Ladies and gentlemen, good day, and welcome to APL Apollo Q2 FY 2023 conference call. As a reminder, all parties on lines will be in a listen-only mode, and there'll be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumant Kumar. Thank you and over to you.
Thank you. Good afternoon, everyone, and very warm welcome to APL Apollo Limited Q2 FY 2023 post-results earnings call hosted by Motilal Oswal Financial Services Limited. On the call today we have management team being represented by Mr. Sanjay Gupta, Chairman and Managing Director, Mr. Deepak Goyal, CFO, Mr. Arun Agarwal, Chief Operating Officer, Mr. Anubhav Gupta, Chief Strategy Officer. We'll begin the call with key thoughts from the management team. Thereafter, we'll open the floor for Q&A. I would now like to request the management to share their perspective on the performance of the company. Thank you, and over to you.
Thanks, Sumant , and thanks, Mike. It's a pleasure to be here and talk about our Q2 FY 2023 results. The quarter which went by in terms of volume, it was pretty exceptional with all-time high sales of 602,000 tons of volume. We are glad to share that we almost hit our peak capacity in September month with the volume of 203,000 tons. This shows that the capacities what we had put up over the last two, three years they are near to the peak utilization levels. This number is more important because the distributors were still under destocking mode as steel prices had not bottomed out.
We believe prices should plateau over the next two, three months, and we only see destocking happen with distributors post Q3, December month. There is some disappointment in terms of margins, as the EBITDA spreads were under pressure. It was basically because of three reasons what we see. One was the weak sales mix as commoditized sales contributed 45% to the overall volume, but sales were 35%-40% what we had seen historically. This, the sales were important because the markets had just opened up after the sharp correction in steel prices. We also wanted to gain market share and even pretty aggressive on the sales and offered some extra special discounts to our clients.
If you see the contribution from Raipur had started in terms of volume. In terms of margins, in terms of profitability, we are just at the breaking level. As the volume starts ramping up from October, November months, we'll see the contribution in terms of EBITDA also coming up significantly. Without Raipur, without new Raipur plant, the EBITDA spreads were near about INR 2,000 per ton. When you compare our margin performance and sales performance with other companies in the building materials sector and the value-added businesses of steel companies, we believe our performance was pretty satisfactory. Our partnership with Shankara has proven to be fruitful in the last six months since the deal in the first quarter.
We are glad to share that the first half sales with Shankara has grown by 110% YoY basis. This suggests that the ROI on that investment is pretty much on expected lines, and it will match our business ROC of 30%+. The operating cash flows in the first half again were super strong, with OCF forming 110% of the first half EBITDA. We could improve working capital slightly as we equalized inventory as the sales volume were all-time high at 602,000 tons. This operating cash flows, INR 200 crore were utilized for Raipur CapEx and some other CapEx which we are incurring.
Then there was a dividend payment of around INR 100 crore that led to a marginal increase in debt, INR 200 crore-INR 300 crore. These debt levels will come down as Raipur CapEx is near completion and the operating cash flows, which will be generated, they will help us reduce debt over the next 3-4 months. The Raipur plant is pretty much on track as you can see that over the last two, three quarters there has been increase in the volume coming up. Substantial increase we will start seeing from month of November, December.
In Q4, there should be pretty much all the lines will be commissioned and the plant will show its full color from Q4 onwards. Our whole team is working day and night to ensure that all the lines are commissioned on time. At the same time, all the products are innovative there. The teams are also working to create the market for those products. The results, whatever have come up, they are pretty much encouraging.
Lastly, I would like to share that as we ride through this tough wave of global uncertainty and inflationary environment, our laser sharp focus remains on the innovation, market creation and ESG. We have ensured that most of our new products, which are starting, whether in Raipur or other plants in Apollo are 100% innovative and they are being launched in India or globally for the first time ever. Our efforts towards market creation are at the same pace so that the volume ramp-up from these new capacities can be pretty quick and fast. All in all, our long-term volume target of 4 million tons by FY 2025 remains intact, which suggests 30% volume CAGR from FY 2022 to FY 2025.
This will be much higher than what our group has achieved over the last four, five years in terms of our volume CAGR. On ESG front, we committed to reduce Scope 1 and 2 emissions per ton by 25% by 2050. More than 50% of our power consumption will be met through renewable energy by 2050. Our efforts on the ESG front are also encouraging and we continue to ensure that all the goals of the company are aligned with the ESG goals in the coming years.
All the efforts towards ESG are in addition to 250,000 trees which we save by manufacturing environmental products like chaukhats and window frames, et cetera. As a group, we are very much committed to ensure that our ESG goals are met in an aggressive manner. That's it from our side. Mike, we can open the floor for Q&A.
Thank you. We will now begin the question answer session. Participants who wish to ask a question may press star and one on your telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hand raise while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question on the line of Rahul Agarwal from InCred Capital. Please go ahead.
