APL Apollo Tubes Limited ($533758)

Ladies and gentlemen, good day, and welcome to APL Apollo Tube's Q4 and FY '26 earnings conference call hosted by EMKAY Global Financial Services Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinion and expectation of the company as on date of this call. These statements are not guarantee of future performance and involve risk and uncertainties that are difficult to predict. [Operator Instructions] I now hand the conference over to Mr. Akhilesh Kumar from EMKAY Global Financial Services Limited. Thank you, and over to you, Mr. Kumar. .

Good morning, everyone. I would like to welcome the management and thank them for this opportunity. We have with us today, Rahul Gupta, Director; 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 their opening remarks. Over to you, sir. .

Thanks, Akhilesh. Thanks for hosting us, and we also have our Chairman, Managing Director, Mr. Sanjay Gupta in this call. So good morning, everyone, and thanks for joining in. We hope you have reviewed the results and will now walk you through the key highlights for the quarter 4 FY '26. It was such an exciting quarter with the roller coaster ride. Things looked so good until February 28, and then the miles prices started which impacted our performance towards the end of the financial year. But despite that, we could pull off with very strong performance for the quarter 4 FY '26. And if you look at the full year results as well. Key highlights being, number one, a 9% increase in our quarterly volume on Y-o-Y basis. Bit per ton at upward of INR 5,500 per ton for the about 37% ROCE for the full year, closing FY '26, negative working capital cycle for the full year. operating cash flow generation of INR 20 billion and free cash flow generation of INR 13 billion for the full year. and we closed deals with a net cash balance of INR 15 billion plus in the books. In today's environment, the way things are changing, it's becoming very difficult to predict sales volume on a month-on-month basis. Since we were started there have been a lot of upsides and downsides for the global economy and the economy which is impacting our business in a lot of ways. Number one, being the shortage of raw material steel from the Indian mills and also the global supply chain got disrupted our Dubai operations are operating at 40% utilization right now because of the ongoing crisis there. Then there is a fear of price correction in the raw till prices because steel prices have gone up so much in the last 3, 4 months. So there is a destocking from our channel partners as well. energy crisis in India did impact our volumes in the month of March, and things have got stabilized, but then there is always a sad which can come up and like which can again impact if at all ways shortage of fuel, et cetera, in the country. And of course, because of and elections, there was labor shortage also for the time being, which also impacted our operations directly and indirectly a lot of construction sites when for the whole. So our focus right now is to protect our profitability and margins. When we know that volume prediction becomes challenging in this environment, because the APL Apollo is the market leader and because of our very strong brand positioning, we're able to improve our margins significantly and this is what we demonstrated in our March numbers as well. Despite April month being slow in terms of volume, this beginning of May is also kind of similar to what trends we saw in April. But in terms of profitability, in terms of EBITDA per ton, we are doing much better than what we have ever guided for. So we will try to protect our full year target numbers in terms of diluted EBITDA, which we had guided in our previous call, and hopefully, things will become better as we move forward. But given the current atmosphere, our focus is on profitability rather than just pushing volumes. And our long-term plan of 8 million capacity by FY '28 remains totally on track. Our CapEx comments Newland acquisition new product development, distribution announcement in East Asia that everything remains on track. So that whenever things recover, we are quickly able to we are quickly able to recover our lost volume and demonstrate good performance. That's all from our side, we'd like to take questions now.

[Operator Instructions] Our first question comes from the line of Sneha from Nuvama Wealth Management. .

Couple of questions from my end. Firstly, sir, Dubai operating around 40% utilization. I just wanted to take an update on galvanized steel because last time, we were facing some cash vantages, how is the operating level at this time in those [indiscernible]?

Sneha, see MMG domestic operations, they were majorly hit for a few weeks in month of March. Then obviously, things became a bit easy in terms of gas availability and our plants also move to alternate fuels. So things have improved significantly. But yes, like I said, there is always a sword hanging, okay, when the crisis can again hit the industries, So I would say, like because of that fear factor, we would be operating at 80%, 85%. If we know that crisis is fully gone, then of course, there could be 15%, 20% increase in the production from the current levels. .

