Apollo Pipes Limited (531761) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Apollo Pipes Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumit Kumar from Motilal Oswal Financial Services. Thank you, and over to you, sir.

Thank you, everyone. Good afternoon, everyone, and a very warm welcome to Apollo Pipes Q4 FY '21 Earnings Call, hosted by Motilal Oswal Financial Services. On the call today, we have Apollo Pipes management team being represented by Mr. Sameer Gupta, MD; Mr. Ajay Kumar Jain, CFO; and Mr. Anubhav Gupta, CSO. We will begin the call with the key thoughts from the management team. Thereafter, we will open the floor for Q&A session. I would now like to request the management to share their perspective on the performance of the company. Thank you, and over to you, Mr. Sameer.

Thank you, sir. Good afternoon, everyone, and thank you for joining us on the Q4 FY '21 earnings call to discuss the operating and financial performance for the quarter. I trust that you and your families are safe. I hope you all had the opportunity to go through our financial results presentation, which provides details of our operational and financial performance for the fourth quarter and full year ended 31st March 2021. To begin with, I'm pleased to share with you that we have reported a robust performance during the quarter with our sales volume growing by 34% to 12,987 metric tons. Volume growth was driven by a healthy contribution from the cPVC, uPVC pipe and value-added work segment of fittings. Furthermore, expansion of product portfolio improved reach in newer geographies and addition of new brownfield capacity-assisted volume growth. Over the next few quarters, we anticipate this sales performance to strengthen led by improving demand environment, expansion in addressable markets and a sustainable uptick in utilization levels. Moving on the operational front, we have successfully completed all our brownfield manufacturing expansions across facilities located at Dadri, Tumkur and Sikandrabad. Operationalization of our greenfield facility at Raipur, which would have an installed capacity of 7,200 metric tons per annum, is delayed due to the impact of second wave of COVID. However, we expect to commercialize this facility in the current month only. So in all, with the addition of new capacities, we will be able to notably scale our volumes in the coming quarters. In addition, we are aiming optimal utilization of our capacities over the next 2 years, which will also help our net sales volume going ahead. From a product basket standpoint, we continue to witness a positive traction in inquiries of Apollo Life water storage tanks. Earlier in the previous quarter, we had doubled our capacity for this product at our Sikandrabad plant and also commissioned a production line in Tumkur to ensure that we can meet the increased demand. We remain confident that this product, along with our other offerings like fittings, solvent cement, bath fittings, adhesives, taps will enhance our reach and strengthen sales going forward. To conclude, I would like to state that we are constantly working towards enhancing our presence across existing and new potential geographies. Once we complete the operationalization of our plant, we expect to address the untapped and high-potential market of Central and Eastern India as well. Going forward, we expect to deliver a robust performance in the quarters to come and further gain the momentum on the back of improved profitability, strategic expansion in key geographical areas and better brand acceptance. On that note, I would now like to invite Mr. Ajay Jain to run you through the key financial highlights for the quarter and full year ended 31st March 2020. Mr. Jain, please.

Yes. Good afternoon, everyone. I will briefly cover the financial performance during the quarter and full year ended March 31, 2021. The company delivered a strong operational and financial performance during the quarter, driven by an uptick in demand and consumption in key domestic markets. Revenue from operations for the quarter stood at INR 174.2 crore as against INR 94.1 crore in Q4 FY '20, higher by 85%. And in financial year FY '21, full year revenue from operations stood at INR 518.1 crore as against INR 408 crore, up by 27%. Sales volume for the quarter stood at 12,987 metric tons, growing by 34% as against 9,721 metric tons per annum. Sales volume for financial year FY '21 stood at 47,333 metric tons per annum as against 44,692 metric tons, up by 6%, despite operating for only around 10 months in the last year. On the profitability front, EBITDA for the quarter grew by 158%, which stood at INR 27 crores as against INR 10.5 crores in Q4 FY '20. EBITDA margin, which stood at 16% in Q4 FY '21 as against 11% in Q4 FY '20, higher by 439 bps. EBITDA for FY '21 stood at INR 74.3 crores as against INR 46.4 crores, growing by 60%. EBITDA margin for the full year ended March 31, 2021, stood at 14% when compared to 11% in the corresponding period last year, higher by 297 bps. Going forward, we anticipate EBITDA margins to normalize. During the quarter, we witnessed a sharp increase in depreciation during the quarter, which was partially offset by a reduction in financial costs. Depreciation cost stood at INR 5.8 crores in Q4 FY '21 as against INR 3.7 crores in FY '20, growing by 57%. PAT for the quarter stood at INR 16.6 crores, up by 169% when compared to the INR 6.2 crores in Q4 FY '20. PAT margins for the quarter stood at 9% as compared to 6% in Q4 FY '20, higher by 302 bps. PAT for FY '21 also grew by 56%, stood at INR 44.5 crores as against INR 28.5 crores in FY '20. PAT margins during the period stood at 8% as compared to 7% in FY '20, higher by 162 bps. On the balance sheet front, our net cash position stood healthy at INR 10 crores. On the working capital front, additional raw material requirements at a newly commissioned capacity may moderately impact inventory levels in the near term. However, our endeavor remains on maintaining our overall working capital cycle at a stable level. 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 Arpit Shah from [ Anvil Asset Advisors ] (sic) [ Stallion Asset ].

I'm [ Arpit ] from Stallion Asset. Just a couple of questions. Under the cash flow statement, can you help me with what is the positive INR 22 crores coming from capital work in progress?

[ Arpit ], your voice in not clear. Please repeat again.

Yes, under the cash flow statement, we are seeing a positive INR 22 crores coming from capital work in progress. Can you help me with that? What is that?

Actually, INR 22 crores, that was the opening WIP, which we got adjusted in -- after capitalization on my fixed assets.

Sir, your capital work in progress last year was INR 30 crores, and this year, it's INR 7.7 crores...

