Apollo Pipes Limited (531761) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Apollo Pipes Q3 FY '24 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aasim Bharde from DAM Capital Advisors. Thank you, and over to you, sir.

Thank you, Rio, and good afternoon, everyone. On behalf of DAM Capital, I'd like to welcome all to Apollo Pipes Q3 FY '24 Earnings Call. From Apollo Pipes, we have Mr. Sameer Gupta, Chairman and Managing Director; Mr. Arun Agarwal, Joint Managing Director; Mr. Ajay Kumar Jain, CFO; and Mr. Anubhav Gupta, Chief Strategy Officer at APL Apollo. I'll hand over the call now to the management of Apollo Pipes for the opening comments.

Good afternoon, everyone, and thank you for joining us on our Q3 FY '24 earnings call to discuss the operating and financial performance. I would like to start this call by updating you all on what's happening with the polymer industry. The challenging environment for polymer products continues in FY '24 due to multiple reasons, such as: one, our channel partners keep on sitting with live inventory levels due to persistent softness in PVC prices. Second, retail demand for construction materials was soft in third quarter due to demonetization of INR 2,000, which led to weakness in the home renovation and independent home construction. Our Q2 and Q3 volumes have not met our own expectations. This is definitely disappointing for us, but the good news is that we have been able to increase our 9 months FY '24 sales volume, up by 25%. On the back of recovery in retail sales, we expect highest ever sales volume in quarter 4 and closed the year with more than 25% of volume growth for the year FY '24 and sharp recovery in EBITDA and net profits. We reported EBITDA margin of 9.1%, which is softer on Q-on-Q basis due to raw material volatility. The margin was also impacted due to aggressive sales strategy we adopted to gain market share and higher ad spends. Our working capital further improved to 46 days in 9 months FY '24 from 56 days in FY '23. We are on track to improve it under 40 days in the 2, 3 quarters. Our ROCE should expand from current 16% levels. Our operating cash flow to EBITDA was 100%, which gives us strong visibility that the best of Apollo Pipes is yet to come in terms of cash flow generation. Our aggressive CapEx plan is on track with the finalization of the land in Banaras for Eastern India market. We expect the plan to be fully operational in the next nine months. The brownfield expansion at existing Dadri plant will be completed soon. Our nine months FY '24 CapEx spends were around INR 82 crores and there will be another INR 50 crores expected in Q4. This is by far our largest CapEx spend in a single year. And the next year, we are targeting even higher at INR 210 crores of CapEx. So this is in line with our strategy to double the Apollo Pipes capacity to 2,86,000 metric tonnes in the next 3 years. Lastly, I would like to reiterate that our industry is going through short-term pain, but our long-term goals remain intact whereby we look forward to achieve revenue growth of 25% to 30% CAGR for the next 4 years. We are also confident of hitting 25% to 30% of ROCE despite these proposed investments supported by working capital efficiencies. This is from our side. Now we are glad to take questions. Thank you.

[Operator Instructions] The first question is from the line of [ Rahul ] from [ Kumar Securities ].

[Foreign Language] PAT margin is not in line with the industry margins. So I would like to have your comments and views on this, please?

[ Kumar ], this is Anubhav here. So there are 2, 3 things, okay, to factor in when you compare our margins with our competitors, okay? So 1 is the basic business model, what they have adopted, like 10, 15 years ago, whereas we started manufacturing of PVC pipes at much serious note only 6, 7 years ago, right? So their portfolio is heavily skewed towards value-added residential products, plumbing products, okay? The contribution from super-high-margin products like CPVC, that's like all the names like which you must be referring to they get a lot of revenue earnings profits from CPVC products and fittings, right. Whereas, for Apollo, we are still building that SQ range, right, which is like more than 20% EBITDA margin. So this is 1 basic difference of sales mix, okay, why their margins are higher versus our margins. And the second is that we are a challenger in this industry, right? Today, we are ranked #6, #7 position, right? We were like #10, #11, 4 years ago. Over the last 3, 4 years, we have gained -- or I would say, we have doubled our market share, right? So this also comes at a cost of higher discounts to the channel partners or offering them better margins, right, so that they can get associated with our brand. So our distributor margins will be higher than what our competitors offer, okay? So there also, they have better margin. And number 3 is that we are in a heavy capacity expansion mode. If you see last 3, 4 years, every year, we are increasing our capacity. So our plants are also not running at 100% utilization levels, okay? This industry, if you look at our peers, they operate at 70%, 80% utilization levels. But we are at like 60% -- 55%, 65%. All these years if you see my capacity versus my sales volume, you will see that my utilization levels are much lower, okay? So once we are done with our majority CapEx program, right, once our plants start running at better utilization levels, you will see that operating leverage gains coming to us, and our profitability will also improve, right? So these are like related to the existing business model, which we follow and what our competitors are following. Other than that, short term, you see, I mean, in an industry, which has been under stress for now almost like 4, 5 quarters on a continuous basis, right, every quarter, every month, our prices are going down. So it becomes -- and when you want to increase our volumes, right, at, I would say, faster than the industry, so you have to adopt some strategies in the short term where you compromise on margin, but we have seen -- but we have -- but we have been gaining market share, right? And our focus is ultimately on ROCE, right, the idea is to give industry's best ROCE. Although I may be lower in EBITDA margin, but as management, we are highly focused towards generating superior ROCEs versus our competitors, and that's what our goal is, that over the next 3, 4 years, we are able to generate the industry-best ROCE.

