Apollo Pipes Limited (531761) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Apollo Pipes hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Mahawar from Antique Stockbroking. Thank you, and over to you, sir.

Thank you, Stephen. On behalf of Antique Stock Broking, I would like to welcome all the participants on the call of Apollo Pipes. From the management, we have Mr. Sameer Gupta, Managing Director; Mr. A. K. Jain, CFO; and Mr. Anubhav Gupta, Group Chief Strategy Officer on the call. Without further ado, I would like to hand over the call to Mr. Sameer Gupta for opening remarks. Post which, we will open the floor for Q&A. Thank you, and over to you, Mr. Gupta.

Good afternoon, everyone, and thank you for joining us on Q3 and 9 months FY '22 earnings call to discuss the operating and financial performance. First of all, wishing all the participants and their family a very happy new year. I hope you all had the opportunity to go through our results presentation, which provides details of our operational and financial performance for the third quarter and 9 months ended on 31st December 2021. To begin with, I'm pleased to share with you that we have reported a stable performance during the quarter with our sales volume growing by 9% Y-o-Y to 12,520 metric tons. Volume growth was driven by a healthy contribution from the HDPE, cPVC pipes and value-added product segments. 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 trend to strengthen, led by an improving demand environment, expansion in addressable markets and a sustained uptick in utilization levels. Moving on to the operational front. We continue to keep strong focus on value-added products, the building material products side, which continue to gain traction. From a product basket standpoint, we continue to witness a positive traction in inquiries for Apollo bath fittings and cPVC piping system. We remain confident that these products along with our other value-added products offerings will enhance our reach and strengthen sales going forward. In addition, we are aiming towards optimally utilization -- utilizing our capacities over the next 2 years, which will also help augment sales volume going ahead. On branding, we have recently appointed Tiger Shroff as our brand ambassador and launched social media campaign during Q3 FY '22, which has generated a strong response on social media platforms. We are excited to share that our commercials witnessed more than 50 million views in 2 months. We are expected to launch our TV commercial starting Q1 FY '23, which will further strengthen our brand positioning in the market. To conclude, I would like to state that we are constantly working towards enhancing our presence across existing and new high-potential geographies. Given that we have -- are having healthy cash flow generation and capacity utilization levels are inching up, we are planning our next phase of CapEx. We are still on design stage, but I can tell you that our any new capacity will be mainly in value-added products where we see strong demand trends, plus bulk of CapEx will be funded from internal cash flow. Going forward, we expect to deliver a robust performance in the quarters to come and further gain momentum on the back of improved profitability, strategic expansion in key geographic areas and better brand acceptance. Now I would like to invite Mr. Ajay Jain to run you through the key financial highlights of the quarter and 9 months for the period ending December 31, 2020. Thank you.

Good afternoon, everyone. I will briefly cover the financial performance during the quarter and 9-month period ending December 31, 2021. The company delivered a stable 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 190.8 crores as against INR 128.1 crores in Q3 FY '21, higher by 49%. However, 9 months FY '22, revenue growth was better at 56% Y-o-Y with revenues of INR 536.6 crores against INR 343.9 crores last year. Sales volume for the quarter stood at 12,520 metric ton, reporting a growth of 9% as against 11,445 metric tons, and 9 months FY '22 sales volume stood at 37,440 metric tons as against 34,346 metric tons, up by 9% again. On the profitability front, EBITDA for the quarter declined by 15% Y-o-Y to INR 21.6 crores versus INR 25.5 crores in Q3 FY '21. EBITDA margin, which stood at 11.3% in Q3 FY '22, was lower by 856 -- 857 bps Y-o-Y. EBITDA for 9 months FY '22 stood at INR 65 crores as against INR 47.2 crores, growing by 38% Y-o-Y with EBITDA margin at 12.1% for 9 months FY '22 versus 13.7% during corresponding period last year, lower by 160 bps Y-o-Y. Going forward, we anticipate EBITDA margin trends to sustain. During the quarter, we witnessed a sharp increase in depreciation led by new plant commissioning, which was partially offset by a reduction in financial costs. Depreciation costs stood at INR 6.7 crores in Q3 FY '22 as against INR 4.4 crores in Q3 FY '21, growing by 51%. Net profit for the quarter stood at INR 11.4 crores, declined by 30% Y-o-Y when compared to INR 16.3 crores in Q3 FY '21. Net profit for the 9 months FY '22 grew by 23% and stood at INR 34.2 crores as against INR 27.8 crores in 9 months FY '21. Net margins during the period stood at 6.4% as compared to 8.1% in 9 months FY '21, lower by 173 bps. On the balance sheet front, our net cash position stood healthy around 6.5% in H1 FY '22. Any new CapEx will be majorly funded from internal cash flows without stretching our balance sheet. On the working capital front, additional raw material requirements at newly commissioned capacities may moderately impact the inventory levels in the near term. However, our endeavor remains on maintaining our overall working capital cycle at stable levels. 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 Madhav Marda from FIL.