So that's what I'm saying. INR 22 crores WIP got capitalized in my fixed assets.

Okay. Okay. Got it. And can you help me with also capacity of water tanks?

Currently, it is 3,600 tonnes. But after this fourth capacity at Raipur, it would be 4,800 tonnes.

And what is the revenue potential, let's say, in the next 2, 3 years?

Revenue potential for water tanks?

Yes.

Yes, of course, we foresee revenue to be roughly around INR 60 crores by the end of 2 financial years, FY '23.

FY '23.

Yes, yes, FY '23, next 2 years.

Okay. And so the kind of pressure that you're seeing in the raw materials, is it continuing even in the month of April?

No, the pressure has been released. The prices are softening up. So we don't see any prices, you can say, jacking up in the current quarter. Rather, it should go down in the coming months.

Okay. Any impact on demand in the last 15 days?

Yes, of course, because of lockdown, the demand has been impacted because all across India, many markets have been shut down and strict lockdowns have been followed up in many states. So the demand has been impacted in the last 15 days. 10 days or 15 days, it has been impacted.

The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.

Congrats on a good performance.

Thank you.

Thank you, Mr. Bhargav.

My first question is on volume growth. Is it possible to share the volume growth in agri and non-agri in the fourth quarter and maybe in FY '21?

So volume growth, if you talk about the agri, of course, it was a bit affected because of the very high resin prices. But if we talk about the building products, the volume growth was good, and you can say that we foresee that the volume growth will continue, you can say, in the coming quarters for the building products because we have completed our product basket. There's a lot of fittings we have added and a lot of new product range has also been added in the fittings segment. So that is dragging the demand in that segment. Other than that, there is good demand overall from each and every sector.

So was there growth on the agri portfolio in the fourth quarter?

Yes, of course. There are growth but not to that extent. The growth was there, of course.

Okay. Secondly, is it possible to share what is the installed capacity across all your plants as on 31st March? And what are the utilization levels across plants?

Across the plants, we have total capacity of 118,000 tonnes, which we have already shared. But -- yes. And -- but due to this price sensitivity, we cannot -- this competition, we cannot disclose this thing on this forum. We can share the details with you on the e-mail.

Okay. On the cash conversion cycle, our cash cycle is at about 65 days versus, say, 30 days for larger players. But have we sort of inched closer to our target of about INR 1,000 crores revenue? Do you expect material improvement in the cash conversion cycle as well?

Of course, it will improve because we have been wrapping up the sales. Because of that thing, the working capital cycle has gone up. But if you see quarter-wise, it has not increased to that level. By this quarter -- if you see just by quarter -- quarter-to-quarter, because of the high sales in the last quarter, the inventory level or the debtors has gone up. Otherwise, it is very much in control.

On our domestic sourcing of PVC, where we are in terms of percentage?

Earlier to this quarter, we were mainly sourcing our raw materials from imports market, but from the last quarter, we have changed our strategy to source mainly from the domestic players, such as domestic producers in India or the traders who are selling the products. So we have changed our strategy a little bit for the short term to source over raw material from the local sources in the coming future.

And lastly, on CapEx, what would be the guidance for next 2 years?

CapEx will be very moderate in the coming years because we have done the maximum of the CapEx. And now it is time to ramp up the sales to increase the utilization level of all the capacities that are available with us. So we are much more focused towards capacity utilizations. Maintenance CapEx on some small CapEx will be there, which would be somewhere around 20% to 25% of the EBITDA.

About INR 20 crores, INR 25-odd crores per year, is that correct number?

Somewhere -- it should be around that only.

The next question is from the line of Ashish Poddar from Anand Rathi.

So extending Bhargav's questions, if you can share the mix of volumes, which you did in FY '21 across the 3 segments, which is equity, plumbing and sewage.

Agri and this building segments, this share roughly -- earlier, it was somewhere around 60% or 40%, but now it has improved to almost 50% of agriculture business and balance 50% is coming from building products. And we are much more focused towards building products as we have told in the earlier calls also. So we are much more increasing the capacities or marketing activities towards this product only because of the better EBITDA margin as compared to agricultural product.

Okay. So on the margin profile, is this the higher mix of agri product impacting your overall margin profile? Because if I compare your margin profile with the other larger peers, I see large difference. So is it because of the product mix and, of course, the low utilization level also? So are these the 2 factors? Or are there any other factors also?

Low utilization level is not impacting us on any of the costing factor. So that margins are not affected because of the low utilization level. But of course, we are focusing on that product mix. Of course, that is making a difference for the better margin in the coming quarters because we are much more focused towards this building products. Of course, the other players, they are very old, and they are quite strong in those products, and we have recently entered around -- 4, 5 years back only we have entered into this product. So we see that in the coming years, we will see a better utilization level and better profit margins in these products because of better -- high ratio of building products in the total...

So any target set internally for FY '23 or '24 about the mix and the margin target? Any color on that?

We target to sell around 60% to 65% of the building products by the end of FY '23, and we are much more focused on that thing only.

The next question is from the line of Sneha Talreja from Edelweiss Securities.

Congratulations for a great set of numbers, sir. My question is more pertaining to your margins. Is there -- what is the inventory gain that we have seen during the quarter and during the year?

Because inventory gain we cannot establish what exactly it was because it's a moving average and it is not very easy to calculate the inventory gain. Of course, it was there in the quarter 3, but in quarter 4, it is not a very big number, which -- almost all the increases that has been there since the start of January month. So there's not too much inventory gain in the fourth quarter. Of course, because of that better product mix, the margin was there. Other than that, the inventory gain was not too much in that fourth quarter.

Sir, the reason for margin dip on a Q-o-Q basis could be only because the inventory gains were missing this particular quarter compared to the last quarter?