Thank you, Anubhav, for such a comprehensive answer. I just have 2 more follow-up questions to that. Could you please also tell me the status of the OPVC pipes that we are going to manufacture? And secondly, there were rumors that we are probably entering into tiles industry as well. So if you could please clarify on these things?

Okay. So it amuses us, I mean, all of us sitting here that our entry into tiles industry. So no such plans, [ Kumar ], okay, to enter into tiles industry. A lot of proposals keep on coming on our table. It's bankers and brokers, advisers' work, right, to keep on offering deals on the table, but we are in no mood to diversify outside polymer industry, right, as of now. And secondly, on OPVC, yes. So see, I mean, our objective is always to follow what industry trends are, right, and to look at the opportunity where we can set up capacities and generate superior returns, right? So OPVC was 1 such segment in the PVC infrastructure space, right? So yes, we did order a few machines, right? And we are looking to set up a strong business model here, right? By end of this calendar year, we will have like the first set of machineries, which will come in phases, right? So first phase will start next quarter and then second phase in the subsequent quarter and the third phase will start in the end of this calendar year. So next year onwards, we -- you will see this business vertical getting established and contributing in a major way.

Okay. And just a follow-up question on my first question. Like you answered very beautifully that why our margins are lesser than the competitors. So when can we expect that our EBITDA margin and PAT margins to match with the peers that are ranked #1 or #2? In how many years can we expect that? I know we are in a very good trajectory.

No, so fair enough, [ Kumar ], so I believe that you must be referring to like mid-double-digit margin spread, right? So that also, I guess, the better way to look will be EBITDA per tonne because PVC prices also are like pass through, right? So I think percentage basis also looks deceptive, I would say, right? So our target is that from INR 12,000 per tonne EBITDA spread, which we are at today, and the net selling realization is INR 125 a kg or INR 150 per KG, but what we look forward is to generate around INR 18,000 per tonne EBITDA spread, right, on a long-term sustainable basis whether PVC prices are going down or up, like sustainable EBITDA per tonne should be around INR 18,000 a tonne. So there, we see that the next 2, 3 years, when our new plants like Varanasi, Maharashtra and another greenfield in South, when those plants also have the same SQ profile, which is like mirroring my current North India plant, which is like more value-add and low general segment, when those plants also have the same mirror SQ profile, you will see that our margins at company level will hit towards INR 17,000, INR 18,000 a tonne. So we are highly confident that this is achievable.

The incremental capacity of 150,000 tonnes that we are planning in the next 3 years, that plant has been confirmed at Varanasi, right?

So one is Varanasi, one is Maharashtra and the third is in South India.

The next question is from Jatin Chawla from RTL Investments.

First, I'll just start off with a follow-up to the previous answer, when you said you're looking for the EBITDA per tonne to go from INR 12,000 to INR 18,000 over 2, 3 years. Now from what I understand, these plants are still at -- even the construction has not yet started, right, in the Maharashtra. So these plants will take at least 2 years to come up, then maybe 2, 3 years to hit the right sort of product mix. So how do you think you'll be able to get to INR 18,000 per tonne by -- in the next 2, 3 years itself?

So Jatin, our turnaround time, okay, to right from like identifying the land and putting up all the plant and machinery and starting the production, okay, that's like 15 months, okay? And if you could hear what Sameerji said in his opening remarks that this year, we are going to spend INR 130 crores, right, in CapEx which is like out of this, almost we did like INR 40 crores, INR 50 crores is just for the land acquisition. And our next year CapEx target is INR 210 crores. Again, where INR 100 crores we're going to invest to buy land in Maharashtra and South India. So once the land is identified, then the turnaround time will be 15 months, right? So it's not going to take 3 years for us to kind of commercially start these plants, okay? We have money in our bank accounts. We have our own operating cash flows, which are improving so well. So our INR 500 crores CapEx, we're not going to wait for 4 years to complete, right? In the next 2 years, you'll have all this capacity up and running.

Yes, but my question was that you will take 2 years to start the plant and then it will take some time to get the right product mix also at the plant, right? Usually, there is that ramp-up phase and where you get to the best utilization levels and all?