Yeah, hi. Thank you so much. Good evening, everybody. Just two questions. Firstly, on Raipur's, just wanted to know the status of capacity addition and ramp-up. You already had touched upon it in your commentary. If you could quantify, I mean, what kind of scale volume are we looking at in second half and more so for fourth quarter? And will the entire 1.5 million tons be ready by March?
Thanks, Rahul. Rahul, our Raipur plant, we are talking with two or three. We almost are going to close about 70,000-75,000 tons. 2024 we are targeting for 1 lakh tons. Most of our machines from China, and there is no persons are allowed to come from China to India. So some bottlenecking still we are getting from the government. They should allow, say, to give the Chinese visa. So we are not sure, maybe we delay by some one or two or three months. We are trying our level best to start these machines by online process. Next year we are targeting in Raipur plant almost close to 6-7 lakh tons. Next 2023, 2024, we are targeting the target of 1 million tons.
1.5 for going to 1.5 million ton, we have some, again, some bottlenecking. We have to order some machines. We are still waiting. First we ramp up this 1 million ton, then we go further 1.5 million ton.
Got it, Sanjay . And, one more question on pricing of [audio distortion]. What is the gap between, you know, primary and secondary steel? I mean, supply right now, how are they different from international pricing? Any outlook you could provide what will be happening on the HRC market? That's all from my side. Thank you.
Rahul, today the international market is close to landed CFR Mumbai or Chennai. It's close to $540-$550. Indian steel prices are close to INR 54,000-INR 55,000. Supply is still trading around INR 50,000. It's okay to sell and now, is this hurting us? Now, is this in our favor? We are thinking if the people are saying in the international market the prices are bottom out because the coal prices are very high, the cost of steel production is very high. We are looking to maybe there is a slight decrease in steel prices in India in the next one or two months, and then the price level out. Maybe if the international market go up, maybe there is no price fall in India.
We are in the middle situation in this time. What time you can say early, but for that time we can't commit and we can't forecast anything. The better way we are maintain ourselves very light. We are trying to maintain ourselves very light.
Got it, sir. Lastly, Arun, one question for you. I mean, the discounts and schemes offered to, you know, gain market share in coating, that should go up again in third and fourth quarter. EBITDA for ton should improve significantly. Is that understanding correct?
Rahul, EBITDA for ton we are targeting for the same year. I think our business plan is 22-23 lakh tons of total yearly volume. For the volume, we are very sure we will cross 22 lakh tons easily. Now we are looking this is a cakewalk for us.
On the margin side, maybe slightly, I think we right now are under pressure. We can maintain around like the margin of INR 5,000; it should be back on track. Our earlier, I guess, realization plan is to go to INR 6,000 per ton. This year we are not looking. This is possible. This year now we are targeting in the second half if we maintain the INR 5,000 per ton, it is enough.
Got it, sir. Thank you so much for answering my questions. All the best.
Thank you.
We have the next question on the line of Sujit Jain from ASK Investments. Please go ahead.
Thank you. Anubhav , you mentioned that Raipur cost came in less than the OpEx, which you've given in the presentation slide 19. Raipur cost were at INR 10 crore. If I add that, you know, divide that by 6.02 your volume, then that can add back only about INR 170 a ton in terms of OpEx. Whereas your commentary was that, because of those costs, excess of those costs, OpEx could have been at INR 4,000 a ton.
No. So Sujit, if you see in quarter two, Raipur, the EBITDA has been shown at zero. In Q1 there was some operating profit, but in Q2 as the plant and machinery are ramping up and commissioning, so because of high labor costs and obviously there were some inventory which we have to keep as the plant is ramping up. There were some minor write-downs also there. That's why it is at zero EBITDA level.
Maybe I'll take this offline. To Sanjay ji, if I heard it correctly, Raipur plant to contribute 6-7 lakh tons in FY 2024 and about 1 million tons in FY 2025, and then 1.5 million in FY 2026. Is that correct?
Yes. Yes.
Okay. INR 5,000 a ton, OpEx per ton on track. This commentary is for full year FY 2023?
No. For the second half.
For the second half, INR 5,000 a ton.
Maybe INR 200-INR 300 per ton, plus or minus. We can't say right now exact amounts. But we can manage it around INR 5,000 per ton. Sujit, in first half we did INR 4,000-INR 4,500, right? If you take two quarters separately. In second half we are targeting INR 4,500-5,000 per ton. For the full year, the blended should be above INR 4,500.
Right. This, you know, commentary Chinese people could not travel to India and visit the plant. What exactly we are taking in Raipur plant from China?
Our primary square steel is from China. Mainly this will be our struggle. There's one or two small things we are struggling, but this is not a big matter. Our 500 mm square mill, which is our main bread and butter business, we are aggressively waiting for this mill. Since the Chinese are not coming to India, so we are struggling with this to ramp up this mill.
Sure. One last question. In the initial days of selling this Raipur production, Q3, Q4, 75,000 and 1 lakh tons, would that be centered on direct sales to large plants or this would be through distributors?
