Apollo Pipes Limited (531761) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '21 Earnings Conference Call of Apollo Pipes Limited, hosted by Asian Market Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Karan Bhatelia from Asian Market Securities. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. We welcome you all to the Apollo Pipes 2Q FY '21 results con call hosted by Asian Market Securities. From the management side, we have Mr. Sameer Gupta, Managing Director; and Mr. Ajay Jain, CFO; and Mr. Anubhav Gupta, Chief Strategist Manager. So we would request Ajay sir to give the opening remarks, post which, we shall open the floor for question and answer. Over to you, Ajay. Thank you.

Hello, everyone. Sameer Gupta, I am opening the meeting. Good afternoon, everyone, and thank you for joining us on our Q2 H1 FY '21 earnings call to discuss the operating and financial performance for the quarter. I trust that you and your families are safe and maintaining all precautions against the spread of COVID-19. I hope you all have the opportunity to go through our result presentation, which provides details of our operational and financial performance for the second quarter and half year ended September 30, 2020. To built in that, I'm happy to share that we have reported an encouraging number performance during the quarter led by healthy uptake in consumption in our markets. Our sales volume during the quarter marked a solid improvement of 19% Y-o-Y to 12,268 metric tons per annum. This was driven by a healthy contribution from our CPVC, LTV pipe and value added segment of fittings. In addition, our new product launch, which is Apollo light water storage tank, also contributed to improved sales during the quarter. Overall, we have witnessed increased demand momentum across product categories, which enabled us to record healthy improvement in sales during the quarter. On the operational front, all our planned greenfield and brownfield manufacturing expansions across the cities are progressing as per schedule. The operation utilization of our greenfield facility at Raipur is advancing well, and we remain on track to commission this facility by March '21. This plant is a proposed installed capacity of 7,230 tons per annum, is strategically located and will be -- will help in boosting our sales in high potential markets, domestic markets of Central and East India. We are also undertaking brownfield expansions at our existing facilities of Dadri and Tumkur. We are also progressing as our schedules. On the whole, we are aiming towards a healthy capacity upgradation and are on track to achieve our total production capacity exceeding 1 lakh metric tons per annum by March '21. Currently, all our facilities are now operating at steady utilization levels, and we remain confident to further improving it to the optimum level in the quarters ahead. I'm also happy to share that our newly launched product, Apollo light water storage tank, has seen strong acceptance from the market. In order to address the increased demand for this product, we are in process of doubling the capacity for this product at our current manufacturing facility at Sikandrabad in November '20. Their product launch is in line with our long-term growth strategy to improve our product offering across the value chain and leverage upon the Apollo brand, reach and recall. We believe this will enable and enhance our business visibility and improved sales momentum going forward. On the whole, we are encouraged with the improved demand momentum in our key markets. As we look ahead, the upcoming facilities and various core growth measures undertaken by the government, especially in the rural infrastructure and agricultural space, should lead to better demand and consumption of our product over the medium to long term. And we remain optimistic that once the macro situation normalizes, we should be able to deliver strong and sustained growth going forward. On that note, I would now like to invite Mr. Ajay Jain to run you through the key financial highlights. Thank you.

Yes. I'm Ajay Jain. Good afternoon, everyone. I will briefly cover the financial performance during the quarter and half year ended September 30, 2020. The company delivered an encouraging and healthy operational and financial performance during the quarter led by an uptick in demand and consumption in the domestic markets. Total income from operations for the quarter stood at INR 120.2 crores, higher by 27% as compared with INR 98.9 crores in the corresponding period last year. Sales volume stood at 12,268 metric tons, higher by 19% Y-o-Y, as compared to 10,306 metric tons in Q2 FY '20. In H1, total income from operations stood at INR 219.9 crores as against INR 218.6 crores. Moving on to the profitability front. EBITDA for the quarter stood at INR 17.4 crores as against INR 12.2 crores, up by 43%. EBITDA margin grew by 162 basis points and stood at 13.9% as compared to 12.3% in the corresponding period last year. So EBITDA for H1 FY '21 stood at INR 25.8 crores, lower by 13% as against INR 29.7 crores in H1 FY '20. Margins for H1 FY '21 stood at 11.7% as against 13.6%, down by 187 bps. Depreciation cost increased by 33% to INR 7.4 crores in H1 FY '21. For the quarter, it stood at INR 4 crores as against INR 3 crore in the same period last year, up by 32%. Tax for Q2 FY '21 stood at INR 9.5 crores, higher by 64% as compared to INR 5.8 crores in Q2 FY '20. PAT margins for the quarter stood at 7.6% as compared to 5.9% in Q2 FY '20, higher by 175 bps. PAT for H1 FY '21 stood at INR 11.5 crores as against INR 15.6 crores in H1 FY '20, down by 26%. PAT margin during the period stood at 5.2% as compared to 7.1% in H1 FY '20, lower by 192 bps. With this, I would now request the moderator to open the forum for any questions or suggestions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Praveen Sahay from Edelweiss.

Congratulations for a great set of numbers for the quarter. Sir, at this moment, how is CPVC prices moving? And is that in the next half, we are expecting due to that some margin contraction in our security?

