Apollo Pipes Limited (531761) Earnings Call Transcript & Summary

Understood. And lastly, could you tell me the CapEx amount for this year, which would be FY '27 and any plans for FY '28 also if you have gathered?

So in both the years, the total CapEx will be near about INR 200 crores divided by like INR 100 crores in each year. This will be funded from operating cash flow. I mean we are also working on our working capital efficiencies in September balance sheet, you may see some release of working capital with better inventory churn. So all this INR 200 crores will be funded from internal cash flows.

[Operator Instructions] The next question is from the line of Aasim from DAM Capital.

So actually, I had a question on the working capital bit, although you did kind of mention that you are working on releasing it, but maybe you can just like talk about what are the initiatives you are planning to like release working capital? And maybe some comments around the competitive intensity as well and whether the competition -- rather the current environment will allow you to release -- rather tighten working capital anyway, both on receivables and inventory. So just some comments on that.

So Aasim, right now, the inventory is at 80 days, okay, which was in FY '26 ending and same in Q1, June 2026, we are at like 80 days. Obviously, the sales volume has been a bit soft, right, in last 6 months. That's why inventories at 80 days. So as the sales momentum picks up in the coming quarters and by the end of FY '27, there is definitely scope of rationalizing these inventory days and we will have release of funds out of the capital -- working capital, whether at the raw material level or at the finished goods also. Debtor days are stable at 30. I'm glad to inform everyone. So our cash and carry schemes are working in our stronger markets. And as our experience of selling products in South and West India is becoming better. There also, we are slowly, gradually starting cash and carry schemes with the distributors. So acceptance is there. So idea is to bring debtor days to maybe 25 days, maybe by FY '27 end or maybe in first half of FY '28, but there is a clear visibility. And obviously, because of flattish volume last year and in Q1 also FY '27, the scale of buying raw material, we will see from quarter 2, quarter 3 onwards. So the credit terms with suppliers also will become better. That will also help us release more funds, right? So we are working on all 3 segments, be it inventory, be it debtors or be it creditors. And we will have a net working capital day target of 30, which right now is 45 but we are sure, we are confident that there is scope of release of working capital by 10 to 15 days eventually, not this year, but definitely by next year.

Okay. And maybe I just want to -- okay, I heard you on the working capital bit. Can you also talk about the confidence of 7% to 8% margins in the near term given that competitive intensity is also high. And I mean, you guys also have been very much focused on volume market share at the cost of near-term margins. So if you are still aiming for the high double-digit volume growth ex of new plants contributing to it, basically, with the 7% to 8% margin still come through or not in the near term?

It would, Aasim, and that's what we performed in quarter 1 also, right? If you remove the inventory losses, our business margin will be 8% at Kisan level and 5% to 6% -- sorry, 8% at Apollo Pipes level and 6% to 7% at Kisan level. So consolidated, we are at 7%. Obviously, I mean, it was a period of high push sales, right? As things get normalized, sales momentum picks up at macro level, there is always a room to improve our margin by 50 bps to 100 bps. So we are confident of maintaining this margin at 7% to 8% at company level. And as Varanasi plant and window profile plant stabilize, margins will further inch up by 50 to 100 bps.

Okay. Sir, can you just quantify how much the inventory loss was in Q1?

So I think simple math, you can do Aasim. When I say our business EBITDA margin was 7% in consol levels, the EBITDA which came, majority was inventory losses.

Majority. Okay. And just lastly, can you just comment on the PVC resin availability in India right now? Because I think there was some confusion about the customs duty. It got extended by 15 days. Now it has gone behind and the MIP has also come in. But is availability on the ground still an issue from the import side? And is that also a reason why PVC prices have started to inch higher?

Yes. Aasim. If we talk about the availability, of course, in the last few days, there has been some issues, but this is not because of other reasons. It is mainly because of the extensive rain at the ports. The ships are not able to -- you can say destock themselves on time, and that's why it's taking extra time for the customers to get their containers. So it is very -- you can say, very much normal. And the actual -- if we see the global scenario, the availability is not a problem. In 10 days plus/minus there, you will get the material as per the schedule. That's only the reason. And because of the extensive rain in India, that disruption is there. And again, like I told earlier that because of the extreme drop in first quarter of PVC resin, people were not very much encouraged to import resin too much. But right now, as the market has stabilized right now and the MIP has come into the picture, there is a base price for PVC resin. So now again, the people are importing. So I don't see that there will be any supply disruption in PVC resin in the near future.