I just wanted to understand that volumes for us have been better versus some of the players in the same industry that have reported so far. So just wanted to get -- understand how we achieve that good volume delivery. And how much of an impact did our business have from the channel destocking which has happened in plastic pipes sector?

Madhav, Anubhav here. So if you look at our volume performance, which we have outperformed versus our industry peers so far, the reason is that our value-added product category, which is more tilted towards building materials, that has done really well in the third quarter and in the first 9 months also. If you look at some of our categories like cPVC, which is growing at above 70%, 80% on Y-o-Y basis, the fitting solution, the volume growth has been 20% to 30% on Y-o-Y basis. Then the other products like bathroom fittings and water tanks and solvents put together, even they are growing at 60%, 70%. So these are the broad 3 value-added product categories which have been doing really well for us. And the commoditized sales is growing at like flattish so that's why we have been able to perform better than the industry peers so far. And given on the destocking, yes, I mean, it did impact the overall volumes because the cPVC prices were pretty much volatile in the 3 months of third quarter. If you see, first, there was the increase and then they came off. So we -- our initial expectations were a bit higher when we started the quarter. But because of volatility, there was some destocking. So we would say we could have done much better in the third quarter if the volatility would have been lower in the PVC resin pricing.

Got it. And when you say 70%, 80% or 60%, 70%, that's top line, right? Like could you help us with the volume growth for the building material category?

Yes. So cPVC, I mean, the realizations have been stable, right? So whatever growth we mentioned, this pertains to the volume growth, right? In the bathroom fittings and water tanks also, the realizations have been stable. So whatever growth we said, it is the volume growth. And in the fitting solutions, I mentioned, 25%, 30% volume growth only. The value growth is a bit higher.

Okay. Okay. So it's basically the PVC side of things, the more commodity grades probably, like you said, have been very weak, and that's why, okay, got it. So it's a complete product mix kind of a thing.

Yes. Yes, it's the improvement in the product mix towards value-added products, which has boosted the sales value. And commodity, I mean, low-margin products or commoditized product category, that's been flattish because of the destocking in the channel.

Got it. And if you just take a look at we have some new capacity which is coming. We are also planning for more expansion. If you can just give us some sense in terms of how you're seeing volume growth for the company, one? Two is how the product mix changes? And thirdly, our margins, if you could give us some guidance in terms of how that would play out over like slightly longer term?

So Madhav, if you see in the starting of this financial year, we had given the guidance of INR 1,000 crores revenue by FY '23, right? So we are sticking to that. This year, so far, we have achieved a 50% revenue growth. So hopefully, we are confident that Q4 should be strong as well. So we are on track to achieve INR 1,000 crores turnover by FY '23 by next year, right? So this will be on the back of whatever CapEx we have completed so far. Our last CapEx was in Raipur. Now beyond this, we have already -- we are already sitting on the drawing board to see that how we grow our revenues incrementally above INR 1,000 crores from FY '24 onwards. So we have identified a few product categories where we are reaching the maximum utilization levels, like cPVC, bathroom fittings, et cetera. So we are going to expand our capacity in these product categories. But whatever CapEx will take place, it will be funded from the internal cash flows. And also, we will stick to our guidance that we won't spend more than 30% of our EBITDA towards the capacity expansion spends, right? So within these parameters, we will announce capacity expansion plans over the next 1 to 2 quarters. But we believe that after INR 1,000 crores turnover, we can still grow at 20% revenue CAGR over the next 3, 4 years.

And then margins should get a bit better as the mix changes towards...

Yes. So right now, as we speak today, the 9 months, the volume -- the building material sales mix was 55%, which was below 50% last year. This year, we have reached 55% levels already. And on INR 1,000 crores, it should be like upward of 60%. And like I said, all the incremental new capacity will be towards value-added mostly. So eventually, it will go to 70%, 80%.

One last question that I have is generally in this industry, don't you think like we should guide in terms of volumes in metric tons and margins also on a per ton basis rather than percent margins because commodity input is just pass through always? So I don't know if that -- if I'm missing something there.

I think it's a valid observation. I mean, internally, we do make business plans based on EBITDA per ton to be honest, Madhav, but because the investors and analysts, they have been using EBITDA margin in their spreadsheets so that's why we talk about margin during our investor communication. But yes, on EBITDA per ton, I think INR 17,000, INR 18,000 per ton kind of levels where we see we should stabilize. And as our volume mix keeps on improving, we should inch towards INR 18,000, INR 19,000 per ton.

The next question is from the line of Udit from YES Securities.

Could you give us the utilization level for the quarter and also the same for Q3 of last year?

So Udit, the volume, what we did in Q3, was around 13,000, 14,000 ton, right, on a capacity of 125,000 ton. So utilization levels you can calculate, but this 125,000 ton has the -- it doesn't have the seasonality factor. So we believe taking the seasonality into factor, we may be able to do 80,000, 90,000 ton of annualized volume on this existing capacity, right? So a run rate of like 50,000, 52,000 ton on an annualized basis on a capacity of 80,000, 90,000 ton, we should be at 55% utilization levels.

And just like you have said that the value-added products have been going up. Can you just give us a split that how much was it for this quarter, the cPVC, fittings and HDPE, and a percentage to our total volume?