Sameer here. During this quarter, the PVC prices are really eating up at all-time high rate figures. We are really very cautious regarding this period because the prices are too high, and there are chances that these need to be because a bit cautious regarding all the activities. So I think right now, there is no such intent on margin pressure on us. But going forward, there should be considered some slightly in terms of pressure there should be because of the high -- very high prices. There should be some pressures on the margins going forward. But right now, I don't think that during the current quarter, there should be any pressure because of the shortage of the material in the market. So that is not there right now.

And from where you are procuring mostly like a domestic market or import?

Both sectors, but we are mainly dependent on imports. Otherwise, we are also procuring from the domestic market also.

Okay. And in the current quarter, is there an element of inventory gain as well?

Of course, there should be.

Is it possible to quantify that?

Right now, it is not possible because we are not very certain regarding that figure because going forward, we are not sure about the COVID situation. And so in such conditions, we did not be able to -- we would not be able to focus. So that's why we are not able to forecast at what exactly we need to be at.

And from where CPVC you are procuring now?

We have too many sources here. And we are only procuring this from the reputed sources. We are not relying upon the Chinese sources. So there's no such pressure on us because they are regular success for the last 5, 6 years.

And also, can you guide, especially in the CPVC segment also deliver a very strong number. So can you give some color on that like from where you are getting this for the great set of numbers like a geography and where you are gaining some more?

Actually going forward, as you see that we are gradually increasing our product range. So that thing is really helping us in our gaining sales in building segments, where the range is the main important part. And right now, we are working very hard on increasing some, you can say, fittings segment players. We are increasing the number of moves and -- which is the main private sector for all the customers in this area. So first of all, this thing is helping us. Second of all, the brand is also getting more popular and the establishment of brand is getting more stronger day by day. So that is also mainly the main thing for the increased demand. Took together -- and R&D are also spending ourselves geographically also. So that is also a main -- key factor for increased demand.

Okay. So all geographies, you are getting the traction in this CPVC.

All together put together with geographically expanded range and get a strong brand image, all put together.

And any number on the storage tank, as I can see that the other contribution is around INR 6.7 crores. So how much is that container storage tank?

Yes, it just started, I guess, in the second quarter only. So the numbers are quite small in terms of percentage to total sales, but right now, we are almost working on the full capacity of the water storage tanks from nothing. So we are expanding this capacity to other locations also along with the expansion in the current location.

So can you give the others breakup, what you account in the other segment?

Others, right now, it is accounting for quarter storage tanks, cement deposits which are not very significant in numbers. So we have completed in others. But slowly, we will be showing this as a separate figure once the figure gets in context in sharing and it is, you can say, some good numbers. Then we will start showing it in a separate figure.

[Operator Instructions] The next question is from the line of Agastya Dave from CAO Capital.

Congratulations on fairly decent execution. Sir, I have actually 3 questions. One is the gross margin trends. So given the high PVC prices, you're also introducing new products, which are selling very well, and I'm guessing those are going to get a higher base as of now. So over the next 3 years, how do you see the gross margins evolving? Is there a certain target in your mind that you want to reach? That's my first question. Second question is on the near-term sales growth and demand for relations in [indiscernible], what are you seeing in the market -- the commentary on that, just like you mentioned last quarter, if you can update us on that, that would be great. And the third question is on working capital. How do you see that evolving? Till what time will you -- I mean will we see an expansion in working capital? Is that what is needed for further growth or be at decent level where we can probably start gaining some -- like, reducing the working capital and gaining on the back of our year record. Have we reached that stage? That's it for my side, sir.

Yes. Okay, mister. Yes, first of all, regarding the gross margins. Yes, I know that this will be a challenge because we are really working hard to expand our market geographically. If we just go on the same market, then that will not be regenerative. We are trying to expand our effects geographically. So gross margin will be a challenge in the coming days, but we are trying to maintain the same gross margin level, that's what we are earning today, in the future along because we are working hard with the other parts, which we are having higher EBITDA margin. So we are trying to maintain the same EBITDA margin. Overall, you can say on average because if we just focus on, you can say, on the newer markets and with the regular product tender, gross margin will be reducing. So that is the reason that we are working on other products to maintain the same level of gross margin. We are not trying to -- not trying to increase the gross margin, you can say, in the coming days. We are trying to maintain it. And again, with very high prices right now out of plastic products. So that is also a big challenge for the product are separately in the market. So we are also trying to maintain the same medium profit so that the demand doesn't go off. So first of all, we are trying to maintain the gross margin in, you can say, and target -- trying to target the same gross margin in the coming days. Second of all, we have talked about sales growth. The sales growth, again, we have answered the same in the favor question also that we are trying to maintain the same sales growth that we are achieving. We are trying to the level hard to, you can say, intent on new geographies and with the new products. But going forward, we are not very sure regarding the COVID situation, whether there will be lockdown in the coming days or not and how the government will behave, how the government will release the funds. That's the challenge for us that we are not very sure regarding all those activities. So we are trying our level best to maintain the sales support level, but we are not very sure that how the government will behave, how the situation will be. So we are not very much conservative regarding that figures. But we are trying our level best to achieve those numbers. Third of all, working capital. Regarding working capital, we are already working very hard with the working capital, you can say, debtor days, inventory days and trying to reduce the working capital cycle. Right now, we are working at around, say, 50 -- sorry, the debtor days, as I said around 36 days that we have -- we are thinking that at our level, this should be a good number to maintain it. We are trying to maintain the same number in the coming days, in the coming quarters. We are trying to -- you can say that we are trying to maintain the same debtor level, same debtor days along with a little increase in -- a little increase in inventory. And you can say, overall, as per the business sales growth, that only minor growth will be there in the working capital, not in number of days. We are trying to maintain the number of days in working capital.