There were 2 reasons. Not exactly only the inventory gain was there. First of all, of course, the inventory gain was there in the quarter 3. Of course, other than that, the operational issues were also there. So because of that, unorganized players or small players, they were facing difficulties to operate in the quarter 3 because of the restrictions from government. So that was giving us a benefit in selling our product at a better margin as compared to Q4, where the things were much more normalized as compared to Q3. So put together, the margins effect was there.

I mean could you elaborate that issue that -- you mean to say that the smaller players were facing issue in Q3 but not in Q4? And what were the reasons they were facing issue, according to you?

Because of the lockdowns continuing in Q3, many restrictions were still there in Q3, whereas the Q4 almost all -- everything was normalized, and operations were very much normalized. So because of those things, the smaller players are normalized players. They were facing problem in operating in Q3.

Okay. And sir...

Sneha, Anubhav here. So just to add on this point, like, in all the building material industries in [indiscernible], whether it was PVC pipes or structural steel tubes or tiles, et cetera, the unorganized and smaller players, they were pretty much not able to [indiscernible]. So in all the industries, what we saw was [indiscernible] gain fell in the laps of branded large organized players. And that's why all the companies could report very strong numbers in Q3 in terms of sales volume increase, right? So as these things started improving [indiscernible] overall industry also started [indiscernible]...

Sir, sorry to interrupt you, the audio is breaking from your line, sir.

Sorry, can you hear me now?

Yes, better.

Yes. [indiscernible] the participation from [indiscernible] for a player has also started to improve. And the premium -- the demand pool, which was better in Q3, just slightly got away. So...

Okay. Anubhav, I'm really sorry. I was not able to hear you properly. I will again connect with you at a later stage about this. My second question was actually relating demand increase. Sir can answer that. Basically, how much of a dip we would have seen April versus a normal April or April versus quarter 4? This is just to get a sense of how much demand would have been down given the current lockdowns which are in place with some quantitative statements there...

Do you want to understand about April '20 or April '21?

April '21, given we have seen sudden, again, lockdowns coming up. Just wanted to see the impact which it will have on the Q1 numbers.

Q1 numbers -- because things are not yet clear, the lockdowns are going on, April numbers were moderately okay because the first half was totally okay. There were no restrictions. In the latter half, the restrictions started coming in several states. So the numbers, we are not able to right now clarify because the things are not clear how the lockdown will move and how the government will take steps in terms of controlling the situation. So as the things will be more clear, we can let you know regarding the exact numbers that we expect in the Q1.

Sure. Just last one from my end. Are you seeing some kind of a pickup starting for every section? Or it still continues to remain weak given that prices are still at elevated level or because we are coming closer to the season, have you started seeing any kind of pickup there?

No, I could not understand what exactly was your question. Do you want to know what exactly was the impact of the prices on agri pipes?

Agri pipes. Have you started seeing any kind of a pickup there because we are coming closer to the season?

Yes, of course, the agri pipe demand should be there, but because of lockdown continuing all across the country, many states have strict lockdown and some have partial lockdowns. So there has been an impact on the demand -- big impact on the demand because of the lockdowns. So we cannot right now say that what exactly will be the demand if indeed the markets open and how the farmers will behave with the current prices. But of course, if the market opens, then the demand will be there. Even the prices are higher or lower, they will definitely buy pipes.

The next question is from the line of [ Yash ] from ICICI.

Congratulations on a great set of numbers. Just wanted to check with you. We've been increasing our margins by, like, introducing new products. So one product that I was seeing quite interesting -- looked interesting, you started manufacturing steel sinks. So while the margin profile would improve, but probably this is our first product which is not into the plastic category. So I wanted to understand from you what is your outlook towards more and more new products. Are we shifting more towards a building material kind of company? That is my first question. And my second question is relating to your ESOP policy. How do you see the ESOP policy going forward? So do you see Apollo Pipes buying shares in the secondary market and giving ESOPs to employees? So what is your outlook on the ESOP policy of the company?

Yes. Regarding, first of all, the steel sinks that we talk about, it is a trading item. We are not manufacturing steel sinks at any of our units. We are trading it, and actually, it is an [ allied product ] with the bath fittings that we are already selling in various markets. We are manufacturing bath fittings at our Dadri location. So this is the byproduct. You can say an additional product, which is being sold at the same market or same counters where we sell the bath fittings. So steel sinks, of course, we are marketing this product, but it is right now not a focus product for us. It is, you can say, added product range -- added product in the product basket of bath fittings. Secondly, if you talk about ESOP, right now, we have distributed the shares that we have bought in the last quarter, the shares to the employees. And around 1 lakh shares we have purchased from the market and out of that, around 91,000 shares have been allocated to the employees of Apollo Pipes. So right now, we are continuing with this policy only, and we have no plan right now for the next ESOP policy. As things will move forward, we will plan and see what best we can do in the ESOP because it's a good thing to boost up the morale of employees, and we see that it should give us good results.

The next question is from the line of Behzad Kalantary from Stallion Asset.

Great set of numbers. Congratulations. Just one question I had is I just wanted to understand the long-term vision of the company. You guys have started coming up with new products and that's great. So I just wanted to understand from your point of view, are you planning to increase market share in the pie? Or are you trying to expand the whole pie at the end of the day? That's broadly just one I wanted to ask.

We right now -- sir, we right now wish to increase the market share, and we are much focused -- much more focused towards that thing only. Of course, the market is very big. And right now, if you see the potential of the market, we see good opportunities. And of course, the lack of branded players in the market, and Apollo is a strong brand in building products. So we look for good opportunities, and we get better acceptance level in the market. So right now, we are much more focused towards increasing our market share in the market.

Okay. And is there any chance that you guys are planning to increase the pie of the market also at the end of the day?

Of course, we can do that, but right now, it is -- we are not in that big numbers that we increase the pie of the market because in that case, we need to develop newer product applications, and we need to increase our R&D team. So right now, we are not into that mode. We are much more focused to increase the market share.