We don't want to be like too much specific on the product [split] given the sensitivity of the information. Overall, the value-added portfolio was 55% of the total revenue. This contains a cPVC, fitting solutions, the PVC pipes towards housing applications, and bath fittings, solvents and water tanks. So this is a portfolio, what we call our value-added or building material product portfolio. And in the agri side, we have general PVC pipes and HDP pipes.

Right. And just last question, like what would be our discount that we offer as compared to leading players in PVC and cPVC?

So normally, the [indiscernible] 4% so that's the extra sweetener what we offer our distributors.

I'm sorry, Anubhav, I missed your point -- voice over there. If you could just repeat.

3% to 4%, Udit.

That is in PVC, right?

Across category, yes.

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

My first question is on EBITDA per kg. So if we compare to, say, leading players, our EBITDA per kg is still about 40% to 50% lower, when do we sort of expect this gap to sort of narrow down?

See, Bhargav, there are like 2, 3 factors why we are... [Technical Difficulty]

Sorry, I can't hear you. Hello?

Members of the management, please confirm if you're all able to hear us? We request all the participants to please stay connected while we reconnect the management. Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you, sir.

All right. So the second point, what I was highlighting was that today, we are utilizing 50%, 55% of our capacity. So we are operating in an environment of a bit of negative operating leverage. So as our utilization levels will inch up, you will see that the EBITDA spreads will also improve. Thirdly, the third factor is the extra discounts, what, right now, we're offering to our distributors to get the market share. If you see in last 3 years, we have grown at the fastest pace in the industry. And that's why, I mean, we also offered a bit of extra sweeteners to our clients. So as the brand is becoming prominent, right, all the brand pool we are trying to create for our products, et cetera, we expect that our premium should go up, right, versus discount what we're offering today. So a mix of these 3 factors, we also believe that our EBITDA spreads have a lot of scope to improve, right? I don't want to throw a number today, whether we should be 20,000 per ton or INR 25,000 per ton. But we -- but our endeavor is that every year, you will see the improvement, irrespective of the fluctuation in the PVC prices.

So once we achieve sort of optimum utilization across the West, South plants as well, is the EBITDA per kg gap between these manufacturing plants going to be substantial or would be sort of very minimal?

No. Definitely, I mean, the EBITDA per ton plant-wise will also improve. And also, Bhargav, I mean, if you look at our ROC, right, so the investments, what we have done into plants. So our -- right now, our focus is to generate better ROCs with higher turnover, okay? So are we able to churn our capital more and more. So if we have to, say, compromise a bit on margin, we are okay to do that, right? First, we achieved the scale of INR 1,000 crores. Our next goal is INR 2,000 crores. I guess once we achieve that scale, then, I mean, we will have much more brand dominance and positioning and pull factor, which will help us realize better realizations, right? So, so I guess, I mean, we are okay with the marginal improvement in EBITDA spreads because of this discounting as long as we are achieving 25%, 30% return profile. So you will see that this year, we would be like near 20% levels; next year, we would be 25% level when we achieved INR 1,000 crores turnover. So right now, the focus is more on return profile rather than margin spreads.

And lastly, as a percentage of revenue, what would be the contribution from tanks and bath fitting now?

Yes. So put together, total, it should be around 5% to 6%. Next year, target is to take it to 10%.

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

So this quarter, we have actually added 2 brand ambassadors, Raveena Tandon and Tiger Shroff. So just wanted to know the expenditure incurred on both the brand ambassadors on advertisement per se?

Right. So far, I mean, we have spent around 1.5% of our sales value on branding, which is pretty much under budget, okay? In fact, we had guided for a 2% kind of -- 2% of turnover as the ad spends, but we could manage at 1.5%. The total in terms of value, we have spent around INR 7 crores to INR 8 crores so far. So the run rate is around INR 2 crores, INR 2.5 crores on a quarterly basis. Q4 also should be same. Next year, we would be hitting a bit higher, maybe, say, 2% of the total revenue as we will launch TV commercials.

The second part is, are we capitalizing it as an intangible asset? Or are we considering it as a revenue expenditure in the P&L?

There is 0 capitalization.

It is not capitalized. Okay. And just wanted to know because in this quarter, we have actually incurred expenditure we might have incurred on the bonus issue expenses. So that has hit the P&L? And what's the quantum of that?

No, no. It is -- Mr. Kushal, we cannot understand your question because in case of this distribution of bonus, that comes out of my reserves and surpluses.

Okay. Okay. So that's not hitting our P&L item, right?

Yes, that's right.

Okay. Okay. And just a last question. How many dealers and the distributer networks we have added in the quarter 3?

It is more or less same. We have not added too much distributors. But of course, on the dealer side, we are working towards the distributors for the retail sales network. So distributors are almost the same as per the last quarter is, but of course, the dealer network is increasing. That's why our total top line is also increasing.

The next question is from the line of [Anikam Mittal ] from Invest Research.