So Jatin, again, there are 2 things, okay? One is that by the time -- so it will be all in phases, right, in year 1 -- in next 9 months, my Varanasi plant will be operational. In another 6 to 9 months, my Maharashtra plant will be operational. In another 6 months, my South India plant will be operational, right? So it's not that all capacity will come after 3 years, right? Every 9 months, you will see my plant coming and starting commercial production. And also in my existing plants, right, I'm doing more and more value-added products. My CPVC as a percentage of sales is going up every year. My bath fittings as a percentage of sale is going up every year, with OPVC also, which is a better margin than the company average, right? So we have a lot of levers to improve our margins. We need not wait for all 3 plants to be 100% fully operational, okay, to improve our margins. We have a lot of levers to improve our margin, Jatin.

Got it. Got it. The second question is that you spoke about low retail demand, but one of the -- probably the largest player in the country, they reported really healthy numbers and they have spoken about reasonably strong retail demand. So I was just trying to understand why the difference in commentary between what you are saying and what the largest player in the industry is saying?

Yes. So even we were like very pleasantly surprised by the performance of the largest player in this industry, right? So that gave us a lot of confidence that this industry is going so good, right? But when we say the retail sales, right, a lot of players in our industry are also very strong in project sales, Jatin, right, whereas Apollo is heavily highly dependent on retail sales, right? Our project contribution -- project sales contribution is not even single digit. I mean, it's like very low, right? Majority of our sales, 90% -- more than 90% of our sales are coming from distributor network, right, which is like retail sales, hardware shops, right? So there, obviously, if you look at the commentary of some of the companies from pipe segment, from electrical fittings segment, right, the independent home construction, the home renovation obviously got impacted, right, last 1, 2 quarters. Also high inflation, high interest rates, keeping consumer a bit soft on renovation and new construction. So that's what I was referring to. What I can tell you is that players who are having strong footprint in the project sales, they are doing good. And that was one of the reasons why Q3 numbers for some of the companies have been good or they will report good numbers.

Got it. And on this independent home construction, have you seen any signs of improvement so far in this quarter?

Yes. I mean December onwards, things have become better, right, and our sales in December and Jan, whatever we have done so far. So trends look positive, yes.

Okay. One last question. You spoke about your margins being impacted because you are being aggressive in trying to get volumes. So that, combined with such a weak volume performance that kind of does not add up broadly...

It's just like 3 months, Jatin, if you look at my first 9 months, right, it's 25% growth, okay? I don't think any business strategy, right, one could measure it like with 3 months of performance. So let us come back to you with the Q4 results, right? And then you may not have the same question.

Sorry, I should have reframed my question. My question was actually what I was thinking was that 2Q you had a really strong number. So was it that because you were pushing -- you pushed very hard in 2Q and then your distributors had inventory and that kind of impacted 3Q?

I wish distributors were ready to stock more, right, which they don't want to because of weakness in the raw material prices. Q3 was heavily soft because construction activity, like I said, was very, very slow, right? Festive season also was there, right, which impacted the construction. There was a drop of INR 11 a kg in our PVC prices then retail sales, like I said, were down, right? If -- so we are also working aggressively towards the projects approval, right? Because we are the late entrants in the industry, so our project approval is also not as good as like what our competitors have, Jatin. So it will take some time for Apollo to get registered or to prove its brand in all these projects, whether at government level or at the private level. So today, my sales are dependent on hardware shops, right, retail sales. And because other -- some of my competitors will report better numbers in Q3 because they got support from projects. Projects are doing really well, really, really well. And we don't know how much of that sales growth was contributed from HDB pipes, right, which is 100% project-driven business. So there are a lot of factors, Jatin, one needs to imply or compute that did Apollo Pipes perform so bad in Q3.

[Operator Instructions] We take the next question from the line of Kuber Chauhan from Anand Rathi.

Am I audible?

You have some background noise, but yes, please go ahead.

Okay. Okay. Yes. So I just wanted some color regarding the demand. How was the demand for our agri and non-agri segment?

So if you look at Q3, right, the agri sales, the agri sales were a bit down on Q-o-Q basis, right? But what did well was our housing segment. So even the -- although, again, I mean, Q3 is a very -- 3 months is a very short time to look at the sales mix. But if I have to give you the sales mix, 58% of our sales come from housing and 42% from agri, which like normally has been like 54%, 55% and 45%. So agri sales were not too good in the Q3.

Okay. And what was the mix for this quarter?

Like I said no, 58% housing, 42% agri.

The next question is from Sneha Talreja from Nuvama.

Just a couple of questions from my end. Firstly, just wanted to understand, was there any inventory loss during the quarter that you all have? And if not, what -- and in fact, I mean, other way around, why did we see our gross margins improving? What was the reason for the same?