Through distributors, that's mainly. The channels will remain same, okay? Barring some projects which we get directly, but 70%-80% of sales will flow through the same existing channel.
Okay. Finally, Apollo Tricoat volumes now will go in light structures and Apollo Z, roofing structures. The same segmentation that you give, right?
That's right.
It will not be mentioned separately.
That is right.
Okay. Thank you. All the best.
Thank you. We have the next question from the line of Pallav Agrawal from Antique Stock Broking. Please go ahead.
Yeah, good afternoon, sir. I had a question on, you know, what are we planning as our advertising and promotion expenses? You know, since you are planning aggressive increase in volumes. What is it currently as a percentage of sales and what are we planning to spend going ahead?
Pallav, right now it is around in the range of INR 8 crore-INR 10 crore per quarter. Okay? And it is still very low versus what we did in the year one of FY 2020 when we had launched the brand when we did INR 50 crore. Right? We've been able to efficiently rationalize the brand expenses from INR 50 crore to around INR 25 crore-INR 30 crore annual range. Right? And the visibility is same because first year we started with bang and then second full year we are taking help of more efficient and more cheaper medium like outdoor hoarding or social media. I guess for the time being we are okay with INR 8 crore kind of annual run rate.
Next year there could be slight increase as, of course, the Raipur products are coming online. The expenses to promote those products will be there. Still the volume uptick is also there, right? On EBITDA margin basis, it should be around INR 200 per ton maximum.
Just wanted to also understand, you know, given that the Raipur specifically will be coming out with products which are, you know, relatively new in the market. You know, so how do you see the acceptability like, are you in your current interactions with, you know, builders or architects? How's the traction or acceptability of these, you know, products? How do you think that's gonna play out?
First we started this exercise already like eight, nine months ago, okay? Obviously because of COVID and all, there has been delay in the Raipur capacity ramp up. Our earlier plans were such that the plant should be ready between or by mid of 2022 calendar year, right? Our marketing plans, we had started already last year and in January for this calendar year. There are like two, three types of promotions or market education what we are doing here. One is we have identified the influencers, okay? Who are going to promote our products. One influencer is the fabricator who will sell our products in retail, right?
That data we already had from last six, seven years because we were very aggressive in organizing fabricator meets and doing direct communication with them, right? We have reactivated that fabricator meetings on a large scale across India, where our teams are on ground and they are meeting fabricators one-on-one. They are doing site charcha kind of stuff, where they are trying to assemble 20, 30 fabricators at one place. We are also doing mega fabricator meets where 100, 200 fabricators come and we tell them about our products, right? One part is fabricator meets. Second part is architects and structure consultants who are more smart and more polished audience, right? Here also we are doing one-on-one meets.
We are organizing a lot of seminars where we are trying to educate them about our products. For example, color coated tubes or thicker sheets, and heavy structural tubes, right? A lot of seminars. It's all on our social media, our YouTube channel. You can go and have a look. We would be doing at least one seminar, one exhibition per week at this run rate, for the last four, five months now. That way, the promotional activities are going on.
Thirdly, our distributors and retailers, that also we keep on meeting them and educating them about our products and innovative products. That activity is ongoing, and that's why, like, Sanjay just a few seconds back said that we are eagerly waiting to start our 500 mm square pipe. Because we know that we have been able to create market for that product, right? The moment the mill starts, we will have a lot of orders inflow coming in. We hope that, I mean, the mill capacity gets booked to fruition.
Sure. Just final question. With this large diameter pipes, you know, will this cater more to the institutional segment? Will the share of, you know, B2G, will that go up in our mix or you don't really expect that to happen?
Not really, see, I mean, when we are creating the market, of course, we have to talk to the government agency who undertakes the project, or we talk to the contractors who are doing the project, or we talk to the real estate developers who are doing the projects. The sales happen through our distributors, okay? The OEM business, which currently is 5% of the total sales, I don't think it should go up significantly. Anyway, if there is any direct sales, whether B2G or B2B, we are not going to compromise on the payment terms. Okay? You can check with our, I mean, clients.
Like last financial year we executed this project in [audio distortion] and the payment terms were same as which is like on cash. Okay? Payment first we have to deposit advance, then we won't deliver even one ton of pipe without money coming into our accounts. That model continues. Okay? The OEM sales, I don't think it should go beyond 7%-8% of our total volume.
Sure. Yeah. Yeah. Thank you. That's it from my end.
Thank you.
Participants who wish to ask a question may press star and one on your touch-tone telephone. We have the next question from Bharat Shah from ASK Investment. Please go ahead.
Sanjay ji, namaskar. I really heard of the conversation, but I still could not fully understand that both we were looking at almost about INR 6,000 a ton. INR 3,850 or thereabouts. I mean, what are the various sources through which such a sharp reduction has occurred in the final number? If you can help in reconciling, then it will be easier to comprehend what has happened.