My question is in our presentation at 1 place, it is mentioned that there are various pro-growth measures undertaken by the government, especially towards the rural infrastructure and the agricultural space. So this will benefit our company in terms of growing demand. But if I'm not wrong, our strategy is to focus on the value-added product. That is basically on the building side. So it seems like from the information given in the presentation, we are again going towards the non-value-added side. So can you please correct me or provide any color on the same that why there is a sudden change in our strategy.

No, no. There is no change in strategy. In our presentation, we highlighted the opportunity lies in the agri side, right? I mean, our -- if you look at our performance for the last 2, 3 years, every year, our sales mix has improved towards building material side, right? Last year, we were 45%. Before that, we were below 40%. This year, we have achieved 55% so far, okay? So our distribution penetration, expansion, our product addition into our portfolio, everything is linked to our strategy, which is going more towards value-added products cum building material side. In our presentation, we have given the opportunity which lies toward the agricultural side as the government has strong focus on rural markets and farm income, et cetera. So if it makes more sense for us to increase our volume, we will do that if it doesn't impact my working capital cycle, which we are very much focused upon, I mean, but there is no change in the strategy. I guess, there is some confusion at your side.

Okay. Okay. Right. That makes sense. Okay. Right. And my second question is, it is mentioned in the presentation that the company has improved gross margins due to some cost measures or the contribution from the value-added products, and that is looking also, as you are saying, 55% is from the value-added side. Then, can you please tell why there is a fall in the operating margins by 9% year-on-year? What could be the reason for that?

So if you see in Q3, I mean because there was high volatility in the PVC pricing, so there was channel destocking which took place in the third quarter right? Like in month of October, the PVC prices increased INR 20 per kg. And then over the next 2 months, they fell down, right? So there was a lot of uncertainty in the trade community and there was destocking which took place. So just to push sales, we offered a bit of extra discounts to the distributors, and that resulted in the sales -- in better sales volume and better sales value, right, which a few investors appreciated as well. Now Y-o-Y, there is also another factor, I mean, last quarter in Q3 FY '21, there were some -- because PVC prices were going up, so there were inventory gains for the whole sector, right? Our margins were like 18% to 20%. So we had been communicating that those margins were not sustainable. Every PVC pipe company had the element of inventory gains in FY '21. So it helped us also. We have always maintained that our core EBITDA margin should be 13% to 15% without any inventory gains or losses.

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

My first question was I wanted to understand volume growth. I appreciated you hinted that value-added products like cPVC, fittings and tanks have actually grown at a considerably higher pace. Is it possible if you can provide some more color over here? The reason why I ask is, based on my understanding, I think last year's volumes, what we had indicated on the calls was PVC would have accounted for around 70% of it. And I was just going through my notes, but then I find, if I just sum up cPVC fittings, others, it would be around 25% of the volumes and the balance 25% could be HDP or something else. So just wanted to understand if we factor that 25% pie, cPVC, fittings, others also to grow at, say, 50%, it still leaves other segments, either PVC or others, which would have declined sharply. So I just wanted to understand if you could provide some more color, segmental-wise, that would be very useful.

Right. So Ritesh, I mean, in terms of commoditized sales, right, and even the PVC pipe towards building material, that's the segment which has not grown. In fact, the commoditized sales volume would have come off year-on-year, right? So your observation is right that whatever volume growth which has come, it has come from cPVC, the fitting solutions and the other value-added products.

Okay. So should one assume, say, the PVC volume decline upwards of like 40%, of which agri would be far higher than that?

You mean 40% volume decline?

Yes.

No, no, that's incorrect.

Okay. So would you be able to indicate basically if within PVC, agri and non-agri, what sort of degrowth we had or growth we had?

No, no. Non-agri, PVC was flattish. It didn't decline.

Okay.

Agri, PVC declined.

Okay. This is helpful. Okay. So this is one. Second, I just wanted to have some sense on the sourcing for both PVC as well as cPVC. I think our numbers for import sourcing was -- used to be higher, so if you could just highlight how much is it right now for both PVC as well as cPVC?

The -- actually, we have, like we have told you earlier, we have shifted our buying strategy from import to local sources. So right now, we are buying almost 40% of our purchases from local sources, from domestic sources, and 60% is from imports.

Okay. And how would it vary for PVC and cPVC? I think cPVC is...

CPVC is 100% imported. It's not manufactured in India. So we have to rely on 100% imports.

Okay. And this number, 40% local, what would it have been last year? I'm just trying to understand...

Yes, last year, it was somewhere around 25%, you can say, 20% to 25%.

Okay. Okay. Okay. And sir, one last question. Have we faced any shortages on cPVC? Or basically, we hear that a lot of industry guys, they are actually facing and hence, the larger guys are actually benefiting. So you indicated that we have grown in the segment. So it definitely gives comfort on the sourcing. Any thoughts on this particular variable, sir?

No. Actually, of course, there is a problem in sourcing for cPVC, but we have got our regular sources with us, and we have been working with them for years. So right now, touchwood, we don't have -- we are not facing any trouble in our sourcing. Whatever the increase quantities we are right now having, we are getting them from the suppliers. Of course, going forward, if we are eyeing further 100% or 50% growth in the coming days, then we have to see that source to improve the sourcing. But right now, we are comfortable with our sourcing.