The next question is from the line of Ashish Kacholia from Lucky Investment Managers.

My question is basically, can you talk a little bit about your brand-building efforts because we are a challenger brand in the market? So what are the brand-building efforts that we are taking? That is one. And the second thing is, which are our key target markets that we are looking to develop over the next 3 to 5 years?

Yes. Regarding the brand-building activities, we have -- we are tying up some celebrities with our brand. Apart from Mr. Amitabh Bachchan, who is associated with steel brand, we are signing some brand ambassadors for the plastic pipes only. So this was due in the current quarter only, but because of the lockdown, it was a bit delayed. And we hope to close the shoots by the end of June when the lockdown opens. So we are into that activity, and we are seeing that we should spend around 2% to 3% minimum of the revenue in branding activities, which will be mainly coming from APL activities, such as TVCs and other outdoor hoardings. So we are focusing in a big scale for brand-building activities in this current year. And what was...

Which are your key target geographies over the next 3 to 5 years?

Key target markets. Of course, we are targeting in an aggressive way for the Southern market, and we are getting good response from those markets. We are increasing our -- we have increased our sales team in the Southern market in all the 6 states, whether it is Maharashtra, Tamil Nadu, Karnataka, Kerala, Andhra and Telangana. We are much more focused in those areas because it is a big market, and we have got a good brand presence over there. Apart from that, we are also trying to capture the untapped market of the Eastern region where we were not present earlier and the market share was very low of Apollo over there. So we are trying to capture those markets also because we will be having the [indiscernible] unit by the end of this month. So we will be, of course, effective in many products. And we see that the market potential is there. And again, the lack of big brands is there in the Eastern region. So we can capture those markets also. So apart from Northern region, we are trying to capture the Southern region and the Eastern region to increase the sales of Apollo.

So less focus on the Western market, is that correct?

Yes. Of course, we are focusing on the -- less focus on the Western market for the time being only because this Ahmedabad unit is quite small as compared to the Tumkur unit or the Dadri unit. So we are focusing on those markets, but it is less focused as compared to other markets.

Okay. And what is our selling proposition versus larger brands for the customers? Is it price or is it service? Or is it some -- what is the...

Yes, of course, I got your point. We have to keep actually all the things together. It has to be price also. Along with that, aggression has also to be there and the service, of course, it has to be there. We are targeting all the 3 services, key factors to support the retailers or the distributors of Apollo so that they can increase the market share in the respective areas. So we are trying to focus on these 3 points where we can support them. Of course, we are not trying to leverage any credit -- extended credit facilities to them because we are trying to keep ourselves very strict in the credit policy. Apart from that, we are trying to help them in every point.

Okay. And my last question is basically, how does our product quality compare with the quality of the leaders?

Sir, it is at par with all the manufacturers that we are talking about. So we are not compromising -- any sort of quality compromise is not there in any of our products. They are at par with any of the brands that we talk about.

So basically, once the customer buys our product, the experience will be the same whatever you would...

Of course, sir, it will be the same as compared to the other products.

The next question is from the line of Madhav Marda from Fidelity Investments.

I wanted to, firstly, just get any thoughts on government announced a big spending on Jal Jeevan, et cetera, a lot of projects for pipe water supply. Have we seen any initial traction on the ground so far? Has there anything been moving? Or it is still slow in the last couple of months?

Things were -- actually, earlier, it was on the tendering stage -- by Q3, it was in the tendering stage, and the government has been -- started allocating these tenders to the contractors and now the contractors are in market buying these products. Of course, the demand is there, but because of the very high prices, the sustainability with the contractors was not there. So they were trying to a bit compromise on the quality, which Apollo was not into that. So we had to wait a little bit because of that high resin prices or high polymer prices. But right now, as the prices were softening up and as markets were opening, so the demands were there, and we see that there should be good demand on this account. And of course, the tenders have been allocated to the contractors, and they are buying the products from the market. And we are supplying to them, but it is up to that level because of the high prices. They are much more focused towards the prices instead of quality.

Okay. But in these kind of tenders, there's no specification that's happening. Is it that they specify 4, 5 brands and then we buy from them? Or anybody can...

No, no, sir. It is not like that. There is no such specified brands in any of these tenders.

The next question is from the line of Dhiral Shah from PhillipCapital.

So in the last one year, sir, we have increased our capacity to almost 50,000 tonnes, from 75,000 tonnes to almost 125,000 tonnes. So if you can share the detail. The segment-wise capacity increment, we have done in the last 1 year. How much in PVC [ toilets ] and fittings?

Sir, mainly -- the capacity expansions were mainly in the fittings segment because we were running short of capacities in the fittings segment and the product range was very big. So we were not able to supply the full product despite the molds available with us. So the major capacity expansion is in fittings. Apart from that, the capacity expansion is, of course, there in cPVC. Along with that, PVC pipe, minimum capacity expansion is there, but mainly capacity expansion is in PVC pipe and fittings segment.

And sir, how much would be the proportion for these 2?

It should be around 50% capacity addition -- 50% to 60% capacity addition is there in fittings. And same capacity addition is in cPVC pipe also.

Okay. And sir, in terms of retail touch point, how much we have added in the last one year, and particularly, in West and Southern regions?

Of course, we are trying very hard to increase the touch points of the retails -- on the retail sector. And we have increased somewhere around 1,000 to 1,500 touch points minimum in the Southern sector. But right now, the exact numbers are not there with us. We can share with you later on.

Okay. Sure. And sir, lastly, what is your volume guidance for the next 1 to 3 years or any targeted capacity utilization for the next 1 to 2 years?

We are trying to increase the capacity utilization up to the percentage of 80% by the end of 2 years. So we are trying to increase the capacity utilization by increasing the sales of the segments where we are not able to say. So some of the segments are being overloaded and some of the segments we are trying to sell hard because of the market conditions. So by the end of 2 years, we are trying to increase the capacity utilization up to around 80%. But of course, that is again -- should be 2 years down the line we are talking about. Let's see how we can move.

