. Number 2 is our two new product lines got started, right, which will contribute in the next 7 to 8 months. Number 1 is the 1,000 mm by 1,000 mm heavy structural tube, right, with capacity of almost 100,000 tonnes. And second, in rust proof tubes, right? That also 300,000 tonnes of capacity has come up, that will give incremental volume because we are already running short of capacities in that segment. And thirdly, see, I mean second half normally is always skewed over H1 for the construction material sector, right? Assuming that we are over with monsoons by August, September, right, it will give a very good runway for projects to take off, right, in the third quarter. And in Q4, the focus areas from the government side, whether it is Indian railways, where a lot of our product is going or whether it is aviation. Again, a lot of our products go there, right, health care infrastructure, right? And then private real estate, private infrastructure, which comprises of warehousing new factories from the corporate right? So we expect a lot of activity within the economy to pick up, right? And we are present in all these segments. And lastly, which has not done well for the last 2 years now, Vikash, is the retail side, right, which comprises almost 50%, 60% of our sales. I'm talking about independent homes, right? Now with inflation coming down and interest rates coming down, at some point, discretionary spending will also kick off, right? And people will go for home renovation, home improvement, right? And our distribution network, our product portfolio, our innovation, our innovative products, everything will fall into place once we see pickup in that segment also. So I guess there are multiple levers, Vikash, which can give this asking run rate over the next 3 quarters. Of course, second quarter will remain soft, right? As far as July is concerned, but yes, a lot of newness will come in the last 6 months of the financial year. Assuming macro does not worsen from here, right? Macro doesn't worsen from here.

Noted. Noted. My second question pertains to our capital allocation. This has come in the past as well. Our CapEx requirement and working capital requirement is far below than the cash we are generating. So how should we look at the excess cash in terms of dividend you would distribute? Or what would we do with that cash? If you could just throw some light on the capital allocation?

So Amit (sic) [ Vikash ] , so there are two things, right? One is that if I generate $100 of EBITDA, okay, my operating cash flow will be similar, right, $95, $100. So we have created 4 buckets okay, of $25 each. Number one will go for serving tax, which will go to the government, first bucket. Second bucket will go into CapEx. We are a growth-oriented company, right? We are looking for newer geographies, newer areas, newer products, right? So 20%, 25% of our cash flow, we want to spend on CapEx. Third bucket of 25% is shareholder reward in form of dividend or buyback, right? It will depend on the Board and shareholder approvals, right? But yes, we do want to distribute more dividends or go for buyback, right? And the last bucket, which is 25%, that is -- we are keeping as a buffer, which gets added on to our balance sheet, and we repay our liabilities, right? So if you see that in Q1 also, our current liabilities, which are payables creditors are reduced by almost INR 400 crores, INR 500 crores, right? So as we generate more cash, we want to have our balance sheet as totally liability free. We are debt-free today, but we want to be liability free. And maybe we buy steel on cash and look for some discounts from the steel mills.

Understood. If I may just ask one more question. See, our sequential, if you see our value-added product sales has jumped 3 percentage points and general has also relatively done pretty well. Still our EBITDA per tonne was on the lower side. In past, we have maintained that we have a low fixed cost kind of a thing, we are lean production. So what else we are missing basically? If you could just give us some more color on that?

So Vikash, I mean, the quarter-on-quarter EBITDA decline was INR 180 per tonne, okay? Out of this, employee cost is almost higher by INR 300 a tonne on a Q2 basis. So actually, because of better value-added mix, right? Our EBITDA spread increased by INR 100 a tonne. If you look at my gross spreads, they also increased at by like INR 400 a tonne, right? So if you deduct this INR 100 per tonne of ESOP expense, right, which is notional onetime and also the reversal in the employee cost, which happened in Q4, right? So my improving gross spreads, right, they are because of my improving product mix and our strategy of decommoditization coming into play.

The next question is from the line of Muskan from B&K Securities.

Sir, my first question is in Middle East, your sales were at an average of 17,000 per metric ton last quarter. So what is the monthly average sales from Dubai plant now? And how is the demand and pricing situation in Dubai?