Right. And sir, one last question, what sort of inventory would we have at the company level? And how do we read into this, basically if the antidumping duties against U.S. and China are actually taken off, the local PVC prices could see a further decline? How are we acknowledging this variable when it comes to starting up inventory at the plant level?

Yes. Actually, the market has already discounted on the basis of anticipation of this drop in antidumping because it was due. In the next 10 to 15 days, it will be removed off, though market has already discounted on that account. And many of the imports right now is coming from China, where there is no antidumping in that from 15th of Feb, I think so, that is the exact date. So many of the importers have already started importing from China. So the prices have already been corrected on that account. So we don't see any inventory -- sorry, price correction in this as others. We see a price ticking upwards in the next few months for the -- on account of shortages, which are actually seen because of COVID going all across the world.

Sure. So this INR 130, INR 131 of pricing what Reliance has, it's reflecting import parity, assuming this antidumping duty is taken off. Would that understanding be correct, sir?

Yes, yes. Yes, exactly.

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

Just one clarification. As you had mentioned that your cPVC fitting contribution has increased. But if I compare with the peers who has reported their numbers, their realization improvement on a sequential basis is on the higher side as compared of yours. So is it because of just pricing realization, how the improvement across the board has happened? Or is there an element for a PVC or cPVC and the fittings also included in here? So just to give you numbers, like a 10% to 15% increase for them versus your is 6% on a sequential basis.

Yes. So if you see, I mean, our net realization is INR 152 per kg against INR 143 per kg, right? This is the function of, I mean, whatever average pricing would have gone up in the PVC as a raw material plus the value-added mix, which has more or less remained constant Q3 versus Q2, right? We haven't gone through the financial -- detailed financials of other industry peers, so we can't comment on that. I hope we are clear?

Seems like we lost the connection for the current participant. We move to the next question from the line of Ronak Vora from AUM Advisors.

Yes. Sir, I just want to know how's the demand as in industry-wide in the agri and the plumbing segments for us?

So Ronak, the demand in building materials has been strong for us. As an industry, also the things are looking up. The industry reports on real estate construction, they have been quite encouraging, right? For us, we are gaining market share constantly because of our efforts towards network expansion, creating brand pull through advertisement spends and expanding into newer geographies and adding new products, right? So we have outperformed the industry in terms of volume growth. So in terms of revenue growth over the last 2, 3 years, our market share used to be 1%. Now we are at 2%. That's the change in last 3 years. We expect to grow at 20%, 25% over the next 3 years.

And what about on the agri side?

Agri, I mean, as a sales mix, you will see this will constantly go down. But in terms of absolute number, there will be marginal growth, right? As a company, we are working on 2 strategies. One is to keep the working capital days optimal. And second is to have the margins in the trajectory of 13% to 15% or EBITDA per ton of INR 17,000, INR 18,000 per ton. So any opportunity in agri, which ticks these boxes, we will take it; otherwise, we are happy to focus mostly on the value-added products.

Okay. And sir, when we said that over the last 3 years, we've been giving heavy discounts to the distributors and gaining market share to create a brand for ourselves, right? So -- and obviously, that is truly visible with the market share that we have taken out of now from 1% to 2% in the last 3 years. Sir, where do you see your company in the next 3 to 5 years going ahead? Like do we see ourselves reaching 10% or going from, say, 2% to 4%, just doubling in the next 5 years?

Right. So as a company, the next target, the next milestone is INR 1,000 crore turnover, INR 250 crore quarterly revenue run rate, which we believe to achieve in FY '23. From there, our next plan is to touch INR 2,000 crore revenue in 3 years.

The next question is from the line of [ Aditi Kasbekar ] an individual investor.

So my question is more on the competitive landscape side. On the agri side, what we've been hearing is that there has been like this increase in the prices and the increase in overall like unit pricing at a unit price level is actually causing a lot of the market to move to the unorganized sector. So one, I would like to understand what's your view on that? And then second question is on the building materials side, pipes as a segment because of the demand that we are seeing from the real estate cycle turning up, et cetera, has actually attracted a lot of competition from the organized market. For example, I was reading somewhere that the Hindware brand, which used to be like a sanitaryware brand, has also launched a pipes -- launched their own pipe brand called TRUFLO. And, in the South India market itself, they're targeting a run rate of about INR 150 crores per quarter. So what's your overall view on the organized sector competition in the building materials segment and unorganized gaining share in the agri segment?