The next question is from the line of Roshan from Antique Stock Broking.

So just wanted to understand how demand has evolved in areas like agriculture, plumbing, infrastructure. So which end markets witnessed the sharpest slowdown during Q1?

So see, both segments performed well in last 2 months, obviously, mainly driven by Construction segment, which forms 60% of our sales. And every -- of course, I mean, because of ongoing monsoon, so demand is definitely slow, which normally is very strong in March and April, but April month suffered because of crash in PVC prices. So there was some pent-up demand, which we saw during May and June. But now I mean, construction demand will take over agri demand, and that will be the main contributor for sales momentum for us.

Okay. That's helpful. And now that the PVC prices have largely stabilized, so are you witnessing the distributors resuming inventory replenishment? How has the demand trended in July?

So too early for them to start stocking up to be fair on their side, okay? Because the PVC prices have been so volatile that any call taken by them has not worked, right? So they are being very, very cautious, okay? So I think if the stability sustains for, say, next 10, 15 days, then definitely, there will be restocking, which would start. And this will give a boost to the overall industry sales for the second quarter.

[Operator Instructions] The next question is from the line of Karan from AMSEC.

Karan from Asian Markets Securities. Sir, two things from my end. How is the Varanasi ramp-up shaping? And how do we see that by FY '27, '28?

Can you hear us?

Yes.

So the total capacity for Varanasi in terms of revenue size is around INR 300 crores, the plant, which can generate revenue in total. This year, the target is to utilize at least 30% of that, okay? I mean Q1, of course, because of industry scenario, I mean, that's not the right barometer. But from the second quarter onwards, we are seeing that traction coming in. So we are hopeful that we should be able to utilize 30% of the plant in FY '27 and then 50%, 60%, 70% in FY '28 and then balance in FY '29.

Right. And also I wanted to understand on the Kisan part, it's last 3 quarters that we've been incurring operating losses as well, while we were very confident of benefits of Apollo going to Kisan as well. So what is the missing pie out here?

So see, I would say, first, let's look at the silver lining, okay? Silver lining is that at the business EBITDA level, okay, we are making like 5% to 6% EBITDA, right? It's just that the industry scenario has been so bad in terms of PVC price volatility, we are not able to show that in the actual P&L. But at the business level, we are doing like 5% EBITDA margin. So this is one encouraging measure, okay? Now coming to the volume, right, sales volume. For last 4 quarters, we are kind of flattish at around 5,500 tonnes per quarter. But if you look at quarter 4, we almost touched 7,000 tonnes, right? And in quarter 4 of FY '25 also, we touched 6,500 tonnes, okay? So the plant has capacity to do like, say, 8,000 tonnes to 8,500 tonnes, right, in a quarter. It's just that we need some industry support, okay, because it was a weak plant, it was a weak brand. Everything was weak, right? So for it to perform, we need some support from macro, which hasn't come, unfortunately, in the last 12 months. But now everyone feels that the worst is over for the industry. And a lot of work has happened in terms of team rationalization in terms of shutting down a few plants within Kisan focusing on the Tarapur plant from where we will feed the whole of Maharashtra and the neighboring states. Then Kisan brand being launched at some of the distributors for Apollo Pipes in South India and in North India. So a lot of work has happened, right? We are confident that from quarter 2, quarter 3, you will start seeing better volume growth. Margin front, we are not worried. I mean, whatever P&L you are seeing, that's more optical because of like inventory losses, et cetera. Once volume picks up, you will see good trajectory for the profitability as well.

Thanks for the detailed explanation. Also wanted to understand now that we've stopped sharing in our segmental data, but can you share us the volume growth across agri, plumbing and infra for you on a Y-o-Y basis?

So Karan, I mean, there has not been any growth, right? FY '26 was flattish. Q1 has been flattish. So there is nothing to give like segment-wise growth, right? But what I can tell you is that CPVC is doing well. Window profile is ramping up. Bath fittings are kind of flattish. Water tank is growing double digit, right? Government infrastructure business, whether it is OPVC or SDP, that's like almost 0. That's one of the major drags for the overall volume to remain flat. Fittings, fittings is doing fine, like single-digit growth, although in this tough last 5 quarters. So yes, that's what it is.