Okay. So of the 125,000, you are looking at 80% by FY '23 end.

Yes, 1 lakh tonnes.

The next question is from the line of Kushal Jajodia from Kushal Jajodia & Associates.

So my question is, during the [indiscernible] period, how many dealers have increased during the period of year in FY '21? And how do we forecast in FY '22?

The dealers, around 10% to 15% number of dealers have been added, and we are continuously working on increasing dealers or retailers. So right now, we are not able to tell you the exact number. Of course, it will be -- minimum 10% to 20% of the dealer additions will be there and 25% to 30% of the retail touch points will be there.

Okay, sir. Sir, my second question is, since we are a part of the famous Apollo Group, so the building segment of the other group companies like TriCoat or APL Steel type, is that helping in the increase of dealers in Apollo piping system?

Of course, we definitely get an edge because of the -- because of being a part of Apollo Group. Dealers give the brand the respect that we have, and we definitely get support in selling the products in the dealer network. So that is definitely -- the support is definitely there, and we get support in marketing our products because of the Apollo Steel brand.

Sir, I have just one last question. Sir, we are forecasting a good revenue growth. Personally, I'm expecting 1,800 -- INR 800 crores in the next year. So how do we see future aspect in the turnaround of the business vision or something in the next 3 to 5 years?

We -- Mr. Kushal, we are actually -- first of all, we are trying to increase the -- trying to increase the utilization level, which will, of course, if we increase the utilization level, it will definitely support increasing the top numbers to around INR 700 crores or INR 800 crores that we are expecting. But of course, down the years, 3 years or 5 years, once we achieve this target, we will definitely aim higher figures, and we are -- we will try to increase these numbers to around 30% to 40% at least growth in the coming years. But again, as we move forward, by seeing how things are moving, we will take a step and try to maximize the sales and maximize the profit.

The next question is from the line of Aashil from C J Shah Company.

I have a couple of questions. One was, you said that the building products give you better margins as compared to the agri side. Can you provide some numbers to that? And secondly, is the margin differential due to product mix? Or is it the same products you can get a better margin?

Of course, building products get a higher margin as compared to agriculture products and agriculture products, the EBITDA margin runs from around 7% to 12%, 7% to 10%, depending from market to market, whereas building products [ have ] a margin of around 15% to 20% on an average basis. So we are definitely -- because of those reasons, we are trying to increase the market share of this product, building products in our product portfolio. And what exactly was your second question?

Product mix.

Product mix. Yes, of course, we are targeting to have product share of building products in our product mix, and we are working on that front only. So going forward, you can say, the product mix will be getting better by increasing numbers of building products as compared to agricultural products.

Got it. And sir, you also mentioned that you're planning to hit a 125,000 tonne, around 80% capacity utilization in the next 2 years. That would mean that you would have to hit some sort of 40%, 45% volume growth. Is there any plan behind how you aim to achieve that?

Of course, there is no such rocket science for us. Even those things, we have to work hard in the market regarding the brand building, regarding the product distribution or the retail or the touch points increasing. We are working on that front only. And we -- the brand is quite good, and it is visible all across India because of the very big steel brand that we are working with. So that should not be a very big challenge for us, seeing the brand visibility and the brand presence across India for steel brand. So we are mainly working with increasing the numbers of dealers and the touch points where we can increase the sales.

The next question is from the line of Jaspreet Singh Arora from Equentis.

Congratulations, sir. My first question is around the theme that the previous participant also asked. So there are 2 things. One is leveraging from the Apollo Group. So one is leveraging the brand, the distribution scale, et cetera, which we have done. And the other is related to the brand ambassador, which, obviously, you said, Amitabh Bachchan. So I believe so far, we've been not spending as much because we would have probably been losing the indirect benefits of Amitabh Bachchan being associated with the Apollo Group. So going forward, are you -- did you mean that we would now have our own brand ambassador and therefore up our ad spend? Or the earlier strategy of the last 2 or 3 years would continue? I'm not very sure what you meant.

Yes, Mr. Jaspreet. Yes, of course, we get the leverage from the steel brand because the brand's spending is much higher in the steel brand and we get a leverage because of those spendings in the market. But of course -- and if you talk about Apollo, we are trying -- we are looking for tie-up with some of the brand ambassadors and which has been finalized, but because of the COVID, it was not -- the shoot was delayed. So it will be coming into the picture by the end of this quarter. And from the next quarter, we will be coming on air. So we will be having our own brand ambassador for Apollo Pipes, which will be seen in the TVCs or public hoardings. So it will definitely be -- because of this thing, we have to increase our ad spend. And right now, it is somewhere around 1%, 1.5%, which will be going up to around 3% in the coming year.

Sure. Sure. Got it. And the other thing, sir, I believe, April -- you mentioned the last part of second half of April was slow because of...

Lockdowns.

Yes. So within geographies, where we supply, right, and within segments, the 2 main segments, building products and agri, which of them would have seen a higher dent of -- so if you could just -- geography-wise and segment-wise, to the extent that you have a color so far.

Jaspreet, actually, what is happening is that some of the states in Southern region as well as some of the states in Northern regions, they are affected by this COVID. Apart from that, in UP, if you talk about the local elections, the panchayat elections were going on during the last month. So that was also hampering the demand of the state. But of course, we were trying hard to sell our product in the last month also. But because of the strict lockdowns in the last few days of the month, so that has impacted. Otherwise, it was very much within control of ours, and we were getting regular orders from them. But right now, the things are very much in dark, and we are not clear that how the government will take steps to control the COVID and how -- and by what time they can control it. So we are not very sure how the things will move in this quarter. So as we move forward and the things will be clear, we will let you know what exactly we are targeting for this quarter and in the current year.

