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

Ladies and gentlemen, good day, and welcome to the APL Apollo Tubes Limited Q1 FY '27 Earnings Conference Call hosted by Antique Stock Broking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pallav Agarwal from Antique Stock Broking. Thank you, and over to you, sir.

Yes. Thank you, Lizan, and good morning, everyone. Apologies for the delay starting the call. So we have the senior management of APL Apollo Tubes. Represented by Mr. Sanjay Gupta, the Chairman and Managing Director; Mr. Rahul Gupta, Director; Mr. Deepak Goyal, Director Operations; Mr. Anubhav Gupta, the Chief Strategy Officer; and Mr. Chetan Khandelwal, Chief Financial Officer. So I'd now like to hand over the call to Anubhav for his opening remarks. Over to you, Anubhav.

Thanks for hosting Apollo Tubes for its quarter 1 FY '27 earnings call. I apologize to all the participants for starting this call a bit late, there was a technical issue with the operator. Thanks for joining in, just to highlight that Mr. Rahul Gupta, the Director; and Chetan Khandelwal, the CFO, they have gone for another meeting, so the call is being represented by Mr. Sanjay Gupta, myself, Anubhav, and Mr. Deepak Goyal, the Executive Director. So quarter 1 FY '27 was a mix quarter wherein the volume was below expectation, but the profitability was better than expectation despite a decline in the quarterly volume. So we have to decode the volume of 745,000 tons for the quarter. And if we map it with quarter 4 FY '26 volume, there were three, four factors, which impacted the volume. Number one, of course, being the EUV operations, which were hedged because of the new political situation there. and we lost almost 25,000 tons quarter-on-quarter. Number two reason was a decline in the volume of EG premium brand, which, of course, is in competition with be secondary material, so because of a price gap which was pretty high, the volume suffered there. Number three reason was the energy crisis in India, which impacted our volume for some of the products like [ bespoke ]pipes and routing products. So there also we lost 25,000, 30,000 ton volume. And the last reason being the high tax inflation during the quarter, which led to the softer demand in the construction industry, and it impacted both primary sales and secondary sales, primary sales because prices were pretty high and there was fear of correction in [indiscernible] this led to destocking by our current partners. And secondary demand, which comes from the EPC contractors and real estate developers, and not only structural steel pipes but other construction materials like cement, tiles, plywood, plumbing pipes, tables and bioelectrical fittings, carpeting every construction material product prices went up. So the EPC contractors and developers, they kind of delayed their purchases, which impacted the primary sales and secondary sales for Apollo steel popes. Now the run rate was around 250,000 tons per month for the quarter 1. Our focus was on maintaining the profitability because the situation was so uncertain because of the ongoing political situation, so we chose to focus on profitability. And as a result, you would see that our gross profit per ton increased by INR 1,000 on quarter-on-quarter basis. This was, of course, due to our better pricing power as we were holding on to prices. If steel prices were going up by INR 1,000 per ton, we try to improve our as prices for our products by plus INR 100 plus, INR 200 per ton over and above steel price increase. And because of our strong brand positioning and the pricing power, we could sustain that. And because of improvement in gross profit per INR 1,000 per ton, our EBITDA per ton was flattish above INR 5,500 per ton on Q-o-Q basis, despite the negative operating leverage, which arose because of 20% decline in volume on Q-o-Q basis. But now that scenario is slightly improving, we are again focusing on volume growth. And in month of July, the volumes are up by 20% on a month-on-month basis. We, of course, read some pricing for some of the product categories, so we do expect that our EBITDA spreads will remain in the range of INR 5,000 to INR 5,500 per ton throughout the year. For full year, we do expect and we are confident that we will be able to achieve 20% growth in absolute EBITDA. Quarter-on-quarter basis, it is tough to anticipate absolute volume and absolute EBITDA per ton. We are confident that for the full year, we will be able to achieve 20% EBITDA growth for FY '28 versus FY -- in FY '27 versus FY '26. Now to capacity, which is coming online, whether it is [indiscernible] which is 200,000 ton plants, then [indiscernible] 300,000 ton plant, the new [indiscernible] which is almost a 1 million ton plant. And another 0.5 million ton plant, which we are contemplating in either Maharashtra or North [indiscernible], put together 2 million ton plant capacity will come online over the next 2.5 years. And over and above 1 million ton of new capacity through debottlenecking across the plant. So with this 8 million tons, our share of value-added products, which right now is like 65%, it will increase to almost 75%, 80%. So as a portfolio, we are continuing to decommoditize so that impact of steel price volatility and gap between primary and secondary steel, it continues to have lesser and lesser impact on our performance. On the balance sheet front, the working capital days remain below zero, and the cash on books, which we take INR 15 million in March '26, so it remains at similar level at INR 14 billion in June quarter as well. And we continue to remain prudent in our working [indiscernible] efficiencies. All in all, we can say that quarter 2 will be better than quarter 1 in terms of volume and EBITDA. And second half for the macro factors should come into play in a positive manner, which will boost second half performance for Apollo better than H1, and it will give us with room to achieve our annual guidance of 20% EBITDA growth. And the new capacity expansion, which will start coming in phases from second half of this year until FY '28, we will continue to improve our financial performance over the next 3 to 4 years from FR '28 to FY '30. That's all from our side. We'll be happy to take questions now.