So Sneha, see, I mean, inventory loss would be there, but very minor, nothing to complain about, right? I would say it's a normal business practice. So very marginal. And as far as the gross margin is concerned, so on Y-o-Y basis, yes, last year, things are pretty bad when PVC prices are falling. They were heavy inventory losses, right? This year has been a bit of normalized. So that's why you see improvement in gross margins on a Y-o-Y basis, but Q-o-Q, we are kind of flattish.

Understood. Secondly, with respect to PVC prices, do you see that prices have now stabilized and destocking is over, what's the current trend? Are you seeing that distributors are filling the stocks back?

Sneha, right now, the PVC prices are almost near to the bottom. A little bit on the upper side, but not very much because the world market is not very bullish regarding the PVC prices. So we don't see any sharp upward trend. But of course, there should not be any downward trend for the at least 1 or -- next 1 or 2 quarters and slight improvements up and down maybe there, but not heavy ups and downs we see.

Understood. And then last question. I think Anubhav you mentioned in one of your statements that your CPVC share has increased your water -- bath fittings share has increased. Could you specify that where are we in terms of CPVC, just the approx range would do or in terms of bath fittings at this point of time?

Right. So if you look at the CPVC, right, that contributed around 17%, 18% to our overall revenue, okay? And this is getting better, right. Obviously, we were constrained with our own capacity, okay? In Dadri, now we are expanding CPVC capacity. So this contribution will improve and Varanasi also, we are going to have a CPVC unit, right? So the contribution from CPVC will continue to improve as the new capacity comes online. And the bath fittings also, we have reached a level where we have been able to utilize our capacities fully. And now there also, we are adding new capacities which will help improving the volume going forward.

The next question is from the line of Piyush Khandelwal from Bank of India Mutual Fund.

Just wanted to understand this growth dichotomy a little better because -- I mean, you've highlighted a couple of points, which I understand on the project side as well. But when I look at the commentary from the largest players, especially on the plumbing side and the retail side, I look at your growth, which is only 5%, although I appreciate the 9-month growth is 25%. But still, I mean, I'm not able to understand this 5% growth? I mean, if you can highlight me, is it like more to do with more intense competition because the other players are also ramping up, coming up? So what was the reason for this kind of growth?

So see, I mean, my answer will remain same, right, that our sales from retail segment was hit badly, okay? That's what impacted us. And yes, I mean, the competition was slightly intense, I would say. But if that were the case, we wouldn't be projecting a strong Q4, right? If you look at what we could -- like Sameerji categorically said that Q4 could be our or will be our highest sales volume, right? So it will surpass Q1 sales volume, okay? So you can expect a sharp Q-o-Q jump, right, in Q4. So given that 1/3 of the quarter is over, we know how it is panning out. So giving this statement must give confidence to the investors and analysts that Q3 whatever happened was onetime short-term factor which did not support us. But there is no reason that this softness will continue or we will not bounce back sharply, which we will.

Sir, the question was also more to do with regards to the PVC prices because now the PVC prices are favorable for the demand environment. So I mean, that too, I mean, it is kind of a tailwind for the industry as well that PVC prices are at bottom and that is where the demand environment should be better?

Right. So I'm talking about 35% growth, right, in Q4 on a Y-o-Y basis.

All right, all right. Another, I mean, question, especially on the profitability because, I mean, that number keeps on changing frequently. I mean last quarter, you guided for, like say, INR 15, INR 16 per kg, now are guiding for around INR 17, INR 18 per kg. So I mean just trying to understand that trajectory a little better. Although I understand that the direction will be on the upward side as well because as you -- new plants ramp up, as you get the scale, you'll have the operating leverage as well. So I mean on -- if you can just give a broad trajectory, which is maybe on the per tonne basis, on a percentage basis, which are those levers which will give this kind of, I mean, 40%, 50% jump in let's say per tonne basis? Is it the ad spends? Is it -- I mean some other costs, which are those cost levers?

So INR 17, INR 18 a kilo EBITDA spread, right, that's the number which we have been always talking about, okay? That number has not changed. And given the infrastructure, what we are going to build over the next 3, 4 years, given the SQ range, the sales mix, what we're going to have and given the APL Apollo brand sector, which will come into play, right, and given the utilization levels, what we're talking about with the revenue size of INR 2,500 crores, INR 3,000 crores, right, so INR 17, INR 18 a kilo EBITDA spread should not be a challenge, right? It's a question of like we achieve that number in 3 years, 4 years, I mean that's the only thing. But when the industry is generating these kind of spreads, Apollo should also make such spreads.

The next question is from Jenish Karia from Antique Stockbroking.

