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

Sir, you can start with your opening remarks.

Hi. Good evening, everyone, and welcome to APL Apollo's Quarter 3 FY '26 Earnings Call. I would like to take this opportunity to congratulate Team Apollo for such a stupendous performance in a quarter which had multiple headwinds such as subdued macro, construction ban in Delhi-NCR, and falling raw material prices. If you look at our performance, I would like to highlight a few points. Number one being that the 9-month sales volume increased 11% Y-o-Y, which is well in our guidance range of 10% to 15% growth, which we had communicated in the quarter 1 FY '26 earnings call. And 9-month EBITDA per ton is above INR 5,000, which has surpassed our own guidance which we had given in quarter 1 earnings call. So our strategy of pricing premiumization by leveraging APL Apollo brand has worked excellently to expand our EBITDA spreads. And the launch of SG brand in the base category worked well to compete with the smaller players in the structural steel tube segment and the sponge iron pipe players. It's been 12 months since we increased the selling price for APL Apollo branded products, which does suggest that the markets have successfully accepted our brand equity and the premium of INR 3,000 to INR 4,000 per ton for APL Apollo brand is a new normal for the structural steel tube segment. Another highlight for the quarter 3 result is that we sold 375,000 tons of volume in December month, which implies the annual figure of 4.4 million tons. So we have successfully tested our 5 million ton capacity as almost 90% utilization we could achieve in the December month of 2025. So we are very confident of this momentum to continue. Hence, we are upgrading our sales volume growth guidance to 20% for quarter 4 FY '26 and FY '27 with EBITDA guidance of almost INR 5,500 per ton. And at the same time, we are aggressively pursuing capacity expansion to 8 million tons from current 5 million tons in next 2 years. which is a mix of 4 greenfield projects, 2 being in East India, 1 in South India, and 1 in West India, one being the brownfield project in Raipur for value-added products. And very interestingly, we identified 1 million ton expansion through debottlenecking, wherein we identified existing mills which could be replaced with much faster modernized mills, which will expand our ROCs to next levels, because the investment over there will be very, very minimal. So total investment to expand our capacity from 5 million tons to 8 million tons is around INR 1,500 crores, and this will be funded from internal cash flows over the next 2 years. Now one thing which obviously, we will be talking much more over our earnings call is the additional 2 million tons to achieve our vision of 10 million ton capacity by 2030. This incremental 2 million tons will be in the super-specialty segment, wherein we are identifying various targets worldwide for the JVs with Japanese, Korean and European and American companies to offer products in specialized segments like EV category, aerospace, petrochem, oil and gas, heavy engineering. We are already talking to a few targets. So over the next 12 months, there will be much more coming from our side. So 8 million tons of structural steel tube capacity by FY '28 and overall 10 million ton steel tube capacity by 2030. This is what vision every member in APL Apollo team is working on. We are also working on a lot of cost control measures, which Sanjay ji will elaborate later in the call, so that we are able to achieve INR 5,500 of EBITDA target on a per ton basis, because it's a big jump in our guidance which we gave, from INR 4,800 to INR 5,000 to INR 5,500 per ton. So a lot of working has gone while we are giving or throwing up this number to our investors. On cash flow generation, you could see that our balance sheet has a net cash flow of -- surplus cash flow of INR 5.6 billion. Now most of the CapEx is behind us, right? And the company is showing such large cash flows. Plus the sales run rate what we are achieving, so we are seeing a lot of opportunities to rationalize the inventory days, which right now is 30-plus, it will be in 20 days range. And with a strong Q4, our surplus cash on balance sheet could be INR 1,500 crores, which was always our target that we will have as much cash on our books to match our current liabilities, so that we can be a liability-free company. Debt-free company we became 2 years ago. Now we are on the verge of becoming liability-free company. And with such high inventory churn and better EBITDA spreads and volume growth, our ROCE, which right now stands at 33%, it would also further expand to sub-40% levels. So things look very, very promising. Thank you, everyone, for joining the call. We are happy to take questions now.

[Operator Instructions] The first question is from the line of Sneha Talreja from Nuvama.

Many congratulations on great set of numbers. Just a couple of questions from my end. Did we hear it correctly that you said 20% volume growth in Q4 as well as FY '27? I'm more concerned of FY '27, while quarter 4 is understood. And secondly, what's changed in the last, I would say, 3 to 4 months or 6 months, where your EBITDA per ton guidance has suddenly moved up significantly, like you said, from INR 4,800 to INR 5,000 to now INR 5,500. What are the measures you are taking or what are the developments which are happening in the product mix, which is leading to this kind of an increase in guidance?