The next question is from the line of Ritesh Shah from Investec.

Sir, first, can you highlight what our CapEx plans are for this year and next year and if you can do grounds for [indiscernible]?

Sorry sir, I could not hear. Can you please repeat again?

Sir, my question is, what are our CapEx plans for this year and next year? And if you can give a broad split for that, that would be kind of awesome.

Yes. We are expanding at all our locations at our Dadri plant, where we are having a major expansion, along with at our Bangalore plant. We are also adding the products and the capacity of the existing product at that plant. Along with that, we are also setting up a new unit at Raipur, which will be producing PVC pipes, UPVC pipes along with water storage tanks. The total CapEx funds for the current year is around INR 50 crores in which it is going in line very well. And we hope that the whole expansion process should be over by March '21. The total capacity should be crossing 1 lakh tons. Once it is, you can say, installed then we'll be declaring that what exactly what will be the capacity.

Right. So just a follow-up over here, in the slide that you have indicated, our focus to improve utilization level at Dadri, Ahmedabad and Bangalore. So can you highlight what is the capacity and utilization level right now over there? And if I ask you what is OpEx [ exposure ] to CapEx that we are going ahead with, optimal look at the 3 variables together, that would be great.

The capacity utilization that we talk about all across, it is roughly around 60%. I don't know the exact figures, but it is roughly around 60% of the total capacity that we have validation. At Tumkur plant and at Ahmedabad plant, we are almost working at the same level or slightly up and down. But because the -- you can say Tumkur being a new plant, we are trying hard over there, and we are getting a good response also there. So we are also -- because it was an old plant that we have taken over from the plant so we are trying to improve the machine quality and also increasing the capacity by adding new machines over there, so that we don't have any production interest at the plant. Along with that from Ahmedabad plant, we are now getting good response from the local and the nearby market. So that front is also doing well. But we are not planning any expansion at Ahmedabad plant or the expansions at Tumkur and Dadri plant.

Okay. Sir, just to dig in to it, you indicated INR 50 crores, is there a broad split either plant-wise or say something on new machinery versus refurbishment of old machinery? Just trying to understand incremental capital allocation, sir.

All the expansions that we are talking about is mainly for the -- no refurbishment. It is all about the new machines and the new facilities that we are creating and the others actually are building the whole, as I say, new work shed of around 80,000 square feet shed, which is being built up. In fact, Tumkur plant also, we are building the shed along with the infrastructure development over there, along with the machinery investment also for, you can say colon pipes or casing pipes for [Indiscernible] you can say that along with porosity machines in detonating machines, all those are there. So it is on the whole, we are trying to, you can say, increase the capacity with new installed machines, not we are working on the investing on the old machines.

Okay. Sir, 1 question, so just wanted to have your thoughts on the distribution reach. We are at 170 plus distributors and 500 plus dealers right now as per the presentation. How do we plan to enhance this reach going forward as we increase the capacity?

We are actually working on the both [ sides ]. We are just -- we are not just working on increasing the number of distributors. Rather right now, we are also changing our strategy to increase the number of dealers and retailers who are attached with the distributors. So that the distributors are -- should have confidence on us that the company is working with them for the post sales. So we are working on that. For the newer areas, we are working on the distributors, to point at, we are now, say, appointing new distributors in the southern part of India. Along with, we are also setting the market of Eastern India. So we are working on the new distributors on these areas, along with working on the dealers and the retailers network for those existing distributors so that the new expansion and the new product should get their way in the market.

The next question is from the line of Yash Modi from ICICI Securities.

Congratulations on a great set of numbers. Just wanted to understand from you now that you have ceded so many new products, and most of them are doing well. Are there any plans in the pipeline for introducing more new products? That is my first question.

Yes. Yash, we are working regularly on the [indiscernible]. But right now, we are not focusing on any new product. We are working hard with the existing products that we are already producing. We are trying to increase the number like we talk into first, you can recall that we are working on the other segment, where we are making several products, but those numbers are not very big. So we are working on all the goals that we are pursuing. So that every number, every product that we are working on, it should have a -- you can say, it should have good figures to show in the presentation. So we are working on all the products that we are manufacturing right now. Right now no, you can say, other product is in line. So that now we are working on. We are working on existing products only to increase the sales of those products only.

Okay. And sir, in the last presentation, the capacity was given as 90,000 metric ton. In this presentation, we have increased it to 1 lakh ton. It is, of course, testament to the good demand that you are seeing. So would it be mostly on account of fittings and the tank business that we have started, this increase in CapEx that we have done, the capacity that we're doing from last presentation 90,000 to 1 lakh?

Yes, yes, yes. We are mainly working on the value-added segment right now, that is -- which is fittings process, solvent, tanks, which doesn't have quite the highest numbers in tonnage, but they are good volume and good because the profit margin. So we are in this, I say, in this financial year, we are mainly working on the value-added products like fittings and other products, which have a good profit margin.