First question is, was there any impact on the raw material sourcing or the cost of sourcing raw material because of Red Sea issue?

No, there is not much you can say, hardly minor effect, negligible. We don't see any right now till date any effect on the raw material sourcing because of Red Sea.

Okay. Secondly, if I can on a sequential basis, our agri, non-agri mix has improved. Last quarter, it was around 52% of non-agri portfolio. This quarter it's around 58%. Despite that, our gross margin per kg has declined by around INR 2, INR 3 per kg. And we don't have any material inventory loss. So any specific reason for that?

So I would say this is more of the low utilization levels for the quarter, right? And also since we are now expanding our teams to put up in Varanasi and the project team is expanding, right? So those are the costs which have impacted in Q3. But as we will recover our sales volume in Q4, so you'll see some positive impact towards the margin trajectory.

Just 1 last question from my side. So despite our team expanding and our aggressive brand spend with Mr. Amitabh Bachchan coming on board for advertising. Other expenses and employee costs have declined by 10% on a sequential basis. So is there anything especially should we see the run rate coming up in the next quarter? How should we look at it?

So Q2 had our annual bonus payout for the employees, right? So that's why Q2 was a bit heavy. And Q3, that's why you see a decline in the other expenses.

Bonus will be in the employer cost, right?

No, so what are you referring to? Because the other expenses what we have shown is INR 13 crores versus percentage -- so it's like flattish, no. It's around INR 30 crores, no. There is no decline. Yes, there is like INR 1 crore decline on Q-o-Q basis, right? That's also because of revenue also fell, no, on Q-o-Q basis.

The next question is from [ Vikas Mistry ] from [ Montfort Ventures ].

Anubhav, I have a couple of questions. [indiscernible] We are saying that we [Technical Difficulty].

Vikas, there's an echo in your voice. Could you speak on handphone?

Is it now better?

No, [ Vikas ]. We still can't hear you. If you are on hands-free, request you to just use the handset.

Okay. I have a couple of questions. First question is that we are saying that we are increasing our volume growth by 35%. How much of that volume growth you will attribute for [indiscernible]. You also said in one of the comments that [Technical Difficulty].

No, no, [ Vikas ], you'll have to repeat, I'm sorry. Initial words were audible, but then we couldn't hear you.

Okay. Okay. I was saying that we have to increase our volumes by 35% year-on-year for the next maybe 3 years. In order to achieve that, how much of that growth will we attribute to the bottoming out of this retail hardware sales, point number A? And point number B, how much of [Technical Difficulty] penetration into project sales, and what we are doing to achieve that? And point number C, how much [Technical Difficulty] increase to achieve this 30% year-on-year growth?

Okay. So first thing is that when we say 35%, when I mentioned 35% volume growth, that was for Q4 on a Y-o-Y basis. On a long-term basis, our CAGR target is 25% to 30% volume CAGR, okay? And keeping the polymer prices at base level and improvement in the value-added products, the revenue will be higher than the volume growth. But that is with the assumption that PVC prices are at base price today, okay? Now coming to the second part of the question that why we expect such a high growth, right, for our business, for our company? So yes, I mean, APL Apollo has been deeply penetrated into the retail side of the industry, right, in the markets wherever we are present today. So that will be one of the major contributors. Then secondly, we are adding new products in the same retail channel, right? Bath fittings, water tanks and adhesives, right? So that will incrementally improve my revenue, right, in the retail channel. Then we are going into new geographies, right, with the establishment of Varanasi plant, the Maharashtra plant and 1 more plant in South India. Then third, we are looking for the opportunities such as PVCO segment, right, which also is totally incremental to our revenue and profits. So that's the game plan for the next 3, 4 years, [ Vikas ], that we are adding new products. We are adding new markets to our portfolio, right? That's what gives us confidence that we should be able to grow at 25% to 30% CAGR.

Anubhav, my question is that it looks like the market from hardware site will be slow for the next maybe couple of years because the project sales are increasing in overall industry growth. So to appreciate your better distribution reach, how much touch points or distributor points you've increased in the last quarter and what [Technical Difficulty] can you elaborate on that?

So see, I mean, if you look at -- we took a pause at 600, 650 distributors 1, 2 quarters ago. But last quarter onwards, we have again started increasing that number. So today, we stand at 700 direct channel partners, right? And with the -- with much larger plants now coming for Apollo, right, that number will settle down above 1,000, right, on the next 2, 3 years. So distribution network is the strength of our sister company, APL Apollo Tubes, and the same strength we are going to demonstrate in PVC business also.

Okay. Okay. Following back on this question...

No, so I guess what I understand is your question is that I don't know why you are saying that retail sales will be slow for the next 2 years. I don't understand that part.

Because there's a considerable change in market because total overall sales will be mainly driven by project sales because of that.