Not very. One reason. Why should this margin from INR 3,000 to INR 6,000 per ton to INR 4,000 this time. One is our commodity prices in India because due to increase the volume, we have to sell more. Number two Raipur plant, we are targeting settled down. Settle INR 8,000, INR 7,000-INR 8,000 business improve. Plant settle.
Third reason almost, see, the first week of April. The steel prices rose almost to INR 74,000 per ton, and our closing price at 30th September INR 54,000 per ton too. See from the slide from INR 74,000 to INR 54,000. Everybody want to de-stock the material. So when we have to sell the material, we have to push the material. These are, these are the main three reasons to INR 6,000 is our reason. This is not practical. INR 6,000. As a promoter level, as a chairman level, I can't take the easy target. I'm not a promoter.
Impact the target sales. Target commodity product sales. This stocking impact. This is the four main reasons you can say margins.
Three things. One, commodity sales, destocking and Raipur plant.
Raipur plant.
Which one sir?
So far, target aggressive.
Okay. INR 6,000-INR 3,850, INR 2,000. These three element impact. Destocking on an average per ton.
50% destocking. 25% Raipur plant. 20%-25% you can take my aggressive target.
Ji. 50% impact destocking.
INR 74,000-INR 54,000 prices. July time.
Yes, I understand. 50% 35% Raipur should come. Instead it ended up just being breakeven. Impact commodity.
Commodity 50% destocking, commodity. Material commodity.
Destocking not there, INR 5,000.
33, 35 around.
Ji, understand. September.
Technical.
Ji. Yes.
Because export increased. Export retailing, branding benefit. Margin suffered. Focus volume set up. Margin take. I'm not worried about the margin. One quarter margin. Today my market share. I'm not worried more for margin. INR 100 crore impact. I'm not worried about this margin 55%-60% shareholder. Margin easy to increase the margin.
Ji. Destocking or price, rapid steel prices, rapid movement. Now can we say the picture is more normal now?
I think this picture should be over.
Till when?
Still going on.
This quarter should be over.
This quarter, overall, Raipur 70%. We have done well.
Suddenly impact will be low. I mean
अब तो sir impact भी low है ना। अभी तक जो INR 200/kg है, अब INR 2/kg-INR 3/kg का खेल है। तो ये अब INR 15/kg-INR 20/kg का खेल नहीं है, तो impact उसका काफी impact of the decreasing of price is very less now. इससे पहले बहुत heavy impact था.
ठीक। If I have to read between the lines, फिर आप जो नाफका INR 5,000 per ton कह रहे हो, शायद आप थोड़ा charge भी full full से ले रहे हो, ऐसा मुझे लगा.
हां भाई, थोड़ा सा। मेरे को थोड़ा सा, अब जब मैं कुछ कहता हूं, I want to fulfill. मैं पूरा करना चाहता हूं। एक-आध बात आगे-पीछे थोड़ा सा, मेरे को डर लग रहा है। इसलिए डर-डर के बात कर रहा हूं मैं थोड़ा सा.
Achha. Aapki. It is unlike Sanjay ji that I know.
मैं थोड़ा डर के बात कर रहा हूं। On this call I थोड़ा fear factor से मैं बात कर रहा हूं। I don't want to misguide anybody. थोड़ा सा डर के, डर के बोल रहा हूं थोड़ा सा. Positive side से बात की जो negative मैं बात करता हूं ना, this call I am slightly confused.
Ji, if I have to summarize jo this talking was inventory movement ki impact thi, wo zyadatar mota-mota that factor is behind the surface. Secondly, Raipur wala plant jo masla tha, is quarter mein wo impact nahi aayegi.
Last month we have done 15,000 tons from Raipur. This month we are targeting 25,000 tons and next month we are targeting 35,000 tons. January, August we are targeting 50,000 tons at least.
मतलब हमारा वहां जो under recovery था खर्चे का, वो सब निकल के we should be normalizing.
उसमें थोड़ा सा ये भी था कि हमारा काफी खर्चा इसमें capitalize नहीं हुआ है। सब खर्चे में गया है। I believe in the cash profit sir. काफी लोग Apollo के roads पे है या काफी चीज Apollo से उधर जाती है। वो हमारे खर्चे में चल गई तो मैं कहूंगा done go for the capitalize.
और वो commodity वाला जो mix ज्यादा हो गया था, उसकी impact भी फिर इसकी वजह से कम हो जाएगी.
क्योंकि बड़ा series में बात करें तो volume पूरा करने के लिए competition में करना जरूरी है। We left the market. वो तो छोटा हो तो market छोड़ देंगे.
ठीक.
In a real manner, I am targeting कि at least INR 300 crore+ का EBITDA मेरा Q3 में and Q4 में we are targeting INR 350 crore के आसपास EBITDA से at least 20% का growth मैं लेके आऊं.
ठीक.
आप यही समझा कर रहे थे ना। मैंने आपको और कहीं digress भी नहीं रुका गया.
नहीं, नहीं.