Thank you, Sneha. Our mainly volume growth is coming from our strategy, where we have decided to go with the other brand also. Right now, you can say we are H1 in our segment in the market. And also, we are L1 in our market. [Foreign Language] November, December, and till now, in January also we are going very good with our targets. So I think [Foreign Language]. Rightly, you can say 3.55 million ton [Foreign Language]. During Q4, we are targeting 10 lakh ton to 11 lakh ton. You can say 10.25 lakh ton or 10.5 lakh ton, we can easily achieve. [Foreign Language] fixed cost 2.6 lakh ton per month [Foreign Language] 3.7 lakh ton [Foreign Language] we are doing so-so. Like we have done in October, 2.5 lakh ton. In November, we have done almost 3-plus -- 3 lakh ton. And December, we have done 3.70 lakh ton. In January also, we are looking for 3.70 lakh ton or 3.80 lakh ton. [Foreign Language] we have reduced our freight cost also by INR 100 per ton, INR 200 per ton. [Foreign Language].

So Sneha just to reiterate that we are seeing 20% volume growth for Q4 FY '26 and for the full year FY '27 over FY '26.

The next question is from the line of Bharat C. Shah from Bharat C. Shah.

[Foreign Language].

[Foreign Language].

So I just wanted to put that as the first point.

[Foreign Language].

Okay. So basically, I think fundamentally, the most important change in strategic focus that we have now steered and which I think is providing superior outcomes is to focus on overall growth of the profit pool, whether it comes through volumes, it comes from the leverage due to volumes, or whether it comes through the mix. But I think -- we use those as levers, but the objective clearly is to grow the profit pools. And I think that strategy of focusing on the profit pool perhaps is the most important strategic change that we have initiated in the last few quarters and in my personal opinion and absolutely the right area to focus on. So I want to get your perspective on the matter.

[Foreign Language].

[Foreign Language] Overall, that should culminate into profits. And focusing on profit and growing the profit pool is far more strategically simpler objective and, in my opinion, an efficient objective rather than getting carried away by moving parts. [Foreign Language]. Of course, in between, we suffered from a particularly bad quarter where steel prices swung, nobody can do anything. So that is something exempted...

[Foreign Language].

[Foreign Language]. Then second question I wanted to -- when I'm looking at conversion of EBITDA into operational cash flow, in this particular period of 9 months, it has suffered. And clearly, that has suffered because some amount of working capital has come into the play. But our free cash flow has gone up because our CapEx is now behind us. So the question that I wanted to raise was, Anubhav mentioned at the beginning, from a 0 debt company, 0 debt balance sheet to liability-free balance sheet. If I had to interpret that appropriately, it will mean that basically even current liabilities probably will knock off, which means our management of inventory and account receivable is so efficient that the reduction of capital through current liability itself may be annulled as an objective. Is that the right understanding?

That's right, Bharat bhai. So the working capital which right now stands at 3, it will go to negative.

[Foreign Language]. Now that is the most worthy objective, because liability is a way of funding assets. [Foreign Language].

[Foreign Language].

[Foreign Language]. This is music to the ears. And one last question. Given the fact that volume outlook also is now healthy, mix in any case is steadily improving, Dubai operation is moving forward on a fast forward basis, and our strategic focus is now on raising the margins. And first time I have heard, right at the beginning, Anubhav spilling out EBITDA per ton objective. Otherwise, we typically would bring it out shyly at the end of some questions. So that clearly tells me where things are. So will it be possible to see EBITDA of INR 3,000 crores plus in '27, or am I being greedy?

[Foreign Language].

[Foreign Language]. No, no, that's a very fair answer, which means, '28, INR 3,000 crores in any case has to be...

[Foreign Language].

No, so delighted to hear all that I heard. And between what you stated and you didn't state, I think this is a remarkable one. But that statement about challenges [Foreign Language].

[Foreign Language].

Fantastic. Sanjay ji [Foreign Language] and Anubhav and whole APL Apollo team, hearty congratulations.

Thank you, Bharat bhai.

[Operator Instructions] The next question is from the line of Aditya Welekar from Axis Securities.

Congrats for the great set of numbers. So my question is to Anubhav. Just a few bookkeeping questions on the capacity expansion front. So in the last quarter's presentation, we have existing capacity of 4.5 million tons. So now we have 5 million tons. So the increment has come from Dubai. And what else apart from Dubai?

So this 4.5 million tons to 5 million tons capacity, one is super heavy we had added. So that got added. Plus some capacity we added through debottlenecking only. So the team is working very aggressively, right, to identify that within the existing capacity how we can increase the capacities by doing small, small improvements. Like the mill has multiple components. So replacing the old component with new components, the efficiency improves. So 4.5 million tons to 5 million tons, new capacity got added by 100,000, 200,000 ton and rest 200,000, 300,000 ton is through debottlenecking only.

Okay. And this specialty tubes, which we were projecting earlier 0.5 million tons, it will remain the same, the quantum, and...

Now we are targeting 2 million tons. Beyond 8 million tons, to reach 10 million tons, 2 million tons will be specialty tubes. Earlier, it was 1 million tons. Now we have increased it to 2 million tons, because as we have started working, so we are identifying a lot of areas where our company can work upon.

Yes. So what gives us -- I mean, if you can throw some use cases or demand pointers that we are now projecting higher capacity additions. So anything on that front?

So from 5 million tons to 8 million tons journey, right, 2 million tons consists of 4 greenfield plants, one in Gorakhpur, another one in Siliguri, third one in New Malur, which is in South India, and fourth in Bhuj. So these are the 4 greenfield plants. And one brownfield expansion in Raipur for value-added products. So this put together will add 2 million tons over 5 million tons. And 1 million tons, again, through debottlenecking, we are going to increase. And the greenfield plus brownfield expansion will require INR 1,300 crores and debottlenecking expansion will require INR 200 crores.

Yes. My question was on demand drivers. Since we are expanding the capacity, so from a demand perspective, do you see that, means, from an overall perspective? Because last few quarters, we have seen there was some subdued demand.

Yes. No, no. Demand is not subdued. We were selling the material in one segment. Now we have spread ourselves. Now what I'm [Foreign Language], now we are H1 in the market, we are L1 in the market. We are not going to spread anything. [Foreign Language] We are very clear.

So what Sanjay ji is saying is that APL Apollo brand is the highest selling price point. SG brand is at the lower selling price point, correct? So that way, we have captured the market heavily. Second, see, all these expansions which are coming, so East India, we are not selling our products in East India, because we don't have any plant as yet. So Gorakhpur and Siliguri will cater to all the new virgin market for APL Apollo. Then Bhuj. Bhuj is for export market, again, the segment where we have been lagging behind. New Bangalore, Malur project, right, there, the capacity for the existing products is already fully utilized. So we are adding new capacity. So whatever new capacity is coming, either it is for new areas or the products which are fully utilized as on date. And third, the roofing, the value-added products in Raipur, even Raipur plant today, the capacity utilization has reached 70%, okay, in quarter 3. So 1 year down the line, we also need to reinvest again in Raipur to expand the capacities, because the demand for some of the products is very, very strong. So we're just gearing for that. So this 2 million tons of incremental capacity, it's not going to cannibalize existing sales. It's from 3-point fundamentals, new markets, new products...

1 million ton debottlenecking will be happening.

This is overlap. This will be overlap, yes. But then the market will increase. Assuming India construction growth is 7%, 8% year-on-year, so that much market will increase.

The next question is from the line of [ Omkar Ghugardare from Shree Investment ].

Congrats on a good set of numbers. I just wanted to know, the specialty tubes which you are talking about from FY '28 to FY '30, what kind of like EBITDA per ton is there? If you can give a range, that would be fine.

So if you look at the specialty tubes, some of the Indian companies are present and some of the global companies which we are studying, the EBITDA spreads are in the range of INR 10,000 to INR 15,000 per ton. It will depend like what kind of product segment we get into. It's a bit early to comment. In next 2, 3 quarters, we'll have much more clarity that which global partner, which segment we are tying up with. But yes, whatever we do, it should be above INR 10,000 per ton EBITDA.

And here, you are talking about JVs, right, in international markets?

Yes, that's right. Because super-specialty products, now if we build this capacity in-house in India, it will take time. So a partnership with the global players always put things on fast track, and we can capture pretty quickly.

Okay. Second one is on the capacity you mentioned. I guess you will be doing around 3.6 million tons this year and then 42 million, 43 million tons -- 4.2 million tons, 4.3 million tons in FY '27. So is the understanding correct?

Yes. Minimum 4.2 million ton, minimum.

Okay. And you're talking about INR 5,500 of EBITDA per ton, right?

Yes. Minimum.

Okay. This is minimum you are talking about. And then with all the efforts you are doing and with the free cash we'll be generating, what kind of ROCEs you are targeting?

It could hit 40%.

In FY '27, right?

40% [Foreign Language]. So optically, right now, as on date 5,000 crores [Foreign Language].

So 40% is what you can see within FY '27.

Okay. And like the free cash flow, which you will be generating, you will be using that to reduce the working capital days, or like you will be giving out some extra dividends, like increasing your dividend payout as well?

We're going to increase some dividend payout, slowly, no doubt. Like right now, we achieved our targets what we are thinking. So right now, we are going with minimum 20% of dividend payout policy. We'll increase to 25% minimum.

The next question is from the line of Abhishek from DSP Mutual Fund.

Am I audible?

Yes, please proceed.

Yes. Sir, congratulations for a great set of numbers. [Foreign Language]?

[Foreign Language].

Okay. [Foreign Language].

[Foreign Language].

So if there's a market tailwind, there can be upside to this number?

Yes.

The next question is from the line of Darshan Mehta from Axis Capital.