No, who said that? I mean do you say that independent homeowners are not going to renovate their homes or they're not going to go for construction of their own homes? I guess what we see is only -- yes, okay. Go ahead.

The only worry about it is that after COVID there was reverse migration and that has already settled down. So there was a higher base in the last couple of years. So in order to increase at higher rate, it would be slightly difficult to do that.

No, sir, I don't confident this view, okay. Whether reverse migration is there or not, I mean -- see, I mean it's only like a few metro cities where you see high-rise projects, right? Otherwise 90% of India still lives in independent homes. Now 1 home could be 1,000 square yard bungalow or as small as 50 square yard row house, right? There, the work is not going to stop, right? We don't believe that the industry will shift towards -- heavily shift towards project. Yes, projects will do well with the more introduction of real estate industry, but that is still very, very much limited to the metro cities.

Okay, okay. That's a point well taken, Anubhav. My last question is that, the volume growth, which is coming from new plants, will that be a part of step function or we see gradual increment on that account?

Can you say it again, please?

As you have already alluded that our plants will be coming after just maybe some plants would come out at 6 months and some will come after 9 months. So the volume recovery from those plants will be step function or will be gradual?

So we never wait for like, for example, my Varanasi, I'm ordering, say, 5 mills, for example, right? So 1 mill will come first, and then we'll start the production, right? So quarter-on-quarter, we will see a gradual improvement.

Okay, okay. Okay, that's all from my side. Great. And hope rural hardware sales improves.

Of course. So you'll see that in Q4.

The next question is from the line of [ Hena ] from DAM Capital.

So can you help me with the percentage degrowth on a Y-o-Y basis in agri volume that we saw this quarter? And subsequent to that, what was the growth in housing volumes for Q3?

Yes. So agri was down mainly because of season, right? And also the drop in PVC prices, which prevent our distributors from stocking more, that's the reason why agri was down.

Would you have a percentage number, like Y-o-Y percentage number in terms of volume, what the degrowth would have been?

So we said Q-o-Q, right? The decline is on Q-o-Q basis, right, that's around 5%.

Okay. 5% Q-o-Q. Would you have the same number, Y-o-Y number, compared to last year Q3?

Y-o-Y, I will get back to you, maybe off-line.

Sure, sure. And the same for the housing sales growth that we would have seen in Q3 compared to last year Q3?

Yes, sure. I'll do that.

And what will be the agri, non-agri split for the 9-month period?

So this is a bit of confidential sensitive data. It will be good if we can take it one-on-one, please.

Okay. Sure, sure. And just another question. When can we set the equity dilution with the promoter with preferential issue to happen?

Say it again, please.

When can we expect the equity dilution for the preferential issue, the promoter preferential issue to happen?

So see, I mean, that will depend on the fund requirement for the new CapEx as a warrant -- the family has 18 months' time, right, 6 months already passed by, right? So whenever the company needs, the family will infuse the capital.

The next question is from the line of Utkarsh Nopany from BOB Capital.

Sir, my first question is on the volume side. So if we see on a relative basis and do the comparison with Supreme, then we see that our base is quite small in size, and we are operating at a lower rate and we offer better margin to our channel partner. But then also, we are struggling to grow at a better rate than Supreme over the past, say, 7, 8 consecutive quarter. Why it is so? And what has changed? Like you have given very positive outlook guidance for this March quarter and going forward. So Supreme has guided that they are targeting to grow at 30% in this March quarter, and they are targeting to grow at 12% to 15% rate going forward, but we are fairly confident of clocking much better volume growth rate. So what has changed which would result into better volume growth for us compared to Supreme going forward?

So see, I mean, the first factor to look -- like to compare the top leader and challenger, right? So obviously, challenger has low base, so it can always have aspiration to grow faster than the leader, right, in our sister company steel tubes also, right, we are the leaders, and then we keep on hearing from the challenges that we will grow faster than the leader, right? So that's the aspiration with every challenger in the industry -- in every industry. Second, I mean, not to mention that -- not to copy anyone, right? What we are confident about is our own business plan, okay, which all pockets we are present right now in terms of geographies, what all product basket we have right now, what new products we have to add, what new geographies we have to go to, right? How many distributors we have to add to our channel, okay? What kind of supply -- raw material supply arrangements we have to do with our RM suppliers? So if we put everything on paper, right, that gives us confidence that we should be able to grow much faster than the industry. And if you look at last 3, 4 years of growth trajectory of Apollo, we have clearly demonstrated that we have grown faster than the industry. And we are -- and our business model ensures that this momentum should continue going forward as well.

Okay. And sir, just need 1 clarification from you on the CapEx side. So we have guided that we are planning to spend INR 130 crores in FY '24 to INR 210 crores in FY '25, and can you also confirm how much we are planning to spend in FY '26?