Sure. So what I meant was like in same period last year, the agri was probably moving because of the focus and rural was not impacted, the smaller towns were not impacted while the building products was impacted. This time around, is it correct to say that both the segments are impacted because this time it's...

I think you're right. Yes. This time, both the things are impacted because in this time, today's time, rural markets are also affected because of COVID. Last time, it was not there. It was mainly in cities and urban areas. And right now, it is into the villages and smaller areas also.

[Operator Instructions] The next question is from the line of [ Namit Mehta ] from [ TC Capital ].

Just a couple of questions from my side. One, on the distribution strategy, if you can just walk us through the value proposition that you have for your distributors? And also, can I ask a little bit about whether the focus is on capturing dealers from our competitors or more in terms of cultivating new dealers and distributors?

Of course, if we talk about the distribution strategy, right now, we are trying to give better services to our dealers. And apart from them, because of the brand is not that big -- sorry, the sales is not that big, the numbers are not that big. So the distributor gets a better margin as compared to our other products -- our competition in our products. So because of that thing, they are much more inclined to sell our products in the market because of the less availability in the market. Secondly, if you talk about the support to the distribution sector, we are trying to market with them and increasing their retail points and touch points. And our team is working with them to increase their market share. So in this case, we get some -- sometimes we get the regular distributors. Apart from them, sometimes we also develop some of the steel or the other distributors into this product who are inclined to invest money into this business or increase their business. So both ways, we are working hard. We are working with the existing dealers who are working in the same product with other brands or we are also developing some new distributors also who are inclined to increase their business in this quarter.

Great. And another question with regards to manufacturing network. So I realize that our plant network is more distributed across states and that gives us more of a pan-India presence, whereas some of our competitors are more focused regionally and concentrated with larger plants in specific areas. Can you walk us through that strategy? And what are the pros and cons there as well?

Of course, we get a benefit because of the -- our plants located all across the country in 4 different zones like East, West, North and South. So we definitely get an edge because of this plant distribution. And our strategy is mainly to provide the material at the best rates to the distributors so that they can compete with the local markets or the local manufacturers that are there in their locality. And we definitely get an edge as compared to our distributors. If they wish to sell -- a regional payer is selling the product in any particular region and we get demand from all across the country, so that brand visibility is much higher as compared to any regional player who is available there. So because of these things, we get an advantage. And of course, the lead time is also reduced because of the local presence of our manufacturing facilities at different locations.

And last question from my side. How are you seeing competitive intensity in the agri pipes space? A couple of competitors have been weakened recently? So are you seeing any benefit there?

No, the completion is still there in agri pipes because many unorganized players are also there in agri pipes. So the competition is still continuing at the same level. We don't see any softening of competition in agri pipes. But we are much more focused towards building products. So that is not our main focus area. But of course, we are fighting the competition because of the competitors available all across the country, whether it's organized or organized. The agri pipe business is much more crowded as compared to this building products.

The next question is from the line of Kashyap Jhaveri from Emkay Investment Managers.

Two questions. The first one is [indiscernible].

Mr. Kashyap, you are not audible. Can you be a bit clear, please?

Is this better?

Yes, far better now.

Yes. Sorry. What I was saying is that I'm sounding a bit repetitive, but I missed your comments in the middle about expansion of the distribution channel. If you could repeat the numbers about what's the dealer network now and how many have you added in the last, let's say, 24 months? That's the first question. Second, I do understand that given the shortage of the PVC resin as well as the pricing of PVC resin, a lot of competition has moved out in regional spaces. But in the long term, this distribution channel plus the fact that you now have a nation -- a brand ambassador which nation associates with, in the longer term, how does this benefit once that competition probably comes back into the picture? These are the 2 questions I have.

Mr. Kashyap, your second question was not clear. Can you please repeat again, second question? Your second question was not very clear. Can you please repeat again?

Sorry. So my second question was that I do understand that given the PVC resin shortage as well as the rising prices, a lot of competition has moved out of the market. But in the longer term, let's say, when the prices stabilized and the supply does also stabilize, your distribution network plus the spends that we are going to do on marketing, including a brand ambassador which the nation knows or associates with, in the long term, how do you expect that to help sustain the kind of numbers that we have today?

Of course. Thank you, sir. First of all, regarding the distribution network, we have increased the distribution network by around 10% to 15% in the last financial year, mainly in the last quarter because first quarter was very much hit and second quarter onwards, we started marketing the products because of the various limitations, we were not able to market very freely. So we are working hard in increasing the distributors. And apart from that, we have also increased the touch points by 20% to 25% in the current financial years by working hard with the various dealers by increasing their sale points and increasing their reach in the nearby areas where they can sell the products and our -- and making our retailers available at each and every point within their vicinity. So in that way, we are supporting our distributor network to increase the sale.

What is the number today, exact number today?

If you talk about touch points or if you talk about distributor network?

Yes...

Distribution network should be somewhere around -- right now, it is -- active distribution network should be -- around 300 to 400 distributors should be there. And apart from that, if we talk about total, it should be around 500 to 600. But if you talk about the active, it should be 300 to 400 active distributors out there working with us right now. And secondly, if you talk about the resin prices, right now, the resin prices are very high. And because of that thing, that is a major concern for the smaller or the unorganized players to market their product in the -- to market their product. And apart from that, resin shortage was also continuing. But that resin shortage was not there because of the lack of our ability to import it or buy it from the regular sources. But the shortage was mainly because of their ability -- low availability from Reliance or the local manufacturers. Those were not able to sell the products in the market. So because of that thing, smaller players or the unorganized players were facing trouble. In the coming days, definitely, they will try to increase their footprint or the market share with lower margins in the market. But we are, right now -- those players -- if you see, those players are mainly into agriculture pipes only. And we are mainly focusing building products, in which you don't see much of the players working with fittings or the other segments. So our market will not be going to be too much changed because of the change in the raw material prices or the resin availability improves. We are not going to see too much challenge in marketing our product. And apart from that, if we associate our brands with some good brand ambassador, definitely, we will get an edge in marketing our product, and definitely, it will help in improving our market share in the coming time.