Right. Anubhav, you mentioned of INR 5,000 crores of top line in the next 5 years. What with respect to the return ratio profile? How do you see that? I recollect some math in the previous calls. Have you revisited the math? And do you have something to give us on call at this time?

So see, I mean, to achieve that revenue, okay, our gross block on the books will be around INR 1,500 crores in total, right? Then 30 days of -- 25, 30 days of working capital, which could be like INR 300 crores, INR 400 crores of working capital. So total gross capital employment will not exceed INR 1,800 crores, INR 1,900 crores, right? And on INR 5,000 crores revenue, even if we make 10% to 12% EBITDA margin, which is like INR 500 crores to INR 600 crores broad range, so that gives like 25% ROCE. So that math remains same, Karan, okay? All the investment what we have made in the last 2, 3 years and new investment, which we are going to make in the next 2 years, it is keeping same math in mind, right? There is no deviation from that. It's just that, I mean, we need some favorable environment, which obviously worst looks to be over. And then you will start seeing numbers actually in our P&L balance sheet and cash flow.

[indiscernible] INR 200 crores of CapEx -- because I think we done through Varanasi, maybe that is for the South plant, land acquisition or something?

So yes, I mean, this INR 200 crores, which is like pending Varanasi, then ongoing brownfield expansions and new product addition, et cetera, right? So that's INR 200 crores. South India will be on top of it. We have not decided like we don't -- we haven't like put up a complete game plan yet, but we have started looking at land, okay? So we have identified some pockets which makes sense to put a plant there. So probably in FY '27, this financial year, we'll finish the land acquisition. And then from next year, second quarter onwards, we will start putting up the plant, okay? So the blueprint in our mind is ready, but we haven't put that in drawing board yet, right? Maybe next 6 months, once we get more volume from Varanasi plant, our Maharashtra plant from Kisan, that ramp-up also takes place, right? So I think these are the 2 milestones before we start putting up a plant in South India. And if things become better, right, so we can always fast track it. Like I said, we have already identified the land parcels. If we believe that industry is turning around, our Maharashtra plant, our Varanasi plant, both have started performing better than expected. So then we can always fast track the South India plant.

The next question is from the line of Shaurya Shah from Equirus Securities Private Limited.

So most of these have already been answered, but I just wanted to know with the proposed amalgamation, like the qualitative details have obviously been provided by the company. But in terms of quantitative, how much kind of annual cost synergies can Apollo expect from the Kisan merger? And by when does kind of the management expect these benefits to materialize? So if any numbers are possible?

Shaurya, a lot of synergies we have already achieved, right, in terms of cost rationalization. For example, like one source of raw materials, one source of managing finance and tech, okay? And because it's going to be a separate brand, right? So Kisan will always have its own sales team, right, own admin cost at the plant level. But still, once everything becomes one, so there could be like a 1% cost synergies, which could come at the overall company level.

Okay. Understood. And in terms of geographies, like you obviously mentioned the South India is looking well in terms of demand outlook. So any other specific regional pockets that are looking very attractive, which we haven't kind of targeted before?

So all our plants are positioned geographically as per our strategy, Shaurya. Number one is Sikanderabad, mother plant, which takes care of North. Then we have Kisan plant for West, which takes care of Maharashtra, Gujarat and Madhya Pradesh to some extent. Then we have Varanasi plant, which takes care of Uttar Pradesh and Bihar belt, till Orissa, okay? That's the target. And then which is -- what is missing is a larger South India plant. We already have a small plant in Bangalore, but there, the total capacity is very less. So once we put up that larger plant in South India, so that will cover whole country. And there could be like 1, 2 additional plants, if required, once these all 4 plants are fully ramped up, then there could be like additional satellite town satellite plants, if required, we will put up.

We take that as the last question. I would now like to hand the conference over to the management for the closing comments. Over to you, sir.

Yes. Hello, everyone. On behalf of the company, I thank you all for joining us today for this conference call. We appreciate your continued support and interest in our company. We look forward to updating you on our progress in future calls. If you have any further questions, please feel free to reach us. Thank you, and have a great day.

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