कम से कम INR 650-INR 670 से INR 700 का target keep करूंगा। INR 50 से तो above मानूंगा मैं अपने आप को। मेरा minimum guideline INR 1,200 का था। पहले तो मेरा INR 40 का था। Still I am hopeful कि मैं INR 1,200 को cross करूं.
Yes. I appreciate. I understood the picture. Some unusual circumstances despite robust sales.
आपने देखो तो मेरे को 6 मिनट में आप मेरी रात की नींद याद कर दिया। आपने मुझे मेरे को पेस में ला दिया.
नहीं, नहीं। मैं Sanjayजी को जानता हूं.
Mera to ek hi hota hai ki when I talk something to main to kehta hoon poora hi karunga but I have to try my level best to fulfill the things.
जी, वो उम्मीद उससे रखी जाती है, इसीलिए मैंने पूछा आपको.
मैं कुछ भी बोलता हूं, फिर मैं पूरी तो अलग बात है। ठीक है। पूरा होगा। I can fulfill my आपको कभी पूरा करना पड़े या नहीं तो I don't know. But मैं application manage करके तो करूंगा.
नहीं, वो तो विश्वास है हमें। We know that for sure. Also to summarize basically, इस quarter में unusual circumstances का combination आ गया which has taken us to kind of a result on per ton EBITDA which is something well back in the past. क्योंकि बहुत समय के बाद ये number देखने को मिला है.
आप company का भी strength देखो कि पहले आज से दो-तीन साल पहले ऐसा time आता था तो company का EBITDA almost zero हो जाता था.
हां, वो बात आपकी बिल्कुल सही है। वो मैं समझता हूं कि 72 का 54 होना, मतलब कोई भी normal के लिए तो zero ही हो सकता है या negative में आ सकता है.
Negative में आ सकता है। उसके बाद भी we will very well. अगर आप हमसे पूछोगे तो हमने अपने आप को बहुत अच्छा manage किया है.
मैं तो केवल उसकी केवल impact को.
मैं अपनी team को congratulate करता हूँ। और number देख के मैंने उनको team को congratulate किया कि इतना अच्छा है। हमारे whole board, जबकि whole board के senior people हैं, उन्होंने भी congratulate किया कि जो team chain जो चल रहा था, कि nobody किसी को भी उम्मीद नहीं थी कि this type of numbers should come.
जी, नहीं, नहीं, आपकी बात सही है। मैं तो केवल वो अच्छा ₹20 का फासला भी गिनूं और 6 लाख ton पे जो हमारी बिक्री हुई है second quarter में, वही number मोटा-मोटा गिनें, समझो मोटा-मोटा ही वो पूरा का पूरा गिनें, impact can be catastrophic. So I quite understand.
No, no, aapke anusaar ummeed to poora karenge. Don't worry at all. Main ye kah raha hoon ki kaala quarter upar-neeche to kabhi nahi rehta. I am very hopeful jis speed se chale hain what we have done. Machine we have put in the Raipur new plant and the purane plant ko bhi in which what we have done the work. I am very hopeful ki the results should come. Maybe one quarter later sooner or later.
Thank you, Sanjay. Thank you so much.
Thank you very much. Thank you very much.
Thank you. We have the next question on the line of Pankaj from Kotak Mutual Fund. Please go ahead.
Yeah, good evening, Sujit. Good evening, everyone.
Good evening.
Yeah. My question was more on cash flow. When I look at.
Yeah, yeah.
First half consolidated cash flow.
Yeah.
There's been a significant release from the trade receivable. You have reduced your trade receivable by about INR 250 crore.
Yes.
Which is roughly a swing compared to last year, about almost INR 280 crore-INR 290 crores in one single half.
Yes, yes.
I just wanted one understanding that how such a large number has been achieved, one. Second, what is a little surprising is that despite of huge generation of cash flow, compared to the last half, and after CapEx, we see that the non-current borrowings and current borrowings have gone up by INR 400 crore, and that has been then reinvested in fixed deposits. Can you just help us understand the cash flow part, that why INR 400 crore have been raised on borrowings again despite of higher operating cash flows? Thank you.
Thank you, Pankaj ji. There is two, what I understood your questions, there is two main questions. One about the trade receivable and one about cash flow.
Yes.
The bank debt. The bank category.
Yes. Because interest on non-current borrowings also.
Pankaj, the debtor reduction this is due to started a company from us as a SG Finserve. Earlier the current name was Siprotech. I think SG Finserve almost INR 200+ crore . The main reason for debtor reduction.
Okay.
Number two, because which you can say ADPL Raipur, we took a INR 600 crore equity from ATL in the ADPL Raipur. Now they've been left to ADPL. Now ATL is not going to give you any fund. Take your own fund from the banks and now you perform .
Okay. Okay.
Which is equivalent to almost old plant. All the numbers are mismatched. You have to see old APL and ADPL consolidated after two quarters.
When I see consolidated cash flow, borrowing increase cash flow.
Net debt only INR 75 crore increase.
INR 300 crore increase.