Understood. And, Anubhav, also said about the demand decrease probably destocking. Could you actually forget that into whether it's actual demand met on ground and has to win spending actually picked up in any way? Or is it the near destocking, which is taking place and we are sure shot looking at a rebound here in terms of demand. So that's one. And any changes in the guidance because of the current situation that you may want to give out?

Sanjay, this side. So there's this type of atmosphere, we can't say this is a destocking or this is the demand slow down. it takes some time to analyze these things. But whatever we give the yearly guidance in terms of volume and the profitability, I think volume [Foreign Language]

Next question comes from the line of Angad Saluja from UBS Securities India .

Sir, we have 1 question. I think obviously, guidance is difficult to give them the current financial. But if you look at realizations and obviously an EBITDA per ton, how are we looking at that given HRC prices have also gone up, but the risk from Tata also remains to sort of take away some volumes. So how are we managing the margin bit in this scenario, even though volumes are slightly volatile right now? .

Well, [Foreign Language]

Okay. Got it. And what is driving this margin, mainly is it better realization that is driving it? .

Mainly, you can sink market leadership, product innovation and supported by the shortage of the steel also.

Okay. And sir, one last question. I think CapEx, absolute amount, how much are we expecting to spend in FY '27?

[Foreign Language]

Our next question comes from the line of Vikash Singh from ICICI Securities. .

Congratulations on a decent set of numbers in a very challenging time. So I just wanted to understand the sustainability of 5,500 ton margin. going forward, considering that the partner and the primary gap is higher, and this quarter, you would have benefited from the shortage of material in the galvanized segment. So what -- and plus Dubai is also not picking up. So could you give us a little bit more insight into this? .

Margins will pay if you say from INR 5,000 to INR 5,500 per ton, [Foreign Language]

Sir, any portion of the inventory gains would have been involved in this because the prices are so sharply? .

[Foreign Language]

Okay. And sir, in the past, we have seen when the prices rise so quickly, we usually have problems securing the raw material. So anything that sort of problem you are sitting right now also considering that some of the capacities would have been curtailed like [indiscernible].

[Foreign Language]

Noted, sir. Sir, last, capital allocation policy [Foreign Language]?

[Foreign Language].

So we can expect good dividend going forward, this year.

I can say, yes..

[Operator Instructions] Next question comes from the line of [ Bharat Shah from BCS Capital Ideas Limited ].

[Foreign Language]

[Foreign Language]

Energies of all most delighted this quarter results more than the quantum of the growth, it is the outstanding quality of the growth, which is really, really impressive, I must say. I think the focus on the profit growth, focus on maintaining the hygiene spend of the sales, which has been based for the last several quarters is finally singing a remarkable green have operating results. But what really interests me was end of December quarter, our net cash on the balance sheet was INR 550 crores. And end of March '26, it is INR [ 1,510 crores ] or vote, which means INR 1,000 crores, almost cash has been added in a single quarter while the profits are being a net profit of INR 350 crores in the quarter, but net cash added on the balance sheet has been almost INR 1,000 crores. I think this is truly remarkable. Any.....

Thank you.

Would you like to throw light on that?

Sure,. So there are 2, 3 factors. One is that during our quarter 3 call, we had said that we are taking some steps to further rationalize our inventory turn. Okay. So some of the SKUs we wanted to start manufacturing at a single plant rather than being spread out. So which leads to inventory hold up raw material inventory hold up at multiple plants. So that strategy actually works pretty well where we could almost reduce our absolute inventory in terms of tonnage by 30,000, 40,000 tons. Okay? I mean if you look at the inventory levels as at December 31 and March 31 in absolute value, there is a INR 250 crore reduction. Despite the fact that steel prices went up. So you can imagine that in terms of absolute volume, the reduction is much more. So that strategy of inventory rationalization actually world. And yes, they were because there was some better payment terms from the creditors that also the [indiscernible]. And then yes, as you said, INR 350 crores of cash flow generation for the quarter 4, which held in kind of filling up of the cash. .