[Operator Instructions] The first question is from the line of Shaleen Kumar from UBS India.

Congrats for the good set of numbers despite tough macro. I have a question with you, beginning of the year expectation [Foreign Language] in the next 9 months?

We are trying our level best to achieve these numbers, keep 15% to 20% in the volume growth and 20% above EBITDA growth.

[Foreign Language]

[ INR 100 crores ]

Okay. That's very good to hear. The second thing I want to understand is this Dubai as a market, so where is it right now? And say, is it right to assume that there will be a pent-up demand as well as a reconstruction demand going forward? And second part of the so second part of the question is [Foreign Language]

Shaleen, first of all, Dubai [Foreign Language] We have a stock of almost 70,000 tons in our plant. [Foreign Language]

[Foreign Language]

[Foreign Language]

That's very good to hear, sir. That's very good to hear. Sir, last thing, about the commodity side inching up, the gap between [indiscernible] and steel, again, increases. So how is it impacting us?

[Foreign Language] I'm very hopeful. This is a matter of time. [Foreign Language]

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

A couple of questions from my end. One is you clarified the guidance already. I would like to ask, sir, you also mentioned that Tata [indiscernible] and everyone is adding capacity on the upstream segment, but what we also understand why doing for example, Tata is expanding capacity from 2 million tons, has plans to even go to up to 4 million to 5 million tons into pipe also they are also getting active with respect to servicing. What's your take on the competitor intensity in the coming sectors? How is it at this point of time? And how is it likely to be going there? And what are the measures that we are taking in order to retain market share on, in fact, and keep improving? That's first.

Good morning, Sneha. [Foreign Language] Our target is to maintain our 60%, 65% market share.

Understood, sir. Sir, while you were already showing optimism that 20% growth will be achieved in 9 months, how has July been for us? And what has changed between June to July? [Foreign Language] If, at all, you could tell us at how July month has been and why you're so optimistic that Q2 onwards things are looking up like changes [indiscernible] between June to July. Has the primary and the secondary field spread reduced, has the demand on ground in steel increased in first and per day? What other things we would like to hear.

[Foreign Language] July, we have done 3 lakh-plus, [Foreign Language]

That was quite helpful, sort of in Latam volume in the month of July. Last question from mine, you gave the guidance that value-added products segment, you're adding capacity, share value go to 75%, 80%. Could you help us, what are the things that we are doing value-added example, 1,000 by 1,000 as we recently launched and which are the other products like roofing products you said you want the value-added [indiscernible] which will take this portion higher?

[Foreign Language]

The next question is from the line of Harsh Shah from BCS Capital Private Limited.

First of all, in a very challenging quarter, very difficult conditions. I think APL Apollo Tubes has performed with great degree of aplomb, I must say because this has not been an easy quarter to deal with, with too many variables and too many challenges around. So there may be a perception of some volume decline. But I would say it is a very creditable delivery in a very, very difficult quarter where too many things were reflecting the moving part during this. [indiscernible] In what stage, will it be sometime next year, can we say that the focus on quarterly, on the [indiscernible] price fluctuations, volume up and down due to demand conditions, we can reasonably leave behind, and we can purely, confidently focus on profitable growth in a very considerate, predictable way, with the rising share of value-added products, et cetera. So [Foreign Language] tried, we should be at that situation where -- of course, volumes will grow with the strategy in a strong product portfolio, but the profitable growth, very predictable way, [Foreign Language]

[Foreign Language] Then we increased our sales to INR 4,500 per ton, from INR 4,500, [indiscernible] to INR 5,000 per EBITDA margin. Now we are trying to reach the INR 55,000 EBITDA quarter-on-quarter basis [Foreign Language]

[Foreign Language]

[Foreign Language]

Second half, yes, last quarter or next year...

Q4 [ 20-day ] [Foreign Language]

Low quarter, say, [Foreign Language] the profitable predictability and its growth will be almost reasonably under our control rather than worrying about many of these other variables, retail in case there was mine time to time some time or the other. That will be fair...

Yes. BPS, but in peak, I can say it's 70%, 75% there [Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

We move on to the next question that is from the line of Akshay from AK Investment.