So Aditi, coming to the agri side, yes, because of the increase in pricing in the resin, the market for branded players or organized players has shifted to the unorganized sector, which uses inferior quality raw material, right? And this happens across the industries. And this is the reason that why our agri PVC sales have declined in terms of volume on a Y-o-Y basis. So we are letting that market go off, right? We are not chasing that segment at all, right? I don't want to -- we don't want to compromise on our margins there. So we are happy to let go that market. And this is the industry-wide phenomena. So we, as a company, as an individual participant in the industry, we don't want to chase those sales. So we'll wait for PVC prices to stabilize or whatever. And if the market comes back, then we are ready, right? Our capacity is there. Our distribution is there. Our brand is there. Our network is there. So we'll wait for the better times to come in that agri space, right? We don't want to chase the volumes there. Now coming to the competition increase in the building material space, yes. But see, we need to understand what has happened in the last 3 years, right? It is not a like 6-month phenomena or 1-year phenomena. In last 3, 4 years, if you see the top 15 players, right, barring the top 5 players, there has been the massive shift in the market share below top 5 players, right? Because of demonetization, GST, NBFC crisis, COVID wave 1, COVID wave 2, lockdown restrictions, et cetera, et cetera, a lot of weak or small organized players have gone away from the market, right, or they have become even smaller. So on the -- at the cost of those small organized players, weak organized players, there have been like companies like Apollo Pipes or some name which you took, they have been taking market share -- they have been inching up their market share, right? So -- and plus the industry has also started growing, right, which was a bit of flattish growth because of all the factors in the -- which were impacted due to the GDP performance in India. So I guess -- I mean, now, there has been a shift from, like if you look at like 7, 8, 9, 10, until 15, there has been like a big change in these rankings, right? So companies like -- when we started going pan-India with a turnover of INR 250 crores 3 years ago, we were like #10 player and our market share was not even 1%, right? So from 10, we have come to position 7, right? And the immediate payer above us is also having financial trouble, right? So the companies -- the new companies, the existing players, they will keep on taking market share at the cost of these we call troubled companies, and the new generation of companies will emerge. So as of now, we don't see like intense competition in our space where we are growing, right? We have also our right to win at many places. Our brand -- overall, APL Apollo brand in building material is very strong, right, then the work what we have done towards the network expansion over the last 2, 3 years, now it has started paying off the work what we have done towards the capacity creation across India, now that has started paying off, right? The work what we have done towards adding new products to our portfolio, those products have started ramping up and they are contributing to our top line and bottom line. The work what we have created towards our PVC pipe brand positioning, right, that has started paying off. I mean so we are ready with all these ingredients. And given the support we are getting from the construction activity and the macro factors started to play well, I think whatever numbers we are talking about, whatever goals we are talking about over the next 1 year and 3 years, we are confident of achieving those numbers.

Understood. So basically, it's weaker players sort of leading out of the market that's helping you out to gain the share.

Everyone out, yes.

The next question is from the line of [ Siddharth Purohit ] from InvesQ Invest Advisors.

Yes. Sir, on the overall industry level, if you could give some sense of what is your level of capacity that the large players are also planning to add? And like is there a situation -- no doubt there is -- demand is quite strong in the last 1.5 years' time, but is there is a situation -- likely situation because all the players are generating enough cash. So is there a situation that probably we might see some more of an incremental addition, which might lead to sort of pricing pressure going here? That is one part. Second is given that there has been inflationary trend in almost all the sphere, what could be the like CapEx -- like an incremental inflationary CapEx cost per ton further if we, actually, go for a new plant this year?

All right. So coming to the first question, I mean we also interact with our industry friends, right? So I guess the overall belief is that this industry should grow at low double-digit now after like a pause of 2 years. So everyone is getting himself ready to achieve those kind of numbers. Obviously, the larger players have much larger capacities. So for them to grow on a base of what they are today, so they are targeting like a double-digit growth. But for us, I mean, at such a small base, we believe that we could grow at much faster pace than what the overall industry will grow. Plus the other players are also getting into a lot of other product categories. I mean, we have seen PVC pipe companies getting into adhesive, solvent, et cetera, in a big way. So they're also identifying other product areas where they can grow. We have our own product portfolio where we want to expand, right? So I guess there is enough scope now that the industry should start growing at double digit, maybe low double digit, but you will see that happening given the support what we are getting from the real estate sector and the construction activity. Second point of yours which was regarding CapEx. So yes, I mean, there has been inflation. Every building material product has gone up. So the project cost will go up by 5% to 10%, which could depress the IRRs and ROCs a bit. But then we are not too much bothered about it because whatever new capacity we are going to create, that's going to happen in the value-added products, which give us very high margins, right? So we are not too much -- we won't -- we don't think that our ROCs or IRRs would get depressed because of the price inflation on our CapEx side.

The next question is from the line of Amit Zade from Antique Stockbroking.

My question -- first of all, I appreciate the fact that you are still guiding INR 1,000 crores of top line for FY '23 despite anticipating price correction in PVC, so -- which warrants more than 45% to 50% kind of volume growth for the next year. So sir, my question is what kind of dealer addition will that require considering the fact we must be close to 600 dealers as of now? And what kind of dealer addition will that require to have an incremental sales of INR 300 crores to INR 400 crores if we end up this year at almost, say, 100% to INR 50 crores. And in what geographies will this happen?

