Release Date: May 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- APL Apollo Tubes Ltd (BOM:533758, Financial) achieved a 15% growth in volume, EBITDA, and PAT for FY24 despite challenging market conditions.
- The company expanded its capacity to 4 million tonnes as of March 2024, with plans to reach 5 million tonnes with an additional INR600 crores investment.
- APL Apollo Tubes Ltd (BOM:533758) closed FY24 with a net cash balance sheet for the first time, indicating strong financial health.
- The company has maintained operating cash flow EBITDA above 90% and achieved significant working capital efficiencies.
- APL Apollo Tubes Ltd (BOM:533758) improved its ESG performance, increasing its Dow Jones Sustainability Index percentile to 86 and its overall environment, social, and governance score to 42.
Negative Points
- The company fell short of its sales volume target for FY24, achieving 2.6 million tonnes instead of the projected 3 million tonnes.
- High interest rates, inflation, and a slowdown in construction activity negatively impacted the company's performance.
- Delays in ramping up the Raipur and Dubai plants contributed to a 100,000-tonne volume loss.
- Steel price deflation led to a marginal impact on channel destocking and required the company to offer discounts, affecting EBITDA per tonne.
- The company faced a significant drop in EBITDA per tonne in Q4 due to aggressive discounting and a higher mix of lower-margin products.
Q & A Highlights
Q: Sir, my question is in terms of EBITDA per tonne metrics. So if we see Q4 EBITDA per tonne and comparative Q3 and Q4, there is a drop in that, except for general products on a sequential basis. So what explains that?
A: So if you look at the drop, right, so general product, what we have been able to do is that see, I mean the competition, which Apollo faces, it's normally in the general segment, right, which is the commoditized portfolio. And in the last four, five years, the brand what we have built, right, for our products against the small competition, right, so that has started to play, okay, that our price premium versus the second tier, first tier, is now almost like 5% okay, which used to be like 2% three, four years back. But our -- after our consistent investment into branding, right, we have come to a situation where even in the highly competitive space, our margins are -- our margins are lining -- our margins are lying solid, right? And as far as the other value-added products, this is more a function of -- this is more a function of the discounts which we are giving, right or the support which we give to our clients in the scenario of falling steel prices.
Q: Understood. So the next question is on volume sales guidance. So we had a guidance of 4.6 million tonne to 5 million tonne sales for FY26. And are we sticking with that kind of guidance for FY26 and also in Q1, if you can indicate what kind of sales volume we can expect? Are we seeing improvement in demand atmosphere? And when we can expect these headwinds, which we are witnessing currently during this election season to go away? So something on demand front and sales volume guidance for '25, '26, if you can throw some color.
A: So see, I mean, can we do 5 million tonnes in FY26? Yes, we can do. We have the capacity. We have the distribution. We have the working capital available, right? We have the product basket. We have everything in place, right? But yes, I mean, given we do say 20%, 25% growth in FY25, and then we're talking about 40% jump, right, to achieve 5 million tonnes next year. For that, we need macro support, right. And given the fact that India is now finally into steel deflation mode, right, this opens up almost a paddle industry, which we are going to attack very, very aggressively, right, which is can we feel substitute product. Right? In last five years, because of the high inflation in steel prices, that market got -- it became almost parallel to our HR coil based steel markets. And we have been highly vocal about it that this trend has to reverse with the capacity, which India is going to see in the steel sector that deflation will come. And we are now seeing the trends already, which is visible in our April, May number, right, despite the fact that India is going slow because of elections. So yes, I mean, if we get the market, we can hit 5 million tonnes next year, nothing stops us. But right now in our business model, we are projecting 20%, 25% volume CAGR for next three years.
Q: Understood, sir. And last question. So what's the current spread gap between the primary and secondary. So in last call, you said that the spread is coming down, the gap is coming down to INR12 per kg from INR15. So is this trend will continue because more and more patrols get commissioned. So that may be beneficial for you. So currently, are you witnessing that trend?
A: Definitely, that's why I said despite elections, our April, May has been -- both months have been pretty okay, right? And as far as the spread is concerned, which was as high as INR15,000 a tonne, today, it is around INR6,000 to INR7,000 a tonne.
Q: A couple of questions from my side. If I look in Q4, the rise in realization was lower than the realization -- than the rise in cost per tonne, and there was a significant gap over there. So did we -- and the prices -- steel prices, of course, they kept on falling through the quarter. So did we see some kind of, I would say, impact of inventory on the cost that has now got normalized? If so, is it possible to quantify the inventory impact of it in Q4?
A: So Amit, I mean, there are two, three factors to this, okay? If you look at my products in chart okay, which must be coming around INR69,000, INR70,000 a tonne, okay? Now I sell a product, which starts as low as INR57,000 a tonne and goes up to INR100,000 a tonne, right? That's my product basket, okay? Then I have elements like Zinc because of my coated products because of my Z Galv products because of my GI products, galvanized products. Then we have color as a raw material, right, which we are using for our roofing sheets, right, and other super value-added products. So in raw materials, it is -- now it is does not seem, okay, which is there. We are using much more products now and we are selling more hybrid steel as well. right? So even that steel is higher by like 5% to 10%, right? So we are supplying oneproduct for a solar project, where my raw material is INR80,000 a tonne, the landed because it's a super hybrid raw material, right? So I guess as our volume mix keeps on improving towards all these high value-added products, they will be like per tonne of like you will see -- you won't be able to totally kind of reconcile with that steel because steel as element of total raw material cost is going down. And this is one and second. Yes, I mean I wouldn't say there is an inventory write-down, right? What we do is we offer accounts to our clients, right, multiple incentive schemes which go, right, that is what depresses our spread. But as of now, like there's no inventory loss, right, which we took on our balance sheet.
Q: Okay. Understood. The second question is essentially, is it possible to quantify the capacity utilization at Raipur plant for Q4 and for the year and Dubai plant? And what do you expect the capacity utilization in FY24 on an average at both these plants?
A: Sure. So if you see our Raipur plant today is around 1 million tonnes, okay, for the full year. INR90,000 -- 90,000 tonne a quarter -- a 90,000-tonne a month to 70,000 tonnes a quarter and 1 million tonne a
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