So the mix -- I mean, the run rate was same, right? It was supposed to go up in July, but because of the tension which came from the geopolitical war, right, the run rate got a bit disturbed. So overall, Dubai contributed 6% to our overall volumes.

Okay. And how is the demand in pricing situation in Dubai?

Now it's back on track. Things are pretty stable now, and the utilization rates are going up.

Okay, sir. Sir, there has been some delays in commissioning of the HRC capacities in India, which is one of the reasons to keep -- that is keeping the spreads higher? And when do you expect this to ease out?

I didn't get your question. Come again, please?

So there has been some delays in commissioning of the HRC capacities in India, which is one of the reasons that is keeping the spreads higher between the HRC and Patra. So when do you expect this to ease out?

See, I mean, commissioning a steel plant is 5 to 6 years process, right? I mean, delay of 6 months, 1 year is very normal when projects at such large magnitude come online, right? So we expect that in second half, steel supply should increase, right? And then depending on like what's the pricing strategy from the steel mills, we'll see how spreads behave. But I mean, when APL Apollo decided to change its strategy to elevate its brand in January 2025, so we were pretty sure that, I mean, now -- I mean, our general segment should not fight with Patra, right? And we are confident that within the same segment, we can demonstrate the desired volume growth.

Okay. So in the last call, you mentioned you are charging some premium over general products. So what is the current premium that you are charging over Patra players in general products? And if there is continued increase in spreads between HRC and Patra and also introduction of SG brand, do you expect the EBITDA per metric ton for general products to sustain?

Okay. So coming to first question that we earlier when we increased our prices before that, we were selling or I would say our competitors who make HR coil-based structural steel tubes. They were selling INR 1,000 to INR 1,500 per tonne below APL Apollo pricing, okay? Now the gap is INR 3,000 after we increased our pricing by INR 1,000 to INR 1,500 a tonne, right? Adding to this, that HR coil tube pricing and Patra pricing will always -- like right now, the gap is INR 8,000 to INR 10,000 a tonne, right? And with us, with Apollo increasing its selling price by INR 1,500 to INR 2,000 so that is INR 10,000 per tonne and with competition against Patra could be INR 8,000 a tonne, right? So again, see, I mean, as a strategy, whether to add products, whether to utilize capacities, right, our business model is to switch away from that general sales, right, which can impact volume or which suffer because of this gap, which is between Patra and HR Coil. We want to move our business model away from this and be consistent with the construction activity in the country.

Okay, sir. Sir, one last question. The SG Mart has won orders of solar module mounting structures under APL Apollo SunSteel. How is this product different from the products that Apollo is trying to cater to solar industry? Could you please talk about the order wins in solar?

So they are very different, right? What Apollo does for solar sector is the manufacturing of top tubes, right, or our flat steel, which goes into solar market structures, right? That's like pure manufacturing. What SG Mart is doing is mine processing profiling of solar structures. So both are very, very different products, and they don't -- and they have very different applications.

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

Sir, with HRC prices softening a little from the month of June. So do we expect any destocking at a distributor level?

Hello, it's been almost 1.5 years that dealers have been destocking only, right from October 2023 when we started seeing the decline in steel prices in India that INR 2,000 or INR 3,000 per tonne uptick, which came in March, April 2025 after the tariffs were imposed, okay, dealers have been sitting light only like since October 2023. So it's not that now that steel prices are again coming off to INR 2,000 and INR 3,000 a tonne that we will see massive destocking because dealers are anyway sitting light on inventory since -- for the last 18 months now, consistently.

Okay. Also, you mentioned these payables, we've reduced. So how does the pricing work with this major steel mills?Like do they give some credit period or they insist on upfront cash payments. So if you could just explain that broadly?

So Pallav, this is a bit sensitive matter. But what I can tell you is that -- what I can tell you is that we have been getting credit from our suppliers, right? As you would see, creditor days of 25, 30 days throughout in our balance sheet. Now with surplus cash coming in our books, we want to reduce some current liabilities and see if we can get some extra discounts, which we are, but quantum is a bit sensitive to discuss.