Right. So Amit, coming to the main point about the INR 1,000 crore turnover, so 9 months, we have done, say, whatever number, INR 500 crores, INR 50 crores kind of number. And if we just annualize this number, we would end the year at INR 750 crores annualizing the 9-month number. So this suggests 30% growth, 30%, 35% growth to achieve INR 1,000 crores. Now this 30% growth is divided into 20% volume growth and 10% utilization growth, right? So right now, for the 9 months, our utilization is INR 142,000 per ton, which we believe should be like irrespective of PVC prices here and there, we should see some improvement in our utilizations based on simple fact that our value-added mix is improving. As our cPVC will go -- as a mix will go up; our fittings will go up as a mix; our bathroom fitting, water tanks, et cetera, will go up as a mix. So that will automatically improve my realization. So this 30% revenue growth is broken into 20% volume growth and 10% NSR growth, right? So yes. And to achieve 20% volume growth, yes, I mean we will have to work towards expanding our distribution network. So far, 65% of our turnover is still coming from North India, right? So as our plants have started contributing from Raipur, from South and from West. So over the next 12 months, we are going to add new distributors. Our target is to increase our distribution base by at least 5% to 10%, right? And that will be mainly in the southern and the western geographies now that we have support from our production plants, manufacturing facilities.

Got it. Sir, North India contributed obviously 65% of the share, right?

Yes, that's right.

In this quarter, which was, what, 80% same year last quarter? 75% to 80%...

Yes, of course, because South plant, we are just taken the position from the seller in the mid of FY '21. So yes, the contribution was very little, and Raipur started only in the Q1 of this year. So Raipur and South contribution started flowing from FY '22 to be precise. And with our new addition of distributors in the west market, our Ahmedabad plant has also started ramping up quite strongly.

So fair to assume 50% consumption from North India by end of FY '23, which should be 75% to 80%...

I guess that will be for FY '24. FY '23, 55%, 60%, we may close from North India.

Okay. Sir, got it.

Because in North also, we had done some Brownfield expansion, right? So that's why.

Okay. And also, sir, you suggested some Greenfield expansion that could happen. So that would be for the next phase of growth, right, which we are targeting from INR 1,000 crores to INR 2,000 crores, that would be...

Yes, that's right. Yes. So just to put this in record, any CapEx, what we will do, it will have 3 checks. One is that CapEx in a year will not exceed 30%, 35% of our EBITDA. Second, the CapEx -- any organic CapEx will be funded from internal cash flows mostly without stretching much of the balance sheet. Third, any CapEx, incremental CapEx, which will take place will be mostly towards the value-added products and where the ROCs or IRRs will be upward of 25%, 30%.

Okay. So sir, this EBITDA per kg of 17% to 18%, which we are currently doing. So what could that maybe stabilize once we reach all this expansion?

So see, I mean, on -- for INR 1,000 crore sales crores sales, we believe that 60% of our products will be from value-added. So I guess, I mean, we should be doing INR 18,000, INR 19,000 per ton, right? And then eventually, it will inch up by INR 1,000, INR 2,000 per ton every year if the sales mix keeps on improving. So given that our competitors do INR 30,000, INR 35,000 per ton, I mean -- but for them, the sales mix and the realization, et cetera, operating leverage, the premium realization they get, everything comes into play, right? So our immediate target is to hit INR 20,000 per ton, and then we'll see how we can achieve INR 25,000 per ton in the long term.

The next question is from Ritesh Shah from Investec Capital.

Sir, two questions. I just wanted to have a sense of what is the current inventory in the company.

It should be -- yes, it should be in line with our -- it should be somewhere around 2,000, 2,500 tons, roughly around, you can see that. I don't have the exact number. Yes.

Okay. So this would be resin or finished goods, sir?

It's the resin. It's the resin.

And sir, I'm assuming given we indicated that still we have increased our local sourcing, but still 60% would be imports...

See, actually, because of that very strong, you can say, drop in prices in the month of this November, this actually impacted us. Like Anubhav already told that we were anticipating much higher sales as what we have achieved this time. Yes, we were in anticipation of much higher sales. Because of that, there was a little pileup of the inventory, which will be, you can say, liquidity in this current month.

Correct. But sir, then if one had to understand that, I think the surprise came on volumes, which was lower in the month of November and December. So the carrying cost of this inventory could actually be higher, right, given the volume throughput in the months of November and December was lower. Please correct me if I'm wrong.

Ritesh, it won't be much because the incremental inventory, which was purchased, right? As a company, we always maintain 2,000 ton to 2,500 ton kind of levels, right? I mean, how much we would have fallen short of the volume? We did 13,000, 14,000 ton, right? We could have done 500 ton an extra if the destocking had not taken place. So 400, 500 ton on a total base of a bit of high inventory cost, it won't have like very -- like a big impact on P&L or on the balance sheet.

Anubhav, the sense what I'm trying to get is basically, if I look at October, November and December resin prices, September to October, it moved up very sharply. And November, it was around INR 162, went to INR 148 and then to INR 140. And currently, it's moving at around INR 130 levels. So my assumption is, basically, even if we have, say, around 2,000 tons of rolling inventory, the average costing over here will be upwards of INR 140, INR 145 as against the prevailing prices. So is the expectation that the end product prices will move up incrementally and the probability of inventory loss will be lower into Q4?