Three entities are there. One is Apollo Metalex. There is a cash surplus of around INR 250 crore. APL Apollo has a cash surplus of around 50 or 100-odd crore. ADPL borrowings and their cash surplus. That's why borrowings increase. Secondly, exports. We have to incur interest component. There borrowings and then to give them FDR.
Because our export rate of interest is less and FDR rate of interest is high.
Hi. Almost 3%-3.5% are the charges.
3.5% we gain more interest.
Okay. For the query clarification, I'll take it offline. Thank you so much.
Thank you.
Thank you.
Thank you. Participants who wish to ask a question may press star and one on your touchtone telephone. We have the next question on the line of Lavanya from UBS. Please go ahead.
Hi, sir. Thank you for the opportunity. I just wanted to check on what is the current export share and what it was in the previous quarters last year?
Lavanya, it's been quite stable below 5%. That's the contribution we get from exports. Now that some of our value-added products are starting in Raipur, that proportion will rise. Right now it's just below 5%.
Okay. Even in the current quarter, export share is similar, at similar levels?
More or less, yes.
Mr. Anubhav , heavy segment that you are seeing, I mean, participation or interest from private hospitals. I just wanted to check on that because the Max Healthcare company has highlighted on substantial usage for hospitals. I just wanted to know your view on how you are looking at private hospitals also for this segment.
Lavanya, it's not just about private hospitals. See, there are two types of influencers there. One is the government and this is a private owner or developer. If you look at government today, they want fast hospitals today, they want faster schools, they want faster educational buildings. They want faster transportation, whether it is metro station or railway station or airports, and they want faster housing projects. Coming to the private side, whether it's a hospital chain, hotel chain, real estate developer, right, if they are able to finish construction within two years versus three years, it boosts their IRRs. Okay. Interest is from hospitals, yes.
Second, I mean, whether you take up hotels, you take up data centers, you take up warehouses, you take up manufacturing facilities, you take up shopping malls, you take up commercial buildings, office complexes, we are working on all types of projects.
Can you help us understand what's the progress in any of these? Like, everything is still in talks or discussion stage and
After Delhi hospitals, we have got 4-6 confirmations across categories like A-grade warehouse, an office building, one more hospital, and there are three more projects. Four or five confirmations have already come. A school building also, for that matter. That work will start over the next 1-2 months for these projects. Right now there is pipeline of more than 45 projects which could bring into demand of 250,000 tons.
We are working aggressively on these projects and, as and when the projects start, right, that pipeline will keep on rising, and you will see more and more tubular buildings across India.
Okay. Got it. If I may ask one more question. For your new projects, like four or five which you have mentioned that you got confirmation, the current capacity which is there, would that be sufficient or the delay which you are facing related to final payment which will in fact impact these projects? I just want to understand that.
We already have a mill which is running in old APL plants, right? That is sufficient to feed any upcoming demand, right? Any new projects which will start over the next one, two months. And maybe by December, worst case, last week of December, we will have our 500 mm sq ready, right? That will feed the entire demand. We are not worried about that.
Got it. Thank you so much for the opportunity.
Thank you. We have the next question on the line of Axis Securities from Aditya Welekar. Please go ahead.
Thank you. Thank you, sir, for the opportunity. I have one question on the balance sheet on slide 28. We see the inventories are still at a higher level of near INR 100 crores from INR 850 crores in FY 2022. Does that mean that in Q3 there will be further liquidation of these inventories and we will see kind of repeat of what has happened in Q2 or is it a raw material inventory or more of a finished good inventory? If it is a finished good inventory, then again in Q3 we will see more offloading of that.
See, I mean, inventory should be in number of days, right? You compare FY 2022 and September 2023, right? In days it is like 24 versus 27, right? It's pretty much same. In terms of value it has gone up, of course, because of the rising sales volume, right? Starting off, the Raipur plant where we have to keep some inventory. Like, we are projecting 75,000 tons of volume in Q3, right? We need to have some ready raw material there. That's why it is. Like majority of this inventory is raw material. We keep very less or low finished good inventory at our warehouses.
Okay. Yeah, understood. Secondly on the CapEx, with this Raipur plant now being 80% complete, what's the guidance in FY 2024? Will the CapEx level go down further?
For next three years till FY 2025, we think we're going to spend around INR 500 crores maximum, which will be receivable CapEx, right? Then we are putting up one plant in Dubai, right? We might do Kolkata also, right, and some maintenance cases. All put together, cumulative FY 20, I think second half FY 2023, FY 2024, FY 2025, in two and a half years it should be INR 500 crores cumulative.
Okay, understood. Thanks.
This will take up our capacity beyond 2.5 million tons.
Yeah. Okay. That's it from my side. Thank you.
Thank you. We have the next question on the line of Kunal from Centrum Broking. Please go ahead.
Yeah. Thank you for the opportunity. Sir, my question is that, you mentioned the major reason for the fall in the EBITDA margin is due to fall in the steel prices. During the quarter if we see the movement of the steel prices, so it has been quite stable from June to July to August, and August to September. Despite and also like our inventory base is also very stable throughout, two months of the year.