The next question is from the line of Sneha Talreja from Nuvama.

Just a couple of questions from my end. We, of course, hinted to H2 demand revival, and we always do that in the building materials space. But what's the real change that we're expecting? And how confident are we for that demand pick up, especially on the infrastructure part as well?

So Sneha, 2, 3 factors which give us confidence. Number one is like the critical infrastructure from the government side, whether it is railways, aviation, okay, these two sectors have not seen any slowdown in the funding. Roadways, of course, but we don't supply to roadways, except some foot over bridges where our products go for NHAI projects, right? But the critical infrastructure remains the focus area for the government, right? So that gives us a lot of confidence. Then second, private infrastructure, whether it is warehousing and corporate expanding, which are putting up factories. So our structural steel tubes go in both the segments, right? Then another category in private infrastructure is commercial, whether it is like large developers, organized developers adding more A grade, B grade office space, data centers, which are coming up, right? It requires a lot of steel, structural steel tubes. Then the third segment, which we see as sunlight area is solar, right? So whether it is top tubes or our flat steel, which is going in this segment, we are getting good traction from here as well. So yes, a mix of these segments, Sneha, we believe that second half should be significantly better than first half.

Understood. Sir, secondly, on the primary and the secondary steel gap, I clearly recall that you're telling that things actually worsen when gas hits INR 10-odd and INR 8-odd probably [indiscernible]. We are almost at that level now. Are you seeing demand moving back on the general structural side to Patra players? If yes, or what is the structural way of dealing with this volatility? Because whenever we see gap reducing, we of course see a great amount of volume uptake for your company, but then it always reverses whenever the gap extends. What is the structural way of looking at this gap?

So Sneha, addressing the second part first, right? As a strategy, we are decommoditizing our portfolio, right? So that means we add products such as heavy structural tubes, light structural tubes, coated products, right, pre-galv rustproof products, right, and galvanized products, right? So these are all which don't get impacted from whatever is happening between primary and secondary because the inability of secondary steel to produce such products. Second, moving or increasing sales in Dubai and export. markets, right? There also, we don't get impacted from primary secondary. Sanjay, do you want to add to this?

Yes. See, you have to see there are 2 type of markets in India. One is the primary steel tubes market in India and number two, the secondary steel market of India. When the gap is more so primary what we are doing, we are doing [Foreign Language] but when the gap is narrow, then we eaten the market of also the secondary market also. Then this is our -- we have another advantage [Foreign Language] 20% 30%, 40%, we can take any type of growth. But if there is a gap between the secondary and primary is too much, then our growth is restrictive about 15% depending on the market.

Understood, sir. Understood. So I think this change in the strategy as for the gap changes, I think that's likely to continue even ahead.

Yes, when the gap is narrow, then we also -- then again, we go for killing the Patra material. But when the gap is too much, our margin 3,000 [Foreign Language]. But when the gap is near down by 4,000 and 5,000. [Foreign Language]. There's no time then we are going to enter the market again.

[Operator Instructions] The next question is from the line of Anupam Gupta from IIFL Capital.

First question is on the sale in Shankara, which you have done in the quarter. Can you just give your thoughts on why that sale happened?

So Anupam, when we had invested in Shankara, right, in March, April of 2022, the idea was to have a small stake, right, to ensure that Shankara starts selling more of APL Apollo products, right? At that point of time, our market share on Shankara counter was like 20%, 25%, whereas all our distributors of large size were selling 80%, 90% of Apollo products, right? So we wanted Shankara to sell more of APL Apollo products, right? And we identified that the company needed some capital, which we infused, right? And there was this understanding that with this infusion of capital, Shankara will start selling more of APL Apollo products. So in last 3 years now, 3, 3.5 years, the sales on Shankara Counter has quadrupled, okay? Now that we have achieved this target, okay, there is no point of holding Shankara shares, right? Anyway, stake was below 10%. So we sold 4%, 4.5% last year and the balance shares we sold in last quarter. So yes, I mean, now the dependence between Shankara and Apollo is high on both of the sides, right? So there is no benefit or advantage of Apollo holding shares of Shankara.