Yes. Ritesh, actually, if you see that there was an increase in Q3 in the resin prices in October month was INR 20, then again, the drop was there in the month of November. Again, that was INR 20. And the increase was almost [indiscernible]. And there was no further drop in the month of December. December was almost stable. Of course, the -- because destocking was there because of that, the buying was low on that account. But there was no price change in the month of December. Again, in the month of January, there is a price correction of INR 9 per kg. But now the market has again started moving up, so we don't actually foresee any inventory loss in this quarter. And further, if the just -- again, 2 months are left, and we don't actually know that what exactly the prices level will be in the next 2 months. So it will be a bit of, you can say, early to comment on these parts, rather we should like to comment on this on the Q4 results. But we don't see any such big loss or any, you can say, any inventory loss on this amount.

And just in addition, Ritesh, if we assume a worst case, okay, let's assume that 500 ton inventory, extra inventory that would be in the system, it was at high price, right? And if the prices fall by, say, INR 20 a kg or INR 30 a kg. So on 500, it will be like INR 1.5 crore to INR 2 crore, right, on my quarterly bit of INR 25 crores, INR 30 crores. So I think that much risk any company who wants to cater to so many dealers and who wants to service so many SBUs, it had to take this much of like extra inventory on our books always.

Correct, correct. I appreciate that. I think it's an industry-wide problem and it's because of the volatility, unfortunately, in resin prices. But if I had to connect my earlier question with this one, basically, I was just looking at the resin price average for the month of November and December, it was at INR 150. Currently, what we are sitting is say around INR 130 levels. So...

No, it was -- Ritesh, it was INR 140 in the month of -- end of November. It was INR 140. Then there was no price change in the month of December. Again, in the month of January, there was a drop of INR 9 per kg.

Correct. Correct. Sure. That's helpful. My second question is, sir, you indicated that the current pricing is already adjusted on import parity basis. I just quickly did some math. Can you help me understand how actually it's factored? Because if I factor Chinese prices at $1,300, there are 2 elements over here, 7.5% is the duty, which I assume given China is not FTA, this has come over there. And there is another element of around $148. If I loop in both the variables and factor in a higher freight cost of say, around $100, still the implied resin price what I get on a landed basis is at around INR 120, which is lower than current INR 130.

Let me correct you. First of all, the Chinese prices is right now around $1,250 or $1,270 FOB. It is not [indiscernible] dollar prices. You have to add around $250 to $270 per ton on the freight part on these prices. Secondly, the duty is 10% plus additional duty of 1%, total is 11% of duty is there. So if you calculate all these things, the prices are at par with the Reliance prices across, right now what Reliance is offering to us. So there is no such major price correction on that account too in the resin prices.

This is useful, sir. Sir, you said $1,270 and $270, right? And 11%...

Somewhere around $1,500. Yes. Roughly around $1,470 to $1,500. Again, there are a lot of, you can say -- these cancellations are also there from China. So a lot of people don't actually go with a Chinese company to deal with resin because whenever the prices increases, they just decline the deal. So that is again a challenge with the Chinese prices. Other than that, the normal PVC prices from other countries, it is somewhere around $1,500 to $1,550.

Sure. Sir, this is very, very useful. Sir, you said $270 for China to India? And how much would it be for U.S. to India?

Yes. I don't know because right now, there's no PVCs coming from the U.S. market because of the shortage already running at their end.

The last question is from the line of Karan Bhatelia from Asian Market Securities.

Sir, 2 things I wanted to understand. Agri season was a washout since last couple of quarters. So do we see some pickup there because how far can farmers delay their purchases? So any comment would be helpful on this. And how has been the ramp-up at the Raipur facility are? Is it on track compared to our expectations? Or how is it shaping?

So see, agri sales have been declining for the organized players. But as an industry, the agri sector is doing good, right? It is just that the volumes have shifted towards the unorganized sector who work on the inferior raw material for the end product, right? So we don't expect agri to come back unless until the PVC prices go down drastically from these current levels, right? Having said that, the project sales, which come for the irrigation sector, et cetera, and the government schemes, there, the quality is all up to the mark. So there, the sales are happening for -- there, the sales are happening anyways, okay, for the organized sector also. What was your second question?

On the Raipur facility, how has been the ramp-up? Is it in expectation to our earlier estimates?

Yes. Raipur is ramping up quite well. It has given us access to the Eastern markets and Central Indian markets, which were difficult to feed from our North-always plants. So yes, it has been ramping up as per the expectation. Total CapEx was INR 15 crores. At the peak, we were expecting INR 50 crores, INR 60 crores of the top line. So we should be able to achieve that by next year.

Thank you. I would now like to hand the conference over to Mr. Manish Mahawar for closing comments. Over to you, sir.

Yes. Thank you, Stephen. On behalf of Antique Stock Broking, I would like to thank the team of Apollo Pipes for providing us an opportunity to host the call. Mr. Jain, would you like to make a closing comment, sir?

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

Thank you. Ladies and gentlemen, on behalf of Antique Stockbroking, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.