Truly remarkable. I must say this. And the whole team, these are congratulations. Because a single quarter cash addition of INR 1,000 crores is a really, really remarkable number. And given also what has happened in the quarter, I mean these ways a lot happens with -- so in a quarter, so many things have happened, and the business has delivered this is really remarkable. The deal target after the real INR 500 crore liability once they are required, maybe in the first quarter also in the current quarter. I think the target to reach negative working capital remaining [indiscernible], right? .

That's right. .

Okay. And finally, when you're saying the year are the target remaining today. So just to refresh mine on that, are we seeing about 20% volume growth which, if I'm not mistaken, we were..... .

I tell the last -- I tell you in the last quote to 5% to 6% growth. And the 20% growth and 20% to 25% EBITDA growth and pay 25% to 30% PAT growth. .

Okay. So that is the guidance that we are talking with yes. .

[Foreign Language]

Absolutely. I think that focus on maintaining and enhancing actually the quality of the performance rather than just the comp....

This is our main focus area.

Yes. It is really the market again for -- and plus ROC, which I think will go even higher in the fiscal '27, net cash balance and yet is in global tint the capacity and through the chain in time achieving all the truly remarkable. Congratulations, Sanjayji.

Our next question comes from the line of Akshay from [ AK Investment ].

Congratulations for a great set of number. Sir, my question is currently for the application-wise or segment housing in contributing the maximum as 4% and spans the commercial building and the for number is in over the next 2, 3 years. So do we expect that the infrastructure and commercial buildings will be far will be higher due to the government CapEx and all business .

So definitely, there should be some improvement in infrastructure and commercial. Commercial has been doing pretty well for the last 2, 3 years, so that mix continues to improve. Infrastructure from the government side has been on slowdown for 2 years, despite the residential sales mix improved in the overall [indiscernible]. Yes, we do expect government to start spending heavily, and if it does, there could be 2%, 3% improvement in mix on infosite, otherwise, housing will keep on marketing the lead. .

Other questions I have answered. All the best. .

[Operator Instructions] Our next question comes from the line of Darshan Mehta from Dolat Capital. .

So my first question was, can you provide us the share of GP into overall volumes in .

So it's between 8% to 9%. .

8%, 9% of total volumes, right? .

The total volume, yes. .

Okay. Okay. Not the product oral volumes. Yes. And also other expenses, I think, have grown 13% Q-o-Q. So just wanted to -- is there any set reason for this? Or this is in line with normal operating activity?

So there are 2 things here. One is the freight cost, the output freight cost was a bit higher in the quarter 4, okay, on Q-o-Q basis because there was shutdown of our operations in a few plants, right, because of gas shortage. So we had to feed the market from the other plants. That's why the word trade was a bit higher. And secondly, we did some branding expenses in the quarter 4. So that was higher on Q-o-Q basis. These are the 2 main factors. .

Okay. Okay. And just wanted to understand, let's say, let's say, the warrant broken, but still, let's say, we would have seen the same increase in steel prices. the store price that we are seeing still between Q3 until now. So in that sonar, could we have made EBITDA per ton in excess of INR 5,500 because why are you coming on this question is let's -- you have lost some volumes, but so that means that operating leverage would not have really taken in your numbers. But still, you were able to make INR 5,500 crores. So just wanted to understand, is this purely because of lower HRC price that you would have seen in your inventory that has actually kicked in EBITDA per ton? Or is there anything else? .

So Darshan, I mean, during our quarter call, we had guided for around near about 1 million ton of sales volume in quarter 4 with [ 5,500 50,500 crores ] for the full quarter. It's fair. We were pretty much on track to see these numbers. And when the crisis started, -- then this whole disruption started to hurt the operations in Middle East, in India because of gas shortage and then in steam shortage and steel price high. So yes, I mean, if what had not started we would have met our guidance, which we had given in the quarter. .

Understood. Irrespective of the rising steel price that we had taken. So I'm not talking about Q4, let's see, when in Q1, assuming 3 prices are where they are currently. And do we think that..... .

Darshan, but it is tough to say now that steel prices increased pretty much after war also. There was some increase during Jan, Feb, March. But after all, the acceleration in steel prices was pretty high. understood. Understood .