So this quarter has been excellent in terms of working capital management volume of everything has come in line, especially when our peers are not seeing adding any volume growth. It is very heartening to see the kind of volume that you guys have been able to do, especially like say in being flat on first advantage. I think very few manufacturing companies can take that. Congratulations and all the best for the result.

The next question is from the line of Punit Mittal from Global Core Capital.

Congratulations. My first question is on the working capital. You have mentioned that you're trying hard to contain at this level. Your average working capital for last 5 years is at 52 days. So when you're saying at this level, you're winning 52 days or at the current quarter level?

Moving forward -- Ajai, sorry. Moving forward, sir, the way we have reduced our working capital. So our focus remains to maintain this level, the working capital.

It is the average of last 5 years, 52 days, or this quarter?

This quarter, we are talking about. This quarter, we are able to achieve 35 days. So our focus remains to maintain this level.

Okay. Okay. That's great. Second question is that what is the reason for the PVC prices going up? And since the PVC prices are going up for all players, do you see the prices moving back in the market in the sense, the finished product, whereby we can maintain our gross margins?

Yes. Of course, the PVC prices have a direct impact on the finished goods. So whenever the prices go up or it goes down, we have to change prices as per the market and all the players in the industry like this only. So we are not exception for increasing the prices because he prices are increasing, it is -- the prices are increased by all the players in the market. So going forward, as the markets are going up, we are increasing the prices for the end product.

Okay. Okay. The next clarification is that you mentioned in your last call that your -- you have 1 machine for the water tank and you're planning to put 4 machines by end of '21. And now you mentioned that in your presentation, you're doubling the capacity. So does that mean you're putting additional 1 more machine, 2 machines or doubling of 4 to 8 machines?

No, no. We are putting 1 more machine at Gujarat so the capacity will be doubled at the Gujarat facility. Along with that 2 more machines are coming, 1 at Tumkur and 1 at Raipur, so 4 machines put together.

And that -- those all machines will be finished by March '21?

Of course, sir.

Okay. So this I also heard competitor like Prince and Supreme also getting a little aggressive on the water tank. Is it because the market is vacated by Cintec? Or is it -- what's the reason of everyone getting aggressive at water tank?

Yes, mainly because of the absence of any branded players out there. Supreme was already manufacturing this product. Prince and other companies have also entered this -- with this product. So it is mainly because of the absence of any branded player, any big branded player in the market. And the Cintec was also 1 major reason for making all those clones to come into the picture.

Got you. Okay. And my last question is that in terms of normalized fixed asset turnover, like, for example, the new CapEx you're doing of INR 50 crores. So let's say, assuming in 2 years, normalized fixed asset turnover. What would be the normalized fixed asset turnover that we can do?

We are working very hard for utilization of -- this capacity utilization, we are working very hard on that. So we think that the numbers should be improved in the coming days because right now, we are working, working hard for, I can say, that working hard for the growth in terms of geographical and you can say along with the products. But like you see that we are adding several new products in our product marketing. So that is a big challenge for us to maintain the intrinsic asset turnover because all the new products are getting a full investment in terms of excesses, but the sales are gradually increasing. So we are trying to improve with this to the number of 3, but this will take some time in the -- and it will be some time in, you can say 2, 3 years.

In next 2, 3 years, we can expect around 3x of turnover, for example, turnover?

Again, I see some expansion will be there and some new product additions will be there. And again, this number can go down because of other expansions.

No, no. I mean whatever assets, if you keep doing CapEx then naturally the new CapEx will count. But I'm saying all existing CapEx fixed assets that we have in 3 years, we should expect around 2 to 3 years, we can expect around 3x. Is that correct?

Yes. Sure. Sure.

And EBIT margins would be -- normalized EBIT margins would be about 10% to 11%?

EBIT margin, you were talking about earning before interest and tax?

Yes.

Yes, yes, it should be -- we are targeting that. It should be around 12%, which we are targeting that we should be around that.

The next question is from the line of Shivam Gupta from Avendus Capital.

Sir, congratulations on a great set of numbers. 2 specific questions. On the balance sheet, as I see, the other current assets have gone from INR 15 odd crores to INR 50 odd crores. What is the specific reasons for this high other current assets? Second question is, in the last 1, 1.5 months, how are you seeing the Q3 turning out to be? Was Q2 a pent-up demand quarter or the capacity utilization is at similar is for the last 1, 1.5 months?

Yes. Shivam. Actually, this current asset attributes majorly the advance is what we paid for the CapEx activity.

Then why have this been included in other current assets? Because your cash flow from operations gets severely impacted due to categorization.

Currently, this is an advance to the supplier. Once the machines are delivered, they will be capitalized.

Understood. So this majorly doesn't impact your free cash flow from operations. This is regarding the CapEx.

No, CapEx only.

Can you just give a brief bifurcation of this number?

That majorly is towards infrastructure, new plants, machine building, everything.

So out of INR 49 crores, I can assume around INR 40 crores, INR 45 crores is under advances paid to your CapEx.

Yes, that's right. That's right.

Okay. On the second question ...

Regarding the Q3, right now, like we are going through the Q3, I can say, segment. And we are working very hard for that sales growth. But again, the uncertainty is there in the market, and the COVID fear is also there in the market. So we cannot work very freely, but we are trying to boost our sales team, our customers, our suppliers. So that the fear should not be in their mind, but we have to work very cautiously with the COVID going on. So we are working hard to achieve the similar set of growth, but we are not very sure because of the uncertainty in the market. So it should be fine.

Yes. Sir, on the number side, if you say with the CapEx, at the year-end, we will be somewhere at 1 lakh million ton. Just on a ballpark number, if I say about revenue, what will be the revenue per million ton for us? Say, as an average, be it fitting or be it tank, what will be an average revenue per million ton, for us?

It is 1 lakh ton, not 1 million ton. And again, per 1 lakh ton, the average revenue should be -- vary between INR 900 crores to INR 1,000 crores somewhere around.

So currently, the plant construction in everything which we have done is amounting to a top line of around INR 900 crores to INR 1,000 crores if we reach 100% capacity utilization?

It does not happen actually, and that we are working hard to achieve a good number.

That's okay, but in case ...

Yes, at 100%, it should be like that.

Understood. And the EBITDA margins will be somewhere around 14%, 15% odd. Sir, if you see the Finolex result and other players result, the margins have expanded this quarter in -- their EBITDA margins have expanded due to lower PVC cost. Is there a reason that we were not sitting on inventory and we had to buy higher-priced PVC? Or what is the reason that our margins haven't expanded? Other than us, everyone in the industry have expanded their margins, be it Finolex, be it Supreme or be it any other player.

It will go through our figures. The margins have increased in our case also. But being a good brand of you are talking about other companies that we come in, top 3 or 4 companies that you are talking about. Yes, enjoying good, you can see a premium in the market. So that's why their margins are good. And along with that, the Finolex is also manufacturing resin. That is also a reason that they don't have any such pressure with them. So going -- but if you see our margin in this quarter, it has also increased tremendously as compared to the last quarter same year. Being the intense monsoon in month, and it was always, you can say, the weakest quarter of full year, but we have achieved good number. It is mainly because of people say there's some stock gains were there. Along with that we are very much focused towards that, we can say, increased sales in the new markets and along with the new products. So put together, we are working hard on that profit margin. But right now, we are not targeting on, you can say, margins are at this level, where we are trying to achieve the top line at, I can say, at high level.

So on a Q3 front, on a normalized basis, will be -- what is your anticipation? Will we see a decline in revenue from this quarter or more or less, we'll be able to achieve because this is the weakest quarter from traditional, if you talk about historical forefront. So will we see a better top line? What is your prediction? Or what do you think, will we be able to meet the top line as we are making ..?

We had maintained -- we are in a -- yes. We are trying to maintain the growth level. But right now, the uncertainty is too much there in the market. We are not very sure that how the market and how government will behave in the coming days. So we have to work very cautiously because we don't want to get stuck in any such situation where we cannot go back. So we have to work cautiously. Along with that, we are also working very hard regarding our planned expansion. So we should be getting good numbers, but we are not sure that what exactly it will be. It should be good, but we cannot comment right now anything on the figures. Once the situation gets cleared, then only we will be able to comment on that.

The next question is from the line of [ Vivin ] Shah from Phillip Capital.

First of all, congratulations for the good set of numbers. Sir, my question is regarding our 2 new plants, which is there, 1 in Gujarat and 1 in Tumkur. So wanted to know what is the capacity utilization of Gujarat plant?

At Gujarat, we are working around 50% of the custom utilization. At Tumkur, we got older plants. So we are working to get install new machines at this plant because older machines were not in line with our quality, that's what we were expecting. So almost, you can say in Tumkur plant, we are working at 60% to 65% capacity utilization. But we are working on expansion of new machines over there. So the capacity utilization will remain same along with the capacity expansion will be there in Tumkur plant. So going forward, the capacity will be increased at the Tumkur plant, and we will be seeing good numbers over there.

Okay. Sir, on Gujarat, we are facing a problem to ramp our capacity, right?

Yes. Actually, what exactly happened in the Gujarat facility that we were trying -- that when we installed this capacity, we were seeking that we can market the Rajasthan and the MP market from this Gujarat power plant. But going forward, the freights were too high. They were beyond our expectation. We were not anticipating any such freight higher than it is almost double set what we paid from Dadri. It was double from there in Ahmedabad. So we are a smaller plant and we were having -- not having full product over there. So we cannot feed the market from that plant. So right now, we are targeting to feed the local market of Gujarat, along with the eastern and the northern province of Rajasthan from that plant. Now it is coming back into line, and you can see that in the coming days, the capacity utilization will be good at Ahmedabad plant also.

So by when from you're expecting a full capacity utilization?

In Ahmedabad plant?

Yes.

Yes, it should be -- in 12 to 18 months it should be almost working at the full capacity.

Okay. So normally, when you install a plant, how much it takes to come in for full capacity?

It depends upon the like we saw the tank capacity is working at full capacity from the day 1. So it depends on the plant locations and the circumstances that we are working on. We are always installing any plant with the full -- with a view of operation at full level, but it depends on some conditions are different at different locations. So because of that thing, it was [Indiscernible] identical. But at Tumkur plant, again it is responding very well. And within the 1 year only, we are reaching that level of 16%. So that is not actually a challenge; unforeseen things were there. So it gave us some progress. Otherwise, it's always as you can say, at good levels.

