Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Steel prices have decreased significantly, benefiting APL Apollo Tubes Ltd (BOM:533758, Financial) as India's largest steel buyer.
- The company has better negotiation power with steel suppliers due to increased steel capacity in the market.
- Gross margin spreads have improved, reflecting a better product mix from new plants in Raipur and Dubai.
- The company is expanding its capacity with new plants in Siliguri, Gorakhpur, and Ahmedabad, aiming for 5 million tons sellable capacity by FY27.
- The company maintains a strong market share in value-added and super value-added products, which are less affected by competition from scrap steel tubes.
Negative Points
- EBITDA spreads were weaker than expected due to non-recurring expenses such as ESOP and brand campaign costs.
- Falling steel prices bring challenges like industry de-stocking, heavy discounting, and potential inventory write-downs.
- Utilization levels at the Raipur and Dubai plants are still ramping up, with some segments operating below 60% capacity.
- The company faces competition from scrap steel tubes in the general product segment, which has limited growth in this area.
- There is uncertainty in the steel upstream sector, affecting margin expectations for Q2.
Q & A Highlights
Q: Can you quantify the non-recurring items in other expenses and employee costs?
A: Employee costs increased due to ESOP expenses and a 7-8% increment. Freight costs rose due to selling value-added products from Raipur. Power and fuel costs are elevated but will reduce with renewable power in FY26. Brand spend was higher in Q1 but will be lower for the rest of FY25. Outsourcing charges for solar structures also contributed to other expenses. β Anubhav Gupta, Chief Strategy Officer
Q: What is the configuration and product focus of the new plants in Gorakhpur and Ahmedabad?
A: Both plants will have a capacity of 200,000 tons each, producing square and rectangular tubes using DFT technology and circular tubes with conventional methods. The aim is regional penetration and reduced freight costs. β Anubhav Gupta, Chief Strategy Officer
Q: What is the EBITDA per ton guidance for FY25?
A: Q1 EBITDA was around INR4,200 per ton. Q2 remains uncertain due to upstream steel prices, but the goal is to at least match last year's performance. A clearer picture will emerge by October. β Anubhav Gupta, Chief Strategy Officer
Q: How will you address the gap between secondary and primary steel prices affecting volumes?
A: The gap has narrowed to INR3,000-4,000 per ton. We expect HR coil prices to stabilize, allowing us to take market share from scrap steel tubes. We are also educating consumers about the poor quality and environmental impact of scrap steel. β Anubhav Gupta, Chief Strategy Officer
Q: Why has the margin for rustproof products declined significantly?
A: Margins were higher during a short supply of galvanized coils post-COVID. Now, galvanized coil prices have normalized, and competitors have also set up galvanization mills. We maintain a 65-70% market share in coastal markets but need to expand beyond these areas. β Anubhav Gupta, Chief Strategy Officer
Q: What is the visibility on export ramp-up from the Dubai plant?
A: The Dubai plant's four mills are now fully commissioned. We aim to utilize the 300,000-ton capacity by FY27, focusing on the Middle East and international markets. β Anubhav Gupta, Chief Strategy Officer
Q: How do you see EBITDA per ton shaping up for FY26?
A: With stable market conditions and better utilization of Raipur and Dubai plants, we aim to achieve INR5,000 per ton EBITDA by FY26. β Anubhav Gupta, Chief Strategy Officer
Q: What is the current net debt situation and its outlook?
A: Net debt is minor, around INR1.5 billion. We aim to maintain a near net-zero debt position throughout FY25, with surplus cash visible from FY26 onwards. β Anubhav Gupta, Chief Strategy Officer
Q: How do you plan to sustain market share and differentiation amid competitors' expansion?
A: Our focus is on structural steel tubes from HR coil, where we command a significant market share. Competitors in other segments like API pipes or scrap steel tubes are not direct competitors. β Anubhav Gupta, Chief Strategy Officer
Q: What is the working capital requirement for new projects?
A: For new plants, we have conservatively estimated 7-10 days of working capital. The current working capital requirement will decline significantly as steel prices stabilize. β Anubhav Gupta, Chief Strategy Officer
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