Understand. Okay. And second question is on the general structure profitability. You mentioned that this INR 2,700 and INR 2,800, which you are achieving also have the benefits from Dubai, which is if we assume Dubai is selling almost entirely of general structure, it is a meaningful contribution coming from there. If you exclude that, the India profitability of general structures will not be INR 2,800. It will be closer to about INR 2,200 and INR 2,300 if my calculation is correct.

No, it will be -- no, Anupam, it will be INR 2,400 and INR 2,500 a tonne.

Okay. Okay. So do you -- are you comfortable with that level? Or that again comes at risk as this gap is increasing?

No. No idea is to take it above INR 3,000 a tonne.

And will that be doable, if, let's say, this -- the gap versus Patra continues to expand, which you said is right now at INR 10 per Kg?

So Anupam, that's what Sanjay ji explained that the primary steel market is different, right, which is like 5 million tonnes and secondary steel market is another 5 million tonnes. So 5 million tonne market will -- out of that, say, the General segment is 40% out of that 5 million tonnes, right? So that will continue to grow at 5% to 10%. If the gap reduces, then the 5 million tonnes from secondary will come to primary, right? And that's where we will get our incremental volume. But since we don't know when this is going to happen, so there is no point building a business model around it, right? What we focus is on the primary structural steel to market, which right now is 5 million tonnes, right? And out of that, almost like 3 million tonnes is commodity general and 2 million tonnes, 2.5 million tonnes is value-added. So yes, I mean, that's how we build our sales strategy.

Understand. And one last question on the profitability guidance that you gave, INR 4,600 to INR 5,000. Last time, you had said, let's say, somewhere around INR 4,900 or so achievable with 20% volume growth. So the INR 5,000 is understandable, you have increased the range because of lower volume growth. But let's say, does this include the benefit which you are trying to accrue by having lower payable days because lower payable days also impacts your ROE in that sense. But does this range include the benefits from better margins due to lower payable days?

Of course, yes. But like it was just like in the last month of July only, like we could have such cash to lower our payable days. So yes, we are talking to our suppliers. We are talking about suppliers, right? And if we see the benefit, then yes, we'll continue with the strategy. If we don't see the benefit, then the surplus funds will generate 6%, 7% of fixed deposit rate.

Right. Okay. Okay. And one last question, sorry, on employee cost, you said the ESOP cost is notional, but your note says that ESOP -- no ESOP was granted so far. So has this ESOP, which you have approved in today's Board meeting, the notional cost for that has been booked entirely? Or will it recur in the following quarter?

No, no. So today, Board meeting approval is separate. This was for the previous ESOP, which were issued like a year back, 1.5 years back. They got accrued and they're getting converted. So that's why this notional.

So what you have announced today, that will have additional cost in the following quarters?

This is just an approval. We have not decided how much what ESOP will be given. I don't think in next 12 months, we'll be issuing any ESOPs. And next 12 months, anyways, the -- in next 12 months, any ESOP will be issued. So there is no cost which is expected in next 1, 2 years.

Yes. Anupam, just to add to your previous question on the return profile, like you said that if creditor days come down, right, payables go down. So our ROCE, our return profile will look low, right? So I think that is the strength of our business model, right, that if we generate cash and we are able to lower our payables and since we churn our inventory 15 times in a year, right, with 20, 25 days of inventory, that means I'm churning my inventory 15x in a year. And whatever cash discount we get, right, from our suppliers, right? So it should give -- we are sure that it will give more return compared to the money lying in the fixed deposit, right? So we are a very ROCE-focused company, Anupam, right? So whatever we will do, we will ensure that it is ROCE accretive, right? Optically, it may look a bit low, right, if you include cash. But if you look at the gross ROCE where you take working capital as inventory plus debtors and you remove debtors, right? So that's how we look at our business model.

The next question is from the line of Akshay from AK Investment.

Am I audible?

Please go ahead. .