No, sorry. Sorry to interrupt. We didn't say that EBITDA percent declined because of falling steel prices. Our EBITDA percent declined because of destocking with our distributors. They were in the destocking mode because steel prices were falling. They were not ready to lift material. Normally, our distributors work on 20-30 days of inventory at their warehouses. When the prices are falling, they go into destocking mode, and they work on 15-20 days inventory. They destock, right? When they destock, we have to offer them discounts for distributors. That's why our EBITDA percent declined, not because there were inventory write-downs on our books.
Okay. Got it. Like, as we believe that the destocking will further continue in quarter three, how do you see the discount movement for quarter three?
Obviously, see, I mean, Q3 we don't expect steel prices to fall INR 15,000 per ton as they did in Q2 or INR 10,000 per ton as they did in Q2. Okay. So there should be marginal drop. Obviously we will lift the discounting which we have been giving. So it should boost our margins in Q3 and Q4.
Okay. Okay, fine. Thank you so much. Yeah.
Thank you. We have the next question in line of Akshay from Canara Robeco Mutual Fund. Please go ahead.
Thank you for the opportunity. Just if I understood it correctly, you are guiding for Q3 to be around 70,000-75,000 tons from Raipur, and Q4 you are talking about 1 lakh tons, so that amounts to, say, 1-1.75 lakh tons. FY 2024, you are talking about 67 lakh tons from Raipur. In FY 2025, you are talking about 1 million tons. In FY 2026, 1.5 million tons. How does the math look like? How do we achieve 4 million tons in FY 2025? Like, is there some mistake in my numbers or how is it?
Maybe if you can reiterate your guidance, like what is the volume expectations over the next 2-3 years, and what part of it will come from Raipur and what is the EBITDA ton expectation from your side? If you can clarify this, that would be helpful. Thank you.
If you see in the Q2 numbers, sir, we done the volume from APL without Raipur, 5 lakh to 85 tons. If you multiply five eighty-five into, it's close to 24 lakh tons.
Okay.
With the support of Raipur and some, we are some bottlenecking. We are also to take.
Okay.
1.5, 1.1 million tons whatever our Raipur reaches. This is close to 3.8 or 3.7, 3.6, 3. any number. One plant Dubai.
Okay.
2-3 lakh tons, not more.
Okay. Understood, sir. Your, sir, EBITDA margin guidance, like in 2023, 2024, 2025, what are the expectations?
Boss, always I give the message.
Okay, sir. Sir, this was very helpful. Thank you.
Thank you. We have the next question in line of Pallav Agrawal from Antique Stock Broking. Please go ahead.
Yes, sir. Just a kind of a clarification on our minority interest. I understand that the merger has happened, but I don't see any dilution in the share capital. Could we just clarify, you know, what will be the dilution and when that will come in?
Today we have allocated the share to the new shareholder called Apollo Tricoat. In the next quarter, impact will be there.
Just quantify, because
10% dilution only.
Okay. Yeah. Thank you.
Thank you. We have the next question from the line of Rahul Agarwal from InCred Capital. Please go ahead.
Yeah, thank you for the follow-up. Pandita, one question on the Delhi permission. You know, last time I think we had some issue with material dispatches. This time around, how is that behaving? Is there any government regulation again? Could we see some sudden negative surprises here in third quarter?
I understood, Rahul, what you are trying to say.
Sanjay, Delhi mein pollution ki wajah se, the transport of material had some issues for APL, you know, in history. I was asking is that very serious even this time around?
Slightly. Sorry, transport is not a problem, but slightly in the north region, in NCR, demand is sluggish because all the customer activity is on hold. Slightly 25% demand is low in the, you can say, the NCR, for the whole system it is very negligible for us.
Okay. You know, whatever number we are talking about that is adjusted for, you know, this thing, right? We should not see any negative surprise in dispatch, though.
No, no. For the volumes, there are no surprise. For the margins, we are struggling and we want to fulfill our target.
Got it, sir. One clarification on the receivable thing. You explained some 54 shipments because of some late payments from them. I couldn't really understand.
No, no. Please, the late payment is not shifted. The almost two that are truly close. Our banks are not giving them general financing or other facilities. This, our finance company is giving the facilities of almost INR 54 crore or close to it. I right now don't have the exact number. They are now taking the facility from SG Finserve. Rahul, it's like that the team of SG Finserve is going and meeting the key traders within the market, including distributors who may be doing work of Apollo or not, right? If they find their offerings are good, they're going for it.
In that situation, some of the receivables from Apollo got like funded from SG Finserve.
Got it. This should also help increase volumes, isn't it? Because some business which you would have lost because of, you know, no credit that should come back.
Sure. There is no doubt. This is clear. This clear impact in the month of September. In the month of September, we have done our highest volume, precisely 288,000 tons.
Got it, sir. This SG Finserve supply chain finance is completely non-recourse to APL, is it?