So our total CapEx outlook was INR 500 crores, right, INR 210 crores, we are doing next year; INR 130 crores, we do this year. So balance will be INR 150 crores or something, right? So that would be in FY '26.

[Operator Instructions] We take the next question from the line of Ritesh Shah from Investec.

Anubhav, just 1 question. Possible to give the volume split? Basically, earlier, we used to do PVC, CPVC, HDP, I'm just trying to get a sense on the trajectory of volume growth that we are chasing. So you did emphasize on CPVC and bath fittings. But if you provide us with that, I think that will be a lot useful?

Ritesh, you have to excuse us for this, right? Now with the scale, this has become the sensitive information, right? So we prevent from sharing this. We are very sorry for that.

Then you will have to permit me to ask 1 more question. Probably, if you could provide some color on OPVC market sizing. How does it compare on the price point? And what is the capacity and CapEx that we are looking at, specifically for OPVC?

Yes. So, Ritesh, the realization for OPVC is around INR 200 a kilo, right? And it's a very new product, which is replacing existing iron pipes, right? So government is also considering, right, that since the product becomes cheaper, lighter, easy to install, the contractors are happy to use these products, right, and also the volatility that you have in iron versus a PVC, right? So idea is that, I mean, we also got access to this technology, right, and launched the product. We are talking to all the right agencies, contractors, PMC consultants who are doing all these water infrastructure projects in the government. The investment is small as per the size of Apollo, right? We launch a product, the product becomes successful, and then we'll keep on expanding capacity, that's the business plan here, Ritesh.

Is it possible to put numbers on market sizing tonnage and what capacity again in tonnage and the CapEx rupees crores, please?

This, again, a bit sensitive, we can share this one-on-one, please.

The next question is from Rakesh Wadhwani from Monarch AIF.

I have 2 questions. So as a first question, regarding the gross profit per kg. Sir, I just wanted to understand why gross profit per kg has come down in this quarter compared to last quarter, whereas the share of CPVC has gone up? I think you mentioned 1 point that I skipped, so sorry if I ask you the same question.

No, so if you see that the gross profit is like a very marginal drop, right, nothing which is giving any trend, right? That is one. And second, of course, because the sales were low also quarter-on-quarter, right, marginal drop. So that led to declining gross spreads because the discounting was more to push the product.

One last question from my side. When we say our EBITDA per kg will be 70 to 80 (sic) [ 17 to 18 ], I understand it is not a 1 quarter or 2 quarter phenomenon, it will be over a period of 2, 3 years as you guided. So at that time, what will be our gross profit per kg, what will be the number? Because I want to understand how our leverage will kick in? Like what will be the quantum will be coming because of the improvement in gross profit, improvement in the product mix and improvement in employee and also the operating leverage from the other expense part?

So at that point of time, the gross spreads could be like around INR 39,000 a tonne, which will give us INR 17,000, INR 18,000 per tonne of EBITDA spread.

[Operator Instructions] The next question is from Mr. Achal Lohade from JM Financial.

Just wanted to check the mix at this point in time in terms of our sales mix, north, south, east, west? And with the capacity additions, how do you see that evolving over the next 3, 4 years?

So Achal, North continues to remain heavy, right, because the capacities in other regions are yet to come. In fact, we have done greenfield -- brownfield expansion in North, right? So North continues to remain high around 65%, 70%. It's only after Varanasi plant that mix will move towards East more and then followed by Maharashtra and then South India.

Understood. So North is 65%, 70%, the balance, 30%, 35% would be evenly split or it will be...

South heavy and then West and then East.

Okay. Got it. And how will it change over the next 3, 4 years once your capacities come on board?

Right, so out of 286,000 tonnes, right, North will still be like 50% of that, right? And then other 50% will be West. East will be equally big and South as well, right? So then it could be like 15%, 18% each of the geographies, 45%, 50% North.

Next question is from Rajesh Kumar Ravi from HDFC Securities.

Yes. So this capacity expansion, which you have outlined, so I understand that the brownfield expansion will get consummated next year, and the greenfields one will fall in FY '26?

No. So we expect first greenfield in Varanasi to start in FY '25, towards the end of FY '25.

Okay. And the brownfield ones?

Brownfield also we'll finish it by FY '25.

Okay. And so the West and the South expansions will come through in FY '26?

Yes, plus the ramp-up from these plants, which will start in FY '25. So we have good visibility for volume expansion for the next 3 years, continuous volume expansion.

So this 25%-plus volume CAGR is on account of this ramp-up as well as the new facilities coming up. And in terms of CPVC, you mentioned that you will be expanding your CPVC volumes from the new facility in North. So how is the CPVC resin supplies and with new capacities on the resin side coming up, how does this open opportunities for players like Apollo?