Our next question comes from the line of [ Amit Murarka from Axis Capital ] .

I just wanted to understand like your market share movement. So I believe these kind of disruptions that you're seeing in, let's say, the issue around fuel availability around metal availability. Is it fair to say that this is structurally positive for you where you gain market share from the unorganized players? .

So Amit, which we did definitely. Okay, like we have demonstrated this similar trends during COVID time, okay, the industry leaders, the strong players, they always benefit from the like disruption, which impact the overall industry. So yes, I mean, it -- that's the resilience of our business model that we can maneuver our strategy based on the conditions which keep on coming and going. But yes, I mean, at the same time, we wish that things become back to normal, so that whatever guidance we have given for the full year, we are smoothly able to achieve that. .

I wanted to understand more of the market bigger, honestly here. So like we have seen in other industries also generally high inflation contents also lead to down-trading and actually some games with unorganized players. So in that context, I wanted to understand, like is this current situation that was positive for you on a structural basis? Or would you see or you down trading to happen because of the high inflation .

See, I mean I may see this disruption is not going to stay for more than like 6 months, okay? I mean any export you talk about people keep on saying that it..... .

I was earlier to me, honestly, it's been stretching quite a bit. We don't know.

If it is for, say, 4 months put together, 2 months have been passed in another 2 months. Then whatever benefit we could get, we have already achieved that, right, in terms of market share gains, in terms of pricing power in terms of margin improvement. -- okay? So -- but yes, if it goes beyond like 4 months is then, obviously, the weaker players, right? They may not be able to run their plants because of gas topic, obviously, larger players have access to resources. We have seen that in other industries, similarly building materials, okay? So yes, I mean Whenever disruption takes place, a stronger company, larger companies, organized players, they will definitely benefit at the course of weaker players. So yes, I mean to answer your question, I mean if things get long, like more than what anyone is expecting, then obviously, the benefits will keep on accruing more and more for stronger players. .

Our next question comes from the line of [ Rajish Ravi ] from HDFC Securities.

Congratulations on a good set of numbers. My first question pertains to the inventory, which has come down to significantly mean I think this was the guidance. So just wanted to understand the sustainability of the current level -- or is it like this was also an impact of some lease of the turmoil? .

So Rajish, [ Sanjiv's ] vision is to bring it further down. okay? That's what he has given a mandate to the relevant team to keep on bringing inventory levels down and down and down. So yes, I mean, whatever we have achieved, as at March 2026, it is highly sustainable. .

Great. It's really nice to hear. And on the EBITDA front, mentioned around 20%, 23% EBITDA growth and in which you are factoring to 15% for the volume growth and margin expanding or around that close to 5,500. Is this understanding correct? For FY '27 year? For FY '27 .

Our volume growth is very clearly, we are targeting 15% to 20%. EBITDA growth is 20% to 25%. And PAT growth is only 25% to 30%. .

Yes. Great....

[indiscernible] you can cut our lower site 2, is better, you can pick up the higher side. .

Great. Sir, I just wanted to understand this INR 5,500 which was [indiscernible] on the EBITDA margin. So is it the better product mix.....

Better product mix. [Foreign Language]

Better product mix is what will drive your margins. Okay. And sir, on the April, you mentioned that the volume growth has been muted or volumes have been muted. What that has been -- this is low single-digit growth you're indicating or lattice. Also, we rented May volume come in through in general .

[Foreign Language]

Okay. So the next 2 months, we're looking at May and June, better traction to happen? .

Yes. We have said in a [Foreign Language]

And sir, this margin performance of March quarter, you believe that this could be repeated in...

[Foreign Language]

And lastly, you said you just pointed that we mentioned that the surplus cash on whatever short-term liability, you want to reduce. After that, the surplus is there, you will use that we either increase being or do either.

[Operator Instructions] Our next question comes from the line of [ Onkar Vangarde from [indiscernible] Investment ]. .

My question is regarding whatever the commentary you have given, it looks like there are more headwinds than the tailwinds currently given whatever the situation on ground. Is that's the correct understanding? .

Yes, of course. I mean, whatever is happening globally and in the domestic markets, yes, you have associated pretty right. .