Yes. Without any recourse. This is totally different entity. They work differently. They actually evaluate all the customers and then they give the finance. Sir, just to put on record, there is no guarantee from APL Apollo. There is no recourse. There is no risk on APL Apollo. SG Finserve is a completely separate entity, being owned separately, managed separately with zero default risk to APL Apollo.
Got it. Thank you for clarification. All the best.
Thank you. We have the next question on the line of Rahul Jain from Systematix. Please go ahead.
Yeah. Hi sir, Rahul here. Just want to check, sir. We are growing our volumes by 25% year-over-year mentioned, but steel market definitely is, you know, people are looking at 8%-10% kind of, you know, volume growth over the long term. Where do you think we will get extra market share from? And, what are your thoughts on, you know, doing any kind of inorganic, because we've not really looked at that side. Can you just clarify on these two things?
Rahul, coming to the second part of the question first, on inorganic acquisition or a possibility. The market, even sir, has been under stress for the last 2-3 years. There have been a lot of mills who have shut down, and there are a lot of deals which come on the table. We keep on evaluating, but nothing material today which we can talk about. First part of the question was about how do we improve the market share, right? That was the question.
Yeah, exactly. Because our growth rates are really, you know, outstanding in terms of how the market is growing. My only concern from that perspective is that, does it also lead to a challenge in terms of keeping your margins there? Because if you're offering such higher quality, you know, obviously, basic math says that you will have to make it a lot more attractive, right? I just want to bridge these two things.
Okay. Market share, which reflects 55%+, okay, you need to break our portfolio into three segments. One is commoditized, second is value added, third is super value added. Okay? In super value added, which are like completely innovative products, where APL has a lead for next 4-5 years because no other competitor is in the competition, right? There we have 100% market share because we innovated the product, we launched the product and we control 100% of the market, right? That portfolio, say, today 20% or 25%. Comes the value-added products, where APL Apollo innovated, 3-5 years ago. We created the market, we enjoyed the market share, but then the competitors came into picture, and they also came into the competition, right?
That portfolio will be, say, 40% today. Where margin will be slightly lower than super value add. The market share will be, say, 40%-70% of those products. The third category which is commoditized, which today is like 35%-40% of the portfolio. Here the market share will be 10%-20% only. Because we started mass manufacturing of square rectangular tubes like 15 years ago, right? Then the competitors came in, they have to switch from round tubes to square rectangular tubes. Now that segment is commoditized, right? There our market share is 10%-20%.
How we will achieve 30% volume CAGR and still improve the EBITDA spread by growing our portfolio into super value-added segments, right, and value-added segments.
Just by some new products which you're developing, feel very positive on the kind of trajectory and the customer acceptance and, you know, you will be able to get the margin which you could, you know, higher from today's levels.
We have grown in last 10 years, right? It's not just next three years story. I mean, look at our 10 years story, that's how we have grown.
Right, right.
Our spreads are highest in this sector because of the value addition and super value addition and innovation.
Right. Thank you so much.
Thank you. We have the next question from the line of Abhishek Ghosh from DSP. Please go ahead.
Yeah, hi sir. Thanks for the opportunity. Just in terms of the EBITDA per ton, especially on a sequential basis, Madhav, I think one of the major drop has come in about the general structures. Is the discounting more into that particular commodity product or how should one read it? Because there you have been almost something like INR 1,400 of EBITDA per ton. Is that section which was more impacted with the destocking element?
Yeah, because that is also the most competitive product, Abhishek, right? Where I just said that our market share is 10%-20%. There we have to go more aggressive and that's where we offer extra features to our distributors.
Okay. How is the differential with scrap today in terms of, because that is very important in determining the margins in this section? How should one look at the difference with the scrap today?
It is back to the long-term average, historic long-term average, which is like INR 5/kg-INR 7/kg . That's where we are today.
Just one last question in terms of the, if you look at the volumes in the rustproof structures, that volume, you know, seems to have seen a major decline of almost about 13% on a YoY basis, sequentially also a bit down. Is it a conscious decision as a strategy or how should one look at it, just to know?
Abhishek, this is another point which you highlighted that this rustproof structure is our value-added product and the sales were weak in Q2 FY 2023 because of floods and late monsoon in southern coastal markets, which is the main market for this product. Okay. So there is no conscious decision like that. As the markets have opened up after the monsoon and flood, et cetera, you will see the uptick in volume in Q3 and Q4.
Okay. In terms of the general structure which has increased to almost something like 46% of total volumes in Q2. W hich has, you know, in certain quarters goes down to as low as 33%-35%. What should this number be post Raipur comes in? How should one look at this number?
Currently, like, on 4.2-3 million tons, for Raipur this number should be less than 45% on consistent basis.
Okay, got it. Okay. Thank you so much, Sanjay. Wish you all the best. Thanks.
Thank you.
Thank you. That was the last question. I now hand it over to the management for closing comments.
Thanks, Mike. Thanks to the team for hosting us for our quarterly call. See you next time. Thank you very much. Bye.
Thank you. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.