The next question is from the line of Karan Bhatelia from Asian Markets Securities.

Sir, now that the southward movement of the PVC resin prices have started, so how is the behavior of our dealers/distributors? Are they stocking less of the inventory in the anticipation of a further downfall? Or how do you see things now?

Yes, of course, the prices are going down and dealers or the distributors, they are a bit cautious because of that down prices. But as the lockdown is also going on, so they also know that the product availability will also be a big challenge in the coming days because the number of labors are not available in our works or any of the works in the country because of the COVID fear. So there's a bit of dilemma in the dealers' or the distributors' mind whether to keep the inventories or to reduce inventories. Of course, because of the fear of the price drop, they are trying to work with the minimal inventory. But still, they are managing the minimum level of inventory with them so that they can -- they do not miss season opportunity if the market opens by the second half of the month or later in the month. So they wish to grab the opportunity. Apart from that, they don't want to face any loss because of that price drop. So they are working in both ways. The products where the margins are good, they are keeping the inventory with them, and where the margins are low, they are trying to deplete the inventories.

Got it. And sir, one more thing. We have like more than 1,500 SKUs now. So what could be the number of SKUs for cPVC? If you can throw some color to it?

If you talk about cPVC alone -- if you talk about the fittings segment, right now, in the fittings segment, the SKUs -- around 1,000 SKUs are there in the fittings segment alone.

The next question is from the line of Rahul Agarwal from InCred Capital.

Sir, I had 3, 4 things. Firstly, I can see the company growing in the right direction, right? So as you said, the quality is the same. The distribution network, effort and how the leaders have been doing it, you're doing the same thing. The regional plant locations are pretty much -- you're trying to get into East and South, which is a weaker segment right now. Most of the players are trying to expand into Eastern market as well. In terms of SKUs, you're trying to build up a lot of into fittings, tanks. Your product basket is great. You have cPVC, PVC both. The earlier participant also asked what is -- is price the proposition for the customer, and you said [Foreign Language]. And we are basically offering them a lot -- most of it what other leaders are offering. I'm just -- I'm trying to understand, sir, what is the right to win here? For Apollo Pipes, obviously, it comes very naturally that APL Apollo had a great balance in steel. The business has done really well last 10 years. And hence, it is a natural transition for you to grow into plastic pipes. But if you could just give me top 2 points for any new player in plastic pipe segment why they should be successful. If everybody can replicate what we are doing even -- and put factories at 4 corners of the country, is that the only proposition we have? Obviously, you need the balance sheet for that. I understand that. But if you can give me 2 points on that, please.

Yes, of course. Mr. Rahul, first of all, if we see the brand, if we talk about the competition and see the Apollo brand, Apollo brand is quite big as compared to the competition that is available in the market. The steel segment is very big, and we are selling somewhere around 200,000 tonnes of steel pipes per month. So that definitely gives an edge to Apollo PVC segment to sell the product in the market, which is, of course, not available with maximum brands that are there in the market. The brand -- so the brand visibility or the brand acceptability, that has to be there in the market, which is there available with the Apollo, and it is not there with each and every competition that are there in the market. Of course, some of the markets, you can say, players, they are working hard with their brand also. But seeing the dual support from the steel segment -- apart from that, we are also expanding on the branding activities of Apollo PVC segment. So we get a dual benefit because of the brand -- common brand between both the companies. So first of all, that benefit we get in marketing our product. Second of all, of course, it is very easy to put up a plant of PVC across the country, and we can get our market share in the product of PVC by selling -- increasing the product portfolio or increasing the dealers or distributors. But it is not like that. Actually, we have to get our distributors or the dealers or the retailers have a belief in our brands or they have to see how exactly they see their business going with our business. So if we make -- instead of just the customer, if we make them our channel partner or we make them part of the growth, so they are much more inclined towards selling our product. And we are trying to focus in that thing only. We are trying to make our channel partners as the real partner in our growth, and they are also going along with Apollo. So they are much more inclined in increasing the product sales, and they are also increasing the profit margins. Because of that, you can say, increasing sales. So because of that thing only, we are trying to increase the sales. Apart from that, of course, second thing is only there that the brand visibility as compared to other competitors is there with us, which we definitely have an edge in selling our products.

Got that. Second question was, sir, let's say, today, if I have to compare any particular pipe segment, whatever product you want to choose, what would be a price difference between Apollo pipes versus a Supreme or Ashirvad or Astral, whatever product you want to pick up, just broadly?

Yes, it is roughly around 3% to 4%, you can say, expensive than our product.

Okay. Got it. One small question -- 2 small questions. cPVC capacity and revenue for fiscal '21 in fourth quarter, could you share that, please?

We cannot share on a public forum, but of course, it is increasing by around 30% to 40% annually. And this year, we have again increased the volume by 30% and the value by 40% in the cPVC and the fittings, we have grown by around 40%. So that growth is there, but we cannot share because of the competitors thing. We cannot share this on this platform. We can share this on e-mail back to you.

Got it. And last question. So if I look at 5 years out from here, let's say, '20, '25, '26, I understand you are [ on a ] '23 plan, will Apollo Pipes be similar to a plastic product company like what Supreme is doing having presence across plastic products? Or in terms of your planning, we are working towards pipe right now, obviously, but directionally, where do this company go over 5, 10 years? Like will plastic pipe be the focus area or even...

We are actually trying to focus on the plastic products, it is not only plastic pipes, it may be various products, but right now, in Apollo Pipes, we are mainly focusing on the plastic products only, and we are trying to increase our product share or the product basket or the capacities in this segment only. So down the years, we are not planning to add any other material in our group. We are just trying to add the plastic products in this segment only.