Sir, my first question is there are lots of traction in sectors like data centers, solar, electronics manufacturing, consumer durables and these players are doing very heavy CapEx. So do we supply in any of these sectors? And over the next 2 to 3 years, how much volume growth do we see from these emerging sectors?

So if you talk to the large fabrication companies in India, some are listed also, right? These companies are called pre-engineered building companies, PEB companies who take contracts from all these corporates who are expanding massively, right? And why only such companies, even APL Apollo is putting up 4 plants. right? So yes, Indian corporate is expanding, and they are putting up a lot of new facilities, new plants. So yes, so these large PEB companies, they do take a lot of Apollo steel sections, a lot of structural steel tubes from APL Apollo. And our market share is 60%, 70% in this segment. We expect the growth to be 20%, 25% for the next 3 to 4 years, particularly for this segment. And that's why on this conviction, we introduced 1,000 mm by 1,000 mm diameter pipe, which obviously we are first in India and second in the world to be able to produce such an SKU.

Okay, sir. And sir, what is the current capacity utilization in our Raipur and Dubai plant?

So Dubai plant is around 60% plus and Raipur is tagged below 60%.

Okay. And sir, earlier we said that we are supplying our steel tube to Indian Railways. So which are the use cases in Indian Railways, can you please justify?

Indian Railways is all the modernization of railway station, which is taking place, right? Maximum railway stations are coming on steel, and that's where we are supplying. We have given list in our presentation also almost 20, 30 railway stations where we are supplying our products, which are under modernization.

The next question is from the line of Hardik from White Whale.

First question is, why is the EBITDA per tonne lower in this quarter compared to last quarter? And the second question is, last quarter, you had mentioned that you want to reach ROIC of 35% next year and 45% in the next year. Will it be achievable saying that trade payables increase?

So EBITDA spread decline on Q-o-Q basis is mainly because of increase in the employee cost per tonne by INR 300 per tonne. Okay. So employee cost goes up as the volume declined, right? In Q4, we did 850,000 tonnes. In Q1, we did 794,000 tonnes. So employee cost goes up, right, which is negative operating leverage. And second was, like I mentioned, was the ESOP expense, which is notional and onetime, right? So if you exclude that, we will be at similar EBITDA spreads, what we achieved in Q4. Coming to the second question, I mean, payable days, see, I think as -- I mean, at least as businessmen, what we believe is the real ROCE, which is based on gross working capital, right? Because creditors also we consider as liability, which we have to repay, right? Like you have liability in form of borrowing from bank. Same way, we consider current liabilities, something which you have to pay to our steel suppliers no matter what, correct? So yes, I mean, optically, 35% will not look on paper if we reduce our payables to 0. Right? But like I said, that will depend on like how much discounts we are getting by making cash payments, right? It's too early to comment on that. And if at all, like our investors, shareholders, Board suggests that ROCE should be 35%. So we can always go back to taking credit again from the steel suppliers, right? So I think it's something which the shareholders and Board have to take decision, right, along with the management, like what is good for the company, whether to show optically 35% ROCE or to generate more cash if we are able to churn our inventory by 15x in a year and generate more return than a fixed deposit return of 6%, 7%.

Yes. But the fixed -- instead of fixed deposit, you always have the opportunity to reinvest, right? Isn't that always the goal of APL Apollo?

Say it again?

No, instead of the fixed deposit, which you had mentioned, you always have the opportunity to reinvest back in the business. So how is that not the case?

So 25% of our cash flow, we are investing in adding capacities anyway. And if there is more opportunity, so yes, I mean, we will spend on increasing capacities or it could be some inorganic growth opportunities, whatever comes our way.

[Operator Instructions] The next question is from the line of Neel Shah from Purnartha Investment Advisors Private Limited.

So I would just like to repeat on one of the previous questions. So can I know our EBITDA spread guidance for the current year and also the revenue guidance and the volume growth guidance?

You'll have to come again. There is an echo on your voice.

Am I audible.

Go ahead.

So can I just know the EBITDA spread guidance and the volume growth guidance for this year?

Volume growth guidance is 10% to 15% for the full year and EBITDA spread guidance is INR 4,600 to INR 5,000 per tonne for the full year.