And congratulations on the good set of numbers and the performance. So sir, my first question is about EBITDA per ton, so if you have already guided to INR 5,000 to INR 5,500 will be guidance for FY '27, going forward, in FY '28, FY '29, how much EBITDA per ton are we expecting? How much year-on-year in EBITDA per ton are we expecting moving forward?

So Akshay, see, I mean right now, the focus is to maintain EBITDA spread between INR 5,000 to INR 5,500. Of course, last two quarters has been good at INR 5,500 per ton, but now that for the next 9 months, we need to cover on the volume which we lost. So there could be some tweaking, which we did in our pricing. And there could be 100, 200 here and there of [indiscernible] but then again, as the volumes ramp up, we could gain traction from the operating leverage benefit, which could come as a surprise. So we'll wait for that, how much it comes up. Going forward, as our more value-added product portfolio keeps on increasing, right? Idea is to improve EBITDA spreads 100, 200 per ton on a yearly basis. And our -- like our target is that Apollo at 8 million tons should be generating INR 6,000 per ton, EBITDA, right, over the next 2, 3 years and we ramp up this capacity.

The next question is from the line of Dhananjai Bagrodia from Alchemy.

So firstly, congratulations on a fantastic set of numbers on EBITDA per ton in such a tough environment. So I wanted to understand, in pre-engineered buildings, do we have any thoughts on so how that could be for us, let's say, a year from today? Is that a segment we are looking at, actively growing it? And b, which steel prices stabilize, should then we be targeting a high EBITDA per ton?

So Dhananjai, currently, like for the pre-engineered building structures, 20% is steel pipes, okay? And it's 100 tons per sure, 20 tons is approximate steel pipe, which is used, right? And the sizes range from 150-millimeter by 150-millimeter, it goes up to 1,000 millimeter by 1,000 meter with thickness starting from 4 mm in general and goes up to 40 mm, right? So in this category, our market share is again 65%, 70%. All the top PV companies in India, I mean, they will be buying 60%, 70% of the requirement from APL Apollo. They buy from us directly also and they also buy from our distributors. Larger players, they want to have contracts directly with Apollo, and medium- to small-size players, they buy to our distribution channels. So it's a growing segment, right? It's a growing segment and we continue to focus heavily to service this industry.

But is it a sector which we would look to directly speak to an end customer because if we have the raw material, we have the know-how, is that something we will look to do more in that?

No, no. No, no, we are happy servicing this sector that's all.

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

So my question is, so just wanted to understand what's happening between quarter 1 FY '26 to quarter 1 FY '27, on a year-on-year basis. We have seen that the volumes have declined, but EBITDA per ton have increased. And if I see the branded products where we are higher premium, like a [indiscernible] brand and the way operations and the volumes have decreased. But despite of the operating leverage and higher cost, our EBITDA per ton has increased. So within these specific brands, Apollo brands, what's happening? Are we able to increase or generate the brand of the product mix? So my question is, I want to understand on a year-on-year basis, if we see the EBITDA per ton has increased despite the drop in the volumes, and within volumes, also if we see the branded products like APL Apollo brand and [ Dubai ] operations, the volumes have decreased, so despite the lower operating leverage, our EBITDA per ton has increased, so I understand that we are increasing our value-added products. But on the face of it, if we see the absolute volumes of APL Apollo brand and [indiscernible] operations, those have decreased. So what explains this EBITDA per ton increase on a year-on-year basis?

Aditya, this pertains to our pricing strategy, which we adopted in the month of January of 2025 wherein we decided that we need to reposition APL Apollo-branded products, okay, in the market. And we increased our pricing by almost INR 500 per ton. Okay. So that is what boosted our EBITDA spreads starting Q4 FY '25 and all 4 quarters of FY '26. I mean you saw the better spreads, right, and it continued in quarter 1 of FY '27, so despite the drop in volume, our better pricing strategy has got to boost the EBITDA spreads.

Okay, understood. And second question, Anubhav, is on the solar opportunity, so if you refer to your slide, we are saying almost 30 to 35 megawatts of annual solar additions and that translates to almost 830 [ kt ] of addressable market. So far, are we catering to -- so far have we started supplying to this market? And out of the total opportunity, how much is our share?

So yes, there are two type of products for which we have launch in the market and which is supporting this industry. The traction is there, right. Right now, the contribution is a bit low. But over the next 2, 3 years, we expect this to contribute 4%, 5% to the total volume.

Understood. Why I'm asking because this solar capacity addition has a huge target, means we want to release the scheme of solar capacity addition for the next 5 years and more, so this will be an additional lever for our volumes, if I understand.

Definitely, yes, Aditya, and that's why, I mean, we got into this space. And like I said, we are as optimistic as the government is to boost their renewable energy contribution in India, and we have a good portfolio to support this industry also.

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