So I mean, you must -- I mean, I have to say that this is only and only because of the war-like situation, right? Because before the war broke out, you are quite bullish. I mean, in fact, you raised the guidance as well in the quarter 3. So whatever is.....

Casting our guidance as of now, right, for the absolute EBITDA. Okay. So yes, I mean, like we were discussing on the previous call, every disruption or bring some opportunities for the better companies, and we try to grab that in our favor. .

So yes, like -- another question regarding this was like now you have a good amount of cash with the financial strength we have on the balance sheet, like how can you capture more and more market share from the competitors given the current situation? Because they must be also suffered quite a lot. If the biggest area is suffering -- I mean, giving a flattish kind of growth low single-digit kind of growth. So the situation would be even worse. So how can you use the financial strength to gain even more market share from competitors? .

This is what -- if you look at our market share in FY '26 versus FY '27 -- FY '25, our market share has improved to 60%, 65% from 55%, okay? And this can continue to improve if disruption continues to hurt our competition more than the larger player like Apollo. .

So I mean, what kind of steps you are taking to gain that kind of market shift given the strength you have financially?

One is the capacity building, okay? The CapEx is fully funded from internal cash flows. We are -- we were not present in East India much, right? So putting a plant in East ilial help us compete intensively with the local smaller players there, and that results will start seeing in the next 1 to 2 years as our both plants become operational. . Second, we are building capacities for lighter structures in South India, where again, we believe that we have -- we can gain more market share okay, if we increase our capacity there. So our new Bangalore plant, which we call it a that we are -- that we are going to build up over the next few years. So that, again, is on the back of strong balance sheet where my large CapEx will be funded from operating cash flows. So balance sheet can only help fund CapEx right without spending without leveraging -- so this is what we are building capacity building. And second, branding also with better margins, we will spend a bit extra on branding this year, which will again help us gain market picture.

So this capacity building guess you are saying is like more of a mid- to long-term kind of thing, right? But immediately, in the short term, like what you are doing in war-like situation to gain from the competitors, given the strength you have financially. .

So working on skew management and branding. These are the 2 things we are doing. .

Okay. I mean like more dealerships or something like that you are doing anything with the dealers?

Dealership in existing territories are fully leveraged. I mean, there is no scope to add new dealers in the existing territories. New markets where we are going, where we are developing a new network.

[Operator Instructions] Our next question comes from the line of [ Ranjit Sivaram from Mahindra Manulife Mutual Fund ].

Just wanted to understand like are there any impact on with shops or anything more overall operation? .

Can you be a bit louder, please? .

Yes. Am I audible now? .

Yes, go ahead. Yes. .

Was there any impact on this LPG shortage in our business? And do you have any backup plan for that? .

So definitely, month of March, 2 of our product categories in India, the rust-proof pipes and ported products, they faced temporary shutdowns at a few locations. So our plants move to alternate fuels there was disruption of 10 to 15 days. Yes. So there was definitely some disruption because of that.

Okay. And going ahead, do you see any -- what is your backup plan this year, kind of mitigated the on? .

Alternate fuels have helped the capacity ramp up at those locations. It's just that -- I mean, that fear of energy as is coming back is always there. Okay. So things have become much better than what they were for those 2 weeks in month of March. But still because of fear factor, we would say that we are operating at 90% level, not 100% levels. .

Okay. So the 15% to 20% growth guidance which you are factoring in this side? .

Of course, yes. I mean unless things become really worse from here, if there is like shortage of fuel to run vehicles, cars, automotive then it will be like extraordinary situation, which will make us reconsider our business plan. .

And in the more demand industries, where you [indiscernible] seeing similarly such issues in terms of shorter -- and do you think the demand will be enough to support this kind of growth? .

It will be a combination of both, right? I mean our material goes at the construction site, right? So construction sites were halted for multiple reasons, labor shortage, all raw material prices at construction sites went up, steel, tiles, plumbing pipes, pains, right, so many construction materials. So contractors, they try to delay the purchases, okay? So once things settle down, contractors will renegotiate pricing with their customers, right? So things will start coming back on track. So then this pent-up demand will come back, and we are hoping that we will be able to take share from that. And that's why we are giving that 15% to 20% volume guidance. Yes, of course, become the words from here, okay, then we'll see, then we'll evaluate again. But right now, talking to like whatever is happening around us, it looks like things should settle down quickly, and we will be able to achieve our volume guidance.