Okay. And what about the top line?

Top line will depend on how [indiscernible].

How do you expect the prices to move?

I mean, that's difficult to answer because that's not in our control. So we don't work on like how prices move. What we want to protect is our EBITDA spreads, no matter how steel prices behave.

The next question is from the line of Andrey Purushottam from Cogito Advisors.

Yes. I noted that your value-added products were about 61% versus 56% or 58% in the previous quarter. What I wanted to know is that if -- let's say, if you make a constant volume projection, what is the sensitivity to every percentage increase of value-added product to your EBITDA per tonne? So let's say, if it goes from 61% to 62%, what is the incremental EBITDA per tonne that you get? And is there any outlook that you have for your value-added mix proportion?

So Andrey, I guess if you want to see the real benefit of improving sales mix, right, you should look at the gross spreads, okay? Now in Q1, our mix improved versus Q4 last year, right? And you can see that our gross spreads also improved by INR 400 per tonne. But that did not translate in INR 400 per tonne, yes, my gross spreads, right? But it did not translate into EBITDA spread improvement because my volumes were lower. So there was negative operating leverage came into play, right? And secondly, this ESOP cost, which was notional, right? Now if I remove that, then I mean, EBITDA should have been much higher compared to Q4 last year. Now coming to the sensitivity, it is tough to say because APL Apollo has like 5,000-plus SKUs, right? Out of those, 60% are value-added. Now within value-added also, we have products which generate INR 4,000 per tonne. And then we have products which may generate INR 15,000 per tonne EBITDA also, right? So depending on which segment does well in which quarter, right, that's how the spreads will improve. But one thing I can tell you is as our sales mix continue to improve, our spreads will also improve in the similar pace.

So would you be able to guide us to what the 61% could do for the entire year?

Yes. So I think it should remain at similar levels. Our ultimate goal with 7 million tonne capacity, which will be live by FY '28, we will be 70%, 75% value-added.

The next question is from the line of Shweta Dikshit from Systematix.

Anubhav, just wanted to -- I joined a little late, so not sure if you addressed this before I joined, but volume guidance for the year is now 10%, 15%, which was 20% last quarter. So any reason behind this revision?

Shweta, yes, the earlier guidance was 15% to 20% growth for the full year. Now it is 10% to 15%. The reason for downward revision are like, number one, slow offtake in H1, right, because of macro slowdown, if you look at the government data, like index of industrial production, GDP growth projections, right? Everything is like kind of on softer side, which has also impacted demand for our product. Second, monsoons, which came a bit early in month of June, right? So June month got hit badly. Then third was the geopolitical tension, which we saw in April when India-Pak war was there and then in June, Iran-Israel war started, right? So that also led to some volume loss. And also, if you look at the money supply in the system, that's also a bit slow. So our dealers, stockist, channel partners, they don't have too much of money rotation going on, right? And this is not only for our sector, you look at the other construction material, other consumer-related channel partners, they will have the same issues, right? So that's why we kind of revised down our guidance from 15%, 20% to 10% to 15% because of the slower offtake in H1.

Understood. And any potential revision if we see a second half to be stronger than we expect then -- or is this the final guidance that we could see at least as of now seen?

No, why not, Shweta...

Do you account -- are you also including your view that second half may it should be better? So does this include your view on the second half being stronger or there could be an upside to this number?

I mean we would love to have upside to this number. As far as we are concerned, we are ready with our capacity. We are ready with our product line. We are ready with our distribution network. We are ready with all the working capital, which is required to fund this growth, right? Our brand pull is there in the market. It's just that some external pull comes in, right? And then yes, I mean, if environment supports, right, the growth can be better than 10% to 15% for the full year. Nothing stops us from achieving higher growth.

Understood. And one last question, if I could squeeze in one more. You said by '28, you will be ready with a 6.8 million tonnes of, let's say, production capacity and but the sales number could likely be 5.8 million tonnes?