Okay. Coming to your distribution network, South, we have just entered last year only. So how much of the total distribution network is in South right now in terms of percentage?

Right now, in terms of percentage, we cannot comment because some distributors are big and some distributors are not. In terms of numbers, you can see that almost 20 to 25 distributors are there already, good distributes we are talking about, not the customers. They have some onetime customer also. But we are talking about the regular distributors. So almost 20, 25 distributors have been, you can say, are there in Southern region, and we are working hard for the second line of sales with them. So that's why we see that in the coming days, some more distributors will be added along with a good number of retailers and the, you can say, some dealers will be there.

Okay. So where actually we are targeting? Are you targeting on a B2B side or B2C side currently?

It is mainly B2C but through distributors only.

B2C?

Yes, B2C but through distributors, not directly.

Okay. In Raipur, what is our strategy?

Uncertainty is there because Raipur again, we are right now trading the market with our facilities from Dadri. So we are right now having good response from the market and being Apollo, a strong brand image all across the country. So we are not facing any such trouble for brand establishment at any location. The only thing that in Ahmedabad that we have a drawback is because of freight. So that reason we don't see in Raipur. So that will be not there, and we will be able to achieve significant [indiscernible] at Raipur facility.

Okay. So [for 100,200 ] how much is your spend, sir, for the capacity?

Somewhere around INR 12 crores to INR 15 crores.

Okay, INR 12 crores to INR 15 crores. This is purely UPVC?

It is UPVC and water storage tanks.

Okay. Okay. Okay. And sir, lastly, whatever growth we have seen of 19% in terms of volume, so is it a kind of a demand or there was a presell item in the system?

So it's not exactly a pent-up demand. You can say that we are working hard with our brand, with our product range and with our geographical areas. So put together that response is there. And going forward, we also see the same type of response in the coming months.

The next question is from the line of Bilal Khureshi, an individual investor.

Congratulation on the good set of numbers posted. Sir, my question pertains to is that thereby [Indiscernible] Apollo. They are trying to take the business model to cash and carry. Are you trying the sale business model to catch up in ours?

Yes, we are trying level best to achieve that thing, but giving us very strong brand in sector that help us in achieving that figure. But being a PVC player, we are not at the #1 position. So that will be a challenge if you target that thing. So right now, we are targeting on the top line, along with the bottom line. We are not targeting very high, you can say, number in terms of cash and carry, but we are trying to level out to reduce those number of days. But right now, that is not our target area.

Okay. Okay. Sir, in the previous conference call, you had said that we are targeting for INR 1,000 crores of revenue. So in the long term, are we -- how many years are we able to reach that number?

As per [ Sunday ], we should achieve very fast, but because we are working hard with the market. So we think that very shortly, we will be able to achieve that thing. But right now, because the uncertainty to the market, first of all, we are working on the capacity building up. We are right now working on the capacity, so that capacity should be there with us to achieve that figure. And as the market will open, we will be able to give you some, you can say, target rates that we are exactly we will be booking. But right now, we are working on the capacities build up.

Okay, sir. Okay. So my last question is, as October month is over, okay, so how is the volume being posted there? Have you seen the double-digit growth in -- on year-on-year basis?

Sir. Right now, these are -- quarter is going on. So we cannot comment on that thing, but it's doing good.

[Operator Instructions] The next question is from the line of Agastya Dave from CAO Capital.

Sir, I had -- Sameer bhai, I had a question on our exposure to the government sector. So is there any particular government program that we are selling a lot to or directly or indirectly, is there any exposure to any state or central government programs? Any comment on that? Any visibility on that?

Yes. Yes. Actually, earlier, if you talk about 4, 5 years back, we were mainly dependent on the government, you can say, projects and government tenders. We are working mainly with them and almost 30% to 40% of our top line was coming from that sector. But right now, we are totally focused on the credit sales, which is actually, you can say, hard, it is hard to sell. But in long term, it is very good, too. We can say that to maintain the sales. So right now, if you talk about both of our top line, only 10% to 12% or I can say even less than 10% is coming from the government sales directly and no directly. If we talk about indirect government sales, yes, we are supplying to various government agencies like Nal Jal Yojana and others and we will be sending them all any other to our distributors. We are not directly building with them. And the quantum is not so big. That is not, you can say, where you can say that we are targeting such in the business. So because they very much aren't seeing demand from those sectors. On the onset then only they will come. And if there is no fun, they will just keep silent. And there is no such brand value in front of them. So we are not very much targeting those sector.

And in your working capital of -- if I take last year's closing number, right, for the entire year, pre COVID, so there were no distortion. So it was around 58, 60 days of net working capital. Out of those 58, 60 days, how much was the government number?

Government number?

My guess is the receivables in the direct government business would be much higher than --

Like I told you that it is not very high. It is hardly. Very negligible because we are not selling too much to the government sector. Almost, you can see that direct government sector would be, you can say, early INR 1 crores or INR 2 crores. It will not becoming more than that.

The next question is from the line of Sanket Goradia from VEC Investments.