Our next question comes from the line of [indiscernible], an individual investor.

I just have 1 thing about the value-added related custom. You have reported the rate sales of 25% in Q4 it's only down slightly from 57% in Q3. Despite this EBITDA per ton rose to a record high. Is like a double side. Can you brief with this gap? Was it driven by the inventory as or better trade in a general category, which saw jump to [ 3,405 EBITDA ] per ton. Or a specific cost efficiency at the [indiscernible] plants. .

So there were 2 reasons. Number 1 is the Apollo -- APL Apollo brand premium, okay, which led to better pricing in general category, okay? If you remember that we have -- we had increased the pricing for Apollo General segment in January '25, okay, by almost INR 1,500 per ton. So that increase that site is straightaway coming to our EBITDA, okay, for the general product. That's why from INR 2,000 per ton EBITDA level, we are at INR 3,500 per ton plus level. in general. So this is the main driver of the profitability, okay? And the second, yes, of course, cost rationalization steps. So we keep on taking 24/7. So some measures keep on believing results. .

Okay. Sir, my next question is related to ESG and decarbonization -- so now that you have achieved a SBTI validation, what is the incremental CapEx required annually to meet a 25% emission reduction 2030. Are we impact manufacturing cost per ton significantly? .

No. In fact, whatever -- I mean whatever steps we take for better ESG compliance, it actually results in lower costs. For example, you invest into renewable energy, right? That brings down your overall cost per ton or on per ton, right? So in fact, we are experiencing opposite that you invest into ESG compliance with actually end up yielding better results for you into the cost optimization. .

Our next question comes from the line of [ Rajish Ravi ] from HDFC Securities. .

Just a core of this, given the current state how would we realize the number looking sequentially even versus Q4, this is current prices?

Rajish, can you please repeat? .

Yes, sure. I'm saying this is the current steel in, which are significantly clear and have been rising even -- and in this scenario, I'm sure not everything would have been captured in Q4 numbers in realization. So what sort of price increase on an average or sales versus Q4 average? .

So prices like -- okay, so if you look at the HR pond prices, okay, in the market, they are up by around -- from March to May, okay, or I would say, from April to May, they are up by around INR 3,000 per ton. Yes. So that much price hike, we took, Rajish. .

Okay. So that is what would be reflected in an year-over-year in cost number. Okay. Okay. And just as I responded to on this inventory gain, I believe somebody during the call, you mentioned we are in to 3 days of commitment for the inventory. Obviously, which is quite weak. And because.....

Raw materials, raw material inventory.

HRC rather. So the past prices which is going up, would you have to mark up your inventories and would have that led to some inventory gain .

So Rajish, what happens is that since our overall inventory churn is less than 30 days. And in India, seen prices are revised once in a month, okay? So by the time next cycle comes up, we are only out of our previous cycle. .

Okay.

Correct. So that's why the mark-to-market is not significant. It's like very, very miniscule. If my net inventory days are higher than 30 days, then there will be mark-to-market in my balance .

Understood. So basically, none of your numbers would have any tie-up of inventory. So in case if sale prices were to again come back, you won't have any issues over this. .

That's right. It only happens when there is a significant drop in steel prices, sometimes like what we have seen like there will be like a time when steel price are revised twice in a month, okay, which happens once in a decade, okay? Then there could be like some gains or losses. -- okay, which would be significant. Otherwise, 11 out of 12 months, steel prices are revised once in a month. So that doesn't hurt us. .

Thank you. Ladies and gentlemen, that was the last question for today. I'll now hand the conference over to the management for the closing remarks. Thank you, and over to you, team. .

Thank you, everyone, for joining us, and thanks EMKAY team for hosting us. Look forward to see you in the next quarter. Have a good day. .

Thank you so much. Ladies and gentlemen, on behalf of EMKAY Global Financial Sources Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. .