Ladies and gentlemen, good day, and welcome to the Q1 FY 2023 earnings conference call of APL Apollo Tubes Limited, hosted by Spark Capital Advisors (India) Private Limited. As a reminder, all participant lines will be in a listen-only mode, and there will 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 then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sundar from Spark Capital. Thank you, and over to you, sir.
Thank you, Jacob. Hello, everyone. On behalf of Spark Capital, we welcome you to APL Apollo's 1Q FY 2023 earnings call. From the management side today, we have, with us Mr. Sanjay Gupta, Chairman and Managing Director, Mr. Deepak Goyal, Chief Financial Officer, Mr. Arun Agarwal, Chief Operating Officer, and Mr. Anubhav Gupta, the Chief Strategy Officer. Thank you, and over to you, sir, for opening remarks.
Thanks, Sundar. Thanks, Spark Capital for hosting us for our Q1 FY 2023 earnings call. I welcome everyone on this call. Thank you for dropping by. Q1 FY 2023 was a mixed quarter with volume falling short of expectations. The uncertainty in the business environment remained very high due to steep volatility in global commodity prices. Steel was no different with prices collapsing 13% in Q1 and then further 10% in the month of July. The volume for our company was a bit below because there was massive destocking which happened in the channels. As the prices were falling, our channel partners, our distributors, our clients, they had started to destock, and they started working on minimum inventory levels.
We believe that almost 60,000 tons of sales volume was lost last quarter. However, we expect this to recover in coming quarters when the prices will stabilize and the channels will start restocking. We had demonstrated the similar performance in second half of FY 2022 when the Q3 volumes suffered due to destocking. Q4 we came out with highest ever numbers of 552,000 tons of sales volume. Despite low sales volume, our performance in terms of profitability was quite good. In one of the worst quarters for the steel sector when the prices collapsed so much, we could maintain the lower range of our EBITDA per ton guidance, which is INR 4,500 per ton.
In the long term, we believe the steel price correction is very good as the gap for a low-grade tube versus our tube is narrowing down. Moreover, our products are competing or taking market share from conventional construction products like both TMT bar, rebar and light structurals. Our competitiveness will improve, and this will help us increase our volumes aggressively in the coming months. In terms of the cash flow generation, the operating cash flow was quite strong. However, the CapEx commitments of up to INR 1.7 billion resulted in increase in some debt levels.
Also the inventory levels also went up given the loss of sales volume and some inventory build-up in our Raipur plant, which we just started, and these inventory levels also should start coming down and debt levels also will narrow down. The other highlights on Q1 was that the value-added product portfolio sales mix remains around 60%-65%. This should keep on improving as the Raipur plant kicks in, and the contribution from that plant will improve our overall sales volume mix. The benefits from Shankara association are already visible. The sales ramp-up, as we had expected, is on track.
This should give us the desired ROIs which we had anticipated. The CapEx on our Raipur plant also is on track with almost 75% of CapEx being done. Slowly and gradually, more and more lines are starting as each month passes by. We expect Raipur plant to become operational from Q2 FY 2023. The balance residual CapEx should also be completed over the next 2-3 months, which again, will be funded from internal cash flows. Now, the main point here is the efforts towards market creation for our Raipur plant products has started in a big way because the products from Raipur plant are highly innovative in nature.
They are being launched in India for the very first time. It is very important that the market creation had to start at right time, which we did. Whether it is color-coated products or it is heavy structural tubes, we have started approaching the influencers in a big way, whether it's architect community or structural consultants or steel construction contractors which are called PEB vendors. We are having series of seminars in the cities where we are inviting all these influencers to educate them and talk about our products. I'm glad to share that the feedback, the initial response is quite encouraging.
People are appreciating the fact that these products are innovative and they will definitely going to solve the industry problems which the construction industry is facing today. Our efforts towards the creation of market for Heavy Structural Tubes are also paying off. As there has already been a proof of concept in form of the Delhi hospital projects for which the structures for all the hospitals are completed. Very recently, we got order for a 15-story commercial tower in NCR region as well. The ongoing inquiries for 50-odd projects which amounts to 200,000 tons of Heavy Structural Tube is there in pipeline.