Congratulations, a great set of numbers. I wanted to just get your view on how we are looking, say, in the next 2 years, are we looking to continue being a dominant PVC player? How does kind of our product mix pan out, say, 2 years forward? And of course, don't hold you. I mean just an estimation of directionally which way are we going.

Yes. Like, Sanket, we are working strongly on all the sectors. We are trying to build up a team for each and every work has a different segment. So we are trying to grow vertically along with horizontally. We are working on the product lines that we are developing in our production. Along with that, we have already produced like PVC fitting, CPVC, all the products, we're working very hard, so that each and every product should be get attention individually, and they should have -- because every product you can see is an industry in itself, like if we talk about water storage tanks, if we talk about solvent cements, if we talk about taps and faucets, if we talk about LTPE. So all those ports have different, you can say, different type of business in themselves. So we are targeting all the products as an individual business. Put together in Apollo, we are trying to achieve the top line. We put together all the products. We are working hard with the PVC in the core product and being the main product and the oldest product with us. So we are working hard with that. Along with that, other products have also being getting full attention for the growth.

I think the COVID -- from a margin point product-wise, how would you rank our current product line? Like just in terms of PVC, CPVC and fittings and water storage?

If we talk from bottom to talk, it goes higher, the PVC has -- CPVC pipes has the minimum margin. And going forward, PVC pipes would come next, then you can say that again, PVC fitting, then you can say that water storage tanks, tank solvents, tank taps and faucets, it goes like this, I think so. But I don't exactly -- I don't have the number with me, but it should be like this only.

Sure. Sure. And going forward, we intend to continue our focus on UPVC?

It is the focus. All of our products are treated as a same standard, not treated as a [Indiscernible] not like that. We are treating the same growth level at all the products.

The next question is from the line of Ritesh Shah from Investec.

Sir, my question was how much [Indiscernible] the Tumkur acquisition, I think it was a 12,000 ton capacity, how much was the money that we put over there?

It was somewhere around -- put together all the, you can say, stamps and duty put together somewhere around INR 75 crores.

And would that be a breakup for land and building, plant and machinery versus land bank?

It was almost, you can say that 60% to 70% towards plant and building-- sorry, land and building and balance was towards that you can say around machinery.

Okay. So roughly you said we put in around INR 8 crores for 12,000 tons of capacity. And sir, you indicated that we have to refurbish this plant. So how much is the incremental CapEx, this particular variable will expect going forward?

We are not trying to refurbish that plant because we are working with those machineries, those are some old machines. So we are not trying to refurbish that because we will not get production as we get in the new machines. So we are working with them. We are using those machines, but we are trying to put new machines along with them. So that the new machines could -- may have because better, you can say, costing and better productivity in terms of utilization and other things. So going forward, we are expanding in Tumkur with new machines with new range of products like we have invested in fittings capacity, water storage tanks, column pipes, all those things, we are working with that. But you can see that would be fully refurbishment. We are not putting too much money on that because they are old machines, so we don't want to spend too much on that.

Sir, how much will be the incremental capacity that we intend to put over here? And is there [Indiscernible]?

Right now, we are not able to comment because the machines are too old. So we are just analyzing that what exactly will be the, you can say, life of those machines should be. It should be, you can say, around 20%, 30% minimum when the growth should be there of the capacity build-up. But right now, we are not able to -- once the capacity should be there, we will be able to comment on that.

Okay. And sir, second question is, you have emphasized a lot on increasing the product faster going forward. But sir, how do you look at it from a market opportunity point of view, taking into account high intensity [Indiscernible] in the recent ratios with each of the products could actually come. I'm not asking for working on some operating margin. I'm simply asking for our ability to understand the working capital and as well. So I think tanks is something that we have been quite optimistic about and a few other products. Can you give some broad guidelines on 3 or 4 products that we are looking to penetrate into and why?

So we are working, like I told you, we're working hard with all the 4 that we are manufacturing. We are not keeping ourselves limited to 1 product or the other because all the product we are manufacturing right now, they have good prospect in the market. The market is very big. And the scope for all the product is too much. The market size is too big, and the market share of Apollo is quite low at this time. We are working at around almost 1.5% of the total market, you can say, market industry. So we are not even so limiting ourselves to 1 or 2 products. We're working with all the products. And we are trying to increase the ROC and ROE in the coming days. But right now, that is, you can say, it should gradually come because right now, we are working with the top line, with the bottom line and with the high-margin products in our kitty. So I don't think that the ROC and ROE that we are working on -- it will keep on increasing. It will -- you can say it will not be stagnant. As we can see the major expansion is going on and all the -- you can say, products that we are adding right now, they are value-added products. So put together, the ROC and ROE growth should improve in the coming days. And we are quite optimistic having those figures.

Is it fair to assume that any incremental capital allocation on non-pricing portfolio that you have, it is likely to yield better margins and better ROI, including to something like tanks?

No, we are right now. It is not like non-piping products. We are right now targeting the same markets where we are already marketing our other products. So it is not like that. We are focusing on the same market with the same set of, you can say, products, but not exactly pipes, like fittings or you can say, tanks or solvents. They are sold in the same shop. So we are targeting like targeting that only. So they, by chance, they have good margin, and we are targeting such products only which have good margin and good potential. So it should help in our, you can say, ROC and ROE.