So CPVC, if you see raw material supply is now stable, the prices have also been more or less stable in Q3, although there was a sharp drop in Q2, right? So now that prices are stable, this -- you can imply that the supply is also stable.

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

Congratulations on a good set of numbers. I just wanted to understand regarding...

Dhananjai, we can barely hear you. Request you to be a bit louder.

Can you hear me now?

Yes. Please go ahead.

Yes, sir, a lot of the growth in the last few years would have come from this Jal Se Nal theme. But it looks like now most of the houses, which needed to be connected have been connected. So would it be fair to assume the next 3 to 5 years growth would be as good as the past 3 to 5 considering a big avenue of growth would now start slowing down?

Right. So Dhananjai for us, I mean, Nal Se Jal, you need to have like 1 product, which is LDP, right? So we also have that product. But for us, the contribution is like 10%, 12%, okay, because that's like very, very state specific. And then margin also in this segment sometimes it is good, sometimes it is not. So we are not -- we have not been able to participate too much. And that call was deliberate, right, cautious call that we don't want to go for like higher working capital side of the industry, where the money gets stuck with the EPC contractor, et cetera. So yes, I mean, industry is growing on account of that, but we don't want to get carried away too much because of that.

No, so but then wouldn't it be fair to assume the other players who have really benefited from this, now they will start coming into other categories because to make up for their volume loss, which could happen incrementally to them?

No, no, the product is completely different, right? So it's not that those pipes you stop giving in Nal Se Jal and then you will give it in a residential project. It's not possible. That product is very different. Application is very different. Yes, so the capacity is not fungible, basically.

The next question is from Shubham Aggarwal from Axis Capital.

I just had a question on the industry, actually. So you mentioned that the construction beyond metros is slow in Q3, and I think we've been seeing this trend for the past few quarters. However, you mentioned that Q4 is seeing a strong demand from the segment beyond metros. Can you call out something which gives you confidence that the strong growth from -- seen in Q4 could continue in FY '25 as well?

So I guess on macro side, right, after the elections, I mean, next 2 quarters could be slow for projects, right? Once government machinery gets busy with elections, the decision-making, new project awards, tendering, everything will go slow, okay? But after the formation of a new government, then I'm -- I would say as management, we are super confident that government will take lot of steps to -- like to continue the momentum, which Indian economy or GDP has been seeing, right? So whether it is private CapEx, it is government CapEx. If you look at the announcements, like rebuilding of 1,500 railway stations, 200 new airports, right, very recently, the PM spoke about housing for all schemes, some revamp in that scheme to give homes to poor people, right? So that will all lead to heavy construction in the country for the next 5 to 10 years. And our housing plumbing pipes are directly linked -- that portfolio is directly linked to wherever construction takes place in the country, right? And agri demand also should improve Y-o-Y, although the growth rate will not be very high. But as the rural economy does well, the agri demand should also catch up. So I guess -- I mean, for next 4, 5 years, we are highly bullish on the industry, right? And that's the reason that why we have committed so much of capital, right, to put up new capacities, right? So yes, I mean, we are bullish on the industry.

Sure. So I think whatever you said right now suggests that the growth in projects could continue to remain high going forward as well. Now a question just related to that, like what is your focus on -- you told in the call earlier that less than 10% of our business is from projects. So are you doing anything to increase your penetration in projects? Or do you think the growth will largely be retail-led going forward for you as well?

So see, I mean, like I said, our teams are working day and night to get approvals in new projects, right? See, when there is government spending, right, it's not just that project demand will come, right? The -- when new project comes up, right, new employment gets generated. So that demand also flows in the retail segment as well, right? And it's not that our projects exposure is 0, right? Our distributors, they keep on supplying material at -- for projects also, right? So it's not that our direct exposure to projects is very low. But our dealers, they keep on pushing our product in the project, right? So we are prepared. We are preparing ourselves for both the segments, right, retail and project. So far, as of now, project is low, right? But we are already working to increase the approvals in these projects, right? And our distributors are also supporting us, helping us to push our products in projects. Going forward, with all the new plants, at the same time, we are taking approvals for those plants for our brand for the projects. And we are going for universal approvals now, right? For example, there is 1 construction agency from the government, which is headquartered in New Delhi, but it will have multiple offices in all the states and union territories. So we are going for universal approvals, right? So once the name get registered, the brand gets registered at head office, all the satellite offices, any project which goes out, it will have our name, right? So you will see -- we are preparing ourselves for next 5 years, right? And the project approval is one important segment, which we started working on last 2 years already.

That was the last question. I would now like to hand the conference back to the management team for any closing comments.

I hope we were able to respond to all your queries and you may connect with us in case of any other further questions or details. Thank you once again for sparing time out for this con-call. Have a great day.

Thank you very much. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.