So, it will depend on what is the volume growth we actually achieve in FY '26 and then FY '27, FY '28, how they pan out. When we say 6.8 million tonne capacity, that is sellable capacity. That means we can produce and sell that 6.8 million tonnes from our plants. So this is a salable capacity.

The next question is from the line of Sneha Talreja from Nuvama Wealth.

Just two questions from my end. One is you said you're open to inorganic opportunities. That would be the case, what sort of opportunity in which area that would be? Can we see anything on the secondary pipes also to target that particular market specifically? That's one. Secondly, could you speak on more export opportunities leaving apart the Dubai part of it, which you're already doing? And which our geographies can be viable for us?

Sneha, We are not going for the secondary, any type of acquisition because secondary steel is no future because the quality is very bad. Number two, the cost of production is very high. But in India, there is steel scarcity, so they are surviving. So I am not -- we are going for the secondary steel because then we demolish our brand also [Foreign Language] the secondary business is not [indiscernible] secondary go to narrow, then the secondary business would wipe off. If you see the last 30, 40 years in history [Foreign Language] I don't think this is a good future. So we are not going for the secondary at all. I'm very, very clear in the two things. We are not going for steel making. We are not going for secondary. Number two, the export opportunity, yes, there is a very, very good chances for the [Foreign Language] because we have a very good order book in Dubai plant. Now we are also putting a plant in Bhuj for only focusing export. [Foreign Language] is very less. Right now, if you see in the last 10 days, there is a big change in the Indian steel industry. Today, India is lower than the Chinese steel prices. China is almost increased by steel in the last 10 days, 12%, 13%. India has decreased almost INR 1,500 per tonne this month. [Foreign Language] But right now, the things are not good for us. So we are maintaining our margin, going for little bit 10%, 15% [Foreign Language] because geopolitical economy is not doing well [Foreign Language] 20%, 30% whatever volume growth because we are ready with every shelf. So export, we are -- no doubt, we have a big vision. In the future, the 7 million tonne capacity, we are targeting to take the Dubai 1 million tonne and India maybe 0.5 million tonne plant in Bhuj, 0.3 to 0.5 million tonnes in the future. So export, we are very, very okay. And secondary, there is no question.[Foreign Language] We know this is not a future.

The next question is from the line of Aditya Welekar from Axis Securities.

Sir, just focusing on FY '27. So if we just keep aside the factors which are not in our control, like the geopolitical scenario and all, so you have guided previously that we will grow by 15% to 20% again in FY '27 over FY '26. So are we putting any kind of market penetration or SKU addition, new product development, which gives us some visibility over that growth in FY '27?

Yes, of course, see, I mean, assuming we close FY '26 at 10% to 15%, right? And everything in terms of macro, in terms of geopolitical, in terms of global trade war, all these things are settle down along with Indian consumption starts to revive, right, then FY '27 growth could be much higher than 15%, 20% because of the low base of FY '26, right? And like we said that in terms of capacity, in terms of distribution network, in terms of new products, which we launched in last 1 to 2 years, new product pipeline, which is there in the next 2 years, the new segments like renewable energy, like heavy construction, where we are adding more products and we are becoming more aggressive. We are penetrating deeper into these industries, right? So yes, I mean, FY '27 could be much higher than 15%, 20%.

And EBITDA per tonne trajectory in that financial year, can we assume it will be north of INR 5,000 per tonne?

See, our ultimate goal is to achieve INR 5,500 to INR 6,000 per tonne, right? And this -- and on the business model, what we have built for 7 million tonne capacity and sales volume eventually, right, this pretty much fits into it, okay? Now the question is that FY '26, we are saying between INR 4,600 to INR 5,000. Let's see how second half pans out, right? If volumes grow faster than what we expect because of operating leverage benefits, it could be near about INR 5,000 also, right? But very difficult to say right now because of the uncertainty, what we have seen in the first 4 months of the current financial year. Next year, FY '27 will definitely be better than whatever we closed in FY '26.

Ladies and gentlemen, due to time constraints, that was the last question for the day. I now hand the conference over to the management for closing comments.

Thanks, everyone, for joining by. I look forward to see you over the next results earnings call. Thank you so much.

Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.