So for example, Astral adhesives, will adhesives be an attractive opportunity? Or you think you won't do it and you will stick to plastic products?

Right now, we will stick to the plastic products. Right now the adhesives that we are selling, it is mainly used with the plastic pipes only. So it is at a very small state -- sorry, small scale. So right now, we are not focusing too much on adhesives. Of course, it is a big business, and many other companies are running their whole company on the basis of adhesives only. But right now, our main focus is plastic and building products only.

The next question is from the line of Arpit Shah from Stallion Asset.

Yes. Thanks again. I wanted to know how our EBITDA per tonne will be moving going ahead. If I just see the numbers for the last 2 years, it's been around 10,000 EBITDA per tonne. And this year, the last 2 quarters, it has moved higher of 20,000. And if I see for some of the larger companies like, let's say, Supreme or an Astral, it has been in upwards of INR 35,000 to INR 40,000 per tonne. So how do we see our EBITDA per tonne movement?

Yes. Mr. Arpit, actually, the EBITDA per tonne is mainly -- depends upon the product basket that we sell. And the product basket of Supreme or Astral or Apollo, they are not very much similar -- sorry, same -- they are similar, but not same. So it changes from company to company depending upon the product mix that we are selling, right? We are selling the taps and faucets that have totally different type of EBITDA per tonne, whereas the pipes have different type of EBITDA per tonne and the fittings have different type of EBITDA per tonne. So we are much more focused on the individual product EBITDA instead of taking the company as a whole EBITDA per tonne.

So broadly, if I look at the realization, it will be different for all 3 products, right? Be it fittings, be it the pipes, be it agri and non-agri. The difference would come in realization, not in EBITDA. EBITDA also, it's like something of a higher number...

Yes. Because, of course, EBITDA changes from quarter to quarter. The taps or the faucets, the selling price of that product is somewhere around INR 500,000 per tonne. If you talk about the solvents, it is around INR 300,000 to INR 400,000 per tonne. Or if you talk about the cPVC, it is around INR 300 to INR 400. Or pipes, it is around INR 150 to INR 160. So it changes from product to product. So it is very difficult to focus on these things. So we are much more focused on the individual products rather to taking all products in one basket and calculating as a whole.

I'm just comparing the pipe business. So if I just say -- if you see the EBITDA per tonne and if I take, let's say, 50%, 60% of our volumes, it will still come around 20,000, 22,000, right? That's for the last 2 quarters.

I could not get you. What is [indiscernible] what we are selling?

If I just talk about the Pipe business, the pipe business would be around 50% to 60% of the volumes, right?

Yes.

And if I just take those volumes and compare it to the revenue, the realization will be still on the lower side as compared to some of the other players in the market.

Of course, yes. It is on the lower side as compared to other products that we are selling. But if you say that -- if you talk about the EBITDA margin of the pipe, it is somewhere around 5% to 10% or 8% to 10%, you can say rather because of the season period, and it changes from season to -- month to month because of that. But it is somewhere around 8% to 10% of the total product.

Also, like we mentioned on the call earlier that the other players are having 3% to 4% extra margin than APL Apollo. That means there will be 3%, 4% increase in the realization for the other sales. So that is also the factor here.

Just one last question. If I just talk about your parent company, APL Apollo, the APL Apollo succeeded when they had lower cost of goods and a differentiated product line, which -- that's what helped them to become a leader in the market. So is there something that we are trying to do differently for Apollo Pipes where we can actually not become a market leader, but expand the market and gain that advantage? What would be the competitive advantage against some of the larger players?

Of course, Arpit, we are trying to add some of the products in our product basket that can give an edge to market Apollo and give the Apollo Pipes a different standing as compared to our competitors. But right now, we are much more focused towards increasing the volumes as well as the capacity utilization of our company. Apart from them, if some of the products we get added into our product basket, that give us a differentiation with our competitors. We will definitely take the edge of that thing and increase the brand presence or the margins with the help of that product. But definitely, that will be in the coming years how things move and how we get support in our product basket.

So broadly, we are targeting a utilization of 80% by FY '20? So that roughly translates to around INR 900 crores to INR 1,000 crores by FY '22. How confident are you on achieving that target?

We are quite bullish regarding that -- on this target because we are getting good response from the markets from the last 2 quarters. The brand acceptance is very good there. And the capacities that we have to add that has been added. And we have the capacity to supply the product in the market. So we are quite aggressive in achieving this target.

And this will be coupled with margin expansion, right?

So margin expansion, of course, will be there, but we are trying to maintain the same margin level. And first of all, we try to increase the market share.

Around INR 150 crores to INR 160 crores for [ FY '22 ]?

Maybe we can see, sir, we don't know right now.

And what would be the working capital cycle by FY '23?

It should be less than 50 days, you can say, by the coming days because we are not much more focused to increase the working capital cycle. So it should be maintained in the coming years.

Are we targeting like APL Apollo where we should move close to negative cash conversion?

We don't know because they are -- these are 2 different products. So I don't know how the product will behave in the coming days for plastic products. Definitely, we would like to keep the working capital cycle at the minimum, whatever best we can do, and we are focused on that.

And since you just entered, let's say, the tank business or the solvent cement business, would you be looking to enter more new products or new opportunity? Or would you like to scale up these businesses first and maybe new products by FY '23 or FY '24?

First of all, we would like to increase the volumes for these business that we have already started in our product. So we will be scaling up these products only. Later on, if we get an opportunity to add up any good product which have good EBITDA margin or the good sales potential, then we will see for that. But right now, we are much more focused for the current quarters only.

The revenue contribution from these products will be around 20% by FY '23?

Of course, sir, it will be somewhere around 20%.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.

Yes. Thank you all for the participation. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarification or would like to know more about the company, please feel free to contact our team. Thank you, once again, for taking the time to join us on this call, and have a good day, and wish you all to remain safe. Thank you.

Thank you. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.