Sorry to drag a bit, but I'm just trying to understand the larger picture. We are a company. We are doing well in our core basket of pipes and fitting. Then what is the need to increase the product growth? Is it better return ratio than the incremental products that we are getting into? How should one look at that?

Yes. Actually, what exactly happens that if we keep on just working on the pipes and fitting, UPVC pipes and UPVC fittings, then it will gradually keep us on the back track of all the other across the industry, they are coming with all the products. So we just keep ourselves to 1 or 2 products and don't manufacture other products, then our distributors or other traders will not be limited to us. They will be forced to go to other players for the other products. So we don't want to, first of all, I can say, want them to go to other players. Second of all, whatever products we're trying to manufacture, they are helping us with the good bottom line. So that is also our main concern. So we don't just want to meet any product. We wanted to keep our focus on the pipe to grow margins. And then you can say that's heading nowhere. That will not make any sense. If we can market any product in the market with our brand name and get good margin, we are definitely -- we are selling that product. Any product we are working, we are working with that good brand presence and you can say good brand positioning, so that the brand doesn't go down, and we are not into any such product which doesn't have the brand [Indiscernible].

And sir, lastly, on distribution reach, we have a solid brand, Apollo. How is it that we are optimizing the brand approval when it comes to distribution market being reached? I understand the advertisement and marketing part, but something in South or maybe in the East. Do we have an additional advantage of common distributors, dealers or [ indiscernible ] than looking for something new? Are there some intangible benefits that we are benefiting from right now or we can expect going forward?

Yes, definitely, Apollo being a very strong brand in scale pipes, we definitely get a leverage on that account. Whenever we go to any distributor who is already dealing with our intensive product, he definitely recognize the brand and refer it to do the business either by himself or by, you can say, cousins or you can say, relatives, immediate relatives because nobody wants to leave a good brand that comes into the market. And if they are already maintaining the good relations with the company, then they immediately go and join hands with us. So that is definitely a big, you can say, plus point for the Apollo PVC, sharing the common, you can say, brand that we are marketing with Apollo and they are also marketing with Apollo. So we get a little bit on that account. And we are getting -- we are getting that leverage.

The next question is from the line of Aditya Mehta from Pelham Investment Advisors.

Sir, my question is regarding the PVC inventory. The inventory gain that we have seen in this quarter, will we be seeing the same gain in Q3 also?

We are not sure because right now, there is too much uncertainty in the market. The prices are going high. There is already an almost a little peak. So the same level of inventory gain will be there or not and if the prices go down in the coming months, we're not very much sure that in those things. So because we are in the top line ...

How many inventory do we carry?

We normally carry, you can say, around 30 to 60 days put together all in line and in hand. But if you talk at just in hand, it is roughly around 30, 35 days.

Okay. And what is the price lag of passing the prices to the customers?

It is -- you can see if we talk about the quarter, it is almost done and say, within 1 or 2 days maximum. We just pass on the price whether it is drop or the rise, we pass it into the customer. We don't profit too much, but only we have to carry the pending orders with us.

So okay. It is an immediate pass on. It is the [Indiscernible].

Just like immediately only. 1 or 2 days, we pass on to the customer. Only the pending orders there [Indiscernible] pending orders.

Okay. And sir, you mentioned that you couldn't supply to Rajasthan because of high freight. So was it one-time of -- sorry?

From Ahmedabad plant.

From Ahmedabad to Rajasthan because of high freight. So the high freight, it is normal thing or it's onetime unit cost?

No, no, sorry we don't have that thing in our mind. It's a normal thing for the Gujarat market. The freight to anywhere in the country is too high. Being a port city, the demand over there is always very high at that point. So I mean going out from Gujarat, the freight is too high. So like -- I will give you an example, like if we deliver the goods from Delhi to Ahmedabad, it is roughly around INR 18,000 to INR 20,000 per truck. But if we deliver the goods from Ahmedabad to Delhi, it is almost INR 50,000 to INR 60,000.

Okay. So how do you plan to utilize that capacity?

We are trying to target, you can say, the local market and the nearby markets only. So we are not, you can say, too much into that. It's a small plant, again, it's not a very big plant. So we are not planning to do any expansion over there, just trying to capture the nearby market and price the market within, you can say, adjacent markets of Gujarat and Ahmedabad.

As there no further questions from the participants, I now hand the conference over to Mr. Karan for closing comments.

Sir, 1 thing I wanted to ask. How much is the gross debt levels, including the current maturity as on September?

I could not get you. Please repeat again?

What is the total gross levels, including the current maturities?

It is around INR 40 crores.

Okay. And sir, I just want to touch up on the water tank business. So how big is this market? And are the dealer distributor different from the piping division? Or how things were there?

It's a good market, you can say. Like I told you, there was lots of big years in the market. There are some only some peers who are trying to control the market. And the dealers and distributors are almost the same, which we are already supplying supplies to. So they are not different from [indiscernible]. So we are capturing the same business with the same set of distributors.

Thank you to the management team for giving us an opportunity to host the con call. Sir, any comment you want to make?

Yes. Actually, thank you and I hope we have been able to answer all your questions satisfactorily. Should you need any further clarification or like to know more about the company, please feel free to contact our team. So thank you once again for taking the time to join us on this call.

With this, we conclude the call. Thank you.

Thank you. On behalf of Asian Market Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.