As we guided that, we keep on revolutionizing the construction space in India in coming months. This was pretty much on our Q1 performance. Our long-term business strategy remains intact, which revolves around CapEx for value-added products, innovation, market creation, and ESG. We maintain our FY 2025 sales volume guidance of 4,000,000 tons. This confidence comes from the fact that the Raipur facility is coming on track, and acceptability for its product is also there among the end consumers. Our distributors are excited at the same time. At the same time, we are adding new distributors for these specialized products.
Existing capacity of 2.6 million tons should see a ramp-up as sales volume should grow at 10%-15%, and then incremental sales will come from Raipur. We are confident that the 30% volume CAGR over FY 2022 is achievable till FY 2025. With this, we'd like to open the floor for Q&A. Thank you so much.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Rahul Agarwal from InCred Capital. Please go ahead.
Yeah. Hi. Good evening, Sanjay ji and APL team. Sir, three quick questions. Firstly, on outlook on HRC, how is the channel behaving now? You know, where is the price today, and what do you expect to happen over the next 3, 6 months in terms of restocking?
Rahul, good evening. Sanjay Gupta this side. Today's price is almost close to INR 57. I think it grows to INR 57. I think we are when we're looking at the international market as well as the local market, maybe there is another gap of INR 3- INR 4 maybe to come down. This may come down to INR 52 or INR 53 in the next one or two months. I think there is the bottom out.
Would we say that, you know, the restocking basically starts sometime end September, and it's not really happening in July, August? Is that fair to say?
No, sale is already good in the month of July. Because the whole sector is without stocks. They are sitting without stock. Which company that are holding the stocks, they are good sales. Like our sales in the month of July, our sales is on track. In spite of our prices are high, we are maintaining our house. We are not dropping our prices in the market as per the raw material prices. Sales is happening. We are right on track in the month of July. I think so in the month of August and September. We are right on track. Like, I can say that we have the order of only 24 hours in our hand. In the evening our sales is completed. Nobody want to keep the stock. We are taking the benefit of the our services.
Got it, sir. I understand. Sir, next question was on the overall outlook for the full year. We are about 2.3 million tons is what we targeted. Raipur, obviously it looks like second half will be very bulky in favor of Raipur volumes. How is your visibility, sir? I mean, full year?
Whatever our guidance is, in fact 10-11 lakh tons ka target first half ka liye tha. Second half ka target humne 12-13 lakh ton ka liye tha. With still we are thinking we will fulfill our target. There is some margin pressure maybe happened in the first half and maybe we recover in the second half.
Got it, sir. Lastly, Tricoat EBITDA per ton, it was about INR 9,200 for the quarter. Why was it high? Like, because every other segment dropped in terms of EBITDA per ton. Any specific reason there? That's my last question. Thank you.
Rahul, this was because of better sales mix in Tricoat in Q1, right? Tricoat has a limited product. Three segments dominate the sales volume. In few of the quarters when the high value, super high value-added product sales are high, then the EBITDA per ton looks high or. When the volume for high value-added products are low, then the margin will look low. Yeah. That's the reason. Nothing much to read into it.
Got it. It should basically retract back to its normal long-term average, right?
Yeah, right. Which we have been guiding between INR 7,000-INR 8,000 per ton.
All right. Okay. Thank you so much. Wish you all the luck. I'll come back in the queue.
Thank you.
Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Amit, just a quick question on the sales channel for this high diameter products that you are selling to hospitals and all that stuff. Would it be fair to assume that you will be selling it directly and it will be, you know, an order by order kind of sales channel for this product?
It depends. If the contractor is ready to pay on cash or on spot payments, we sell directly, or if he's insisting for credit, then we get our channel partners to come in. We don't take exposure to contractors for credit period.
Okay. Since this, I believe this will be more of a, you know, customized product in terms of specifications. Would you know, over longer term, would it be fair to assume that, you know, a large chunk of this business will be coming directly to us rather than through our distribution partners?
I guess right now we are in process of creating the market, right? Wherein we are directly trying to approach the contractors, the builders, the developers, the architects.
Okay.
Here, our interaction with those influencers is one-on-one. For initial orders, there could be like direct orders coming to us. Once this concept picks up, the trends pick up, then our distributors will deal with the developers directly. For initial kick in, we have to get in and get the market going.
Good. Yes. Yes. Okay. Thanks a lot.
Thank you. The next question is from the line of Vikash Singh with PhillipCapital. Please go ahead.
Good evening, sir. Thank you for taking my questions. Am I audible?
Please go ahead, yeah.
Yeah. Sir, I just want to understand, we are targeting 32% CAGR growth in our volumes. During that period, what is the market size growth which we are envisaging? By 2025, what kind of market share we are targeting?
We have to unders tand this market. Today, this market is almost close to 7 million tons. Out of 3 million tons is today from the primary steel and 4 million tons from the secondary steel. The past 1.5 years, the pricing between the primary and secondary is almost close to INR 15,000-INR 20,000 ton gap. Now this gap narrowed down to INR 4 or INR 5 kg. The market is coming from the secondary to primary. I think this market should first take from the secondary, this entire is part from the secondary steel or secondary material also. It's come to 4 million tons. Per annum, this market is growing at the rate of 15%-16% type thing.
Up to 2025, this market should be 6 million tons, close to 6 million tons for the primary steel.
Out of that, 3 million tons increment, we are targeting 2.3 million tons for ourselves. Effectively growing faster than the rest of the lot. Is that a correct understanding?
Yes.
Effectively, we would be 70%-75% of our structural steel market share, which is 55% right now, can go up to 70%-75%. That's what we are.
We are targeting 65%-70%. Plus there could be some new addition in the market segments, right? I'm sure half to one million tons could be the totally new market which will be created because of our innovative products. Out of 8 million tons, out of 7 million tons-8 million tons pie, we should be 4+ million tons.
Understood. My second question, have we taken any inventory write-downs or hit during the quarter? If yes, then at what HRC rate we have booked the inventory right now.
This time we have no inventory write-down. Whatever we are taking the raw material, we are selling as per our raw material prices, the material. We pass the prices to customer. Like, we now have just high rate inventory in our house. We are keeping our prices up in the market and we have no problem to sell our materials.
Are you implying that even after the export duty came in and HRC prices, which went INR 7,000-INR 8,000 , at that day you would have been keeping some inventory, but you have not lowered your prices for the remaining inventory and still you able to sell those products?
Yes. The price has not gone down in this three months. INR 7,000-INR 8,000 prices have gone down by INR 17,000-INR 18,000 ton.
No, I'm just talking about immediately after the export duty implementation.
I'm also talking about the prices in the month of April is INR 73,000, and the closing price of July is INR 57,000.
Yes, sir. Just one last question. Are we still following the same kind of the process where we buy roughly about our entire requirement at the beginning of the month in terms of HRC and later on produce and sell? Or now it's more spread over the entire month. How are we procuring our raw materials at this point of time?
I guess the better way to address this is that our raw material inventory cycle is 15 days, right? It's not like if I am producing and selling 170,000 tons of tubes every month, that doesn't mean that 170,000 tons of tubes will come on day one, right? It's an ongoing process, right? Every day, 5,000 tons of steel comes, I make it, process it and sell it, right? It's not like that we get all the raw material in the beginning of the month. It's an ongoing process. Every day, the trucks come from our steel producer partners and reach our plants.
What I effectively mean, sir, is the pricing is still fixed on the start of the month, and that is applicable for the entire month in terms of raw material procurement, or now that has also become dynamic?
No. R ight now the pricing of the raw material is decided in the last of the month. Earlier when the market is growing, and then the pricing is decided in the first. When the market is in the downside, all the conditions of the markets is seeing the market movement, then the prices are decided on 31st. Like today, we don't know the July prices.
This change has happened from which month, sir? This price deciding from the beginning of the month to ending of the month, this change has happened from which
From month of May.
Month of May. Okay. Thank you. Thank you. That answers all my questions.
Thank you. Ladies and gentlemen, please limit your questions to two per participant. The next question is from the line of Akash Pawar from Sahasrar Capital. Please go ahead.
Yeah, hi. Good evening, sir.
Good evening.
Yes, sir. In last conference you mentioned something about primary steel capacity coming up in India. If that comes on stream, how will that impact our margins?
See, I mean, it's not going to impact our margin. How it's going to impact the steel sector is that if there is more capacity coming in, the pricing which has been on the upside for many quarters we have witnessed, so that should mellow down. Right? The capacity have been delayed not only in India but globally because of lockdown restrictions what we have seen for the last few years. Now that capacities are coming back online, the supply demand mismatch which was there should normalize and it is going to be very good for our business.
If there is enough steel in the market available, the pricing of the steel will be normal, and anyways we have our own product basket of 1,500 SKUs through which we sell various products, right? Every product has its own margin. Our conversion margins, our EBITDA spreads should not be impacted due to whatever steel capacity is coming in or out.
Will it decrease, right?
Ideally, it should increase, I mean, because our discounting power, our negotiating power should improve as there is more steel in the market.
The second one was, let's say steel prices comes down to like INR 40 or INR 45 per kg. What impact will that have on our EBITDA %?
Plus, anyway, back when the steel prices come down to INR 40- INR 45 per kg, so maybe my channel is not taking the material. We have to push the material in the channel, so maybe margin is tested by 1% or 2%. For the long term, this is a golden era for us.
Okay, sir. How come? Can you please elaborate?
Boss, right now, aapko maine bataya ki hamara jo market primary steel ka jo structural tube ka market hai woh 3 million tons ka hai. Jo ye secondary steel ka market hai structural tube ka woh 4 million tons ka hai. This total market is 7 million tons. Agar ye 40-45 tak ajayega secondary un dono ke peeche nahi aa sakta. Toh jo 7 million tons ka market hai woh toh reh jayega. Woh four million tons ka jo ye secondary steel ka market hai woh toh reh jayega 2 million tons ka. Ye market badke ho jayega primary ka 5 million tons. India mein agar dekhen Apollo, no one, nobody has the capacity to serve the material, serve the tube to the market more than 20,000-30,000 tons per month.
Sab milkar bhi 20,000-30,000 tons se upar maal nahi de sakte hai. Toh 200,000-300,000 tons maal jo ye primary ka extra chahiye hoga woh sirf APL Apollo ke pass hai. This is a gold area of ours. The capacity is never built in one day. I have an unlimited capacity. I have the money, I have the raw material, I have the capacity, I have the market. My problem is ki secondary aur primary ka jo gap itna bada tha, usne mere ko ekdam bandh rakha tha kyunki INR 15,000-INR 20,000 ka premium leke same category ka maal bechna aur apne volume ke saath is not easy. Agar mere ko woh premium zyada lene ki zarurat nahi padegi toh I can do anything.
Ab ye, right now iska mere paas high rate ka inventories ka material khada hua hai. Toh usme main paison se upar apne maal bech raha hun. Jaise hi mera cost neeche aa, neeche aata jayega mera market share badta chala jayega.
Okay. Thank you, sir. Thank you. That answers my questions. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Bhavin Pandey from TrustPlutus Family Office. Please go ahead.
Hi, Sanjay and Anubhav. Hope you are well. I've just one question. This quarter, we witnessed substantial decline in sales as compared to previous quarter, but the numbers were great on year-on-year comparison. I was just wondering, like, how do we look at these patterns, you know, in terms of steel prices correcting and there's destocking happening. For us to look at the business, like how do we look at these? Like, how long does it take for the corrections to reflect in the trade and stocking by the distribution partners? Thank you.
It's not just our industry. There are many other industries in the building material segment where one single raw material forms bulk of the value in that product. Okay. Wherever this is happening, the global commodity prices are coming down. So each and every industry behaves in the similar fashion. Normally, what we have seen is, we are also talking to our friends in other building material category, this phenomenon is normally one to two months, right? Maximum like four to eight weeks. If the prices are on down trend consistently for one, two months, right? So the destocking will be there for same time.
At the same time, one should not forget that there is underlying demand for these products as well, right? For example, a distributor normally works on 25-30 days on inventory in a normal environment. Now, when he's destocking, his inventory would go to around 18-20 days, right? He can't take his inventory level below 10-5 days because otherwise he will not be able to service his retailers. His business will collapse, right? Normally what we see is that inventory days come down from 25-30 days to 15-20 days in period of destocking. When it's restocking, from 15-20 days, he will take his inventory to back to 25-30 days, right? This normally takes place in 1-2 months.
That's the kind of disruption which comes up. Whenever the prices stabilize, then.
There's extra demand for them.
Right. Because steel, if I have to use steel for my industrial shed, for my housing tower, for my commercial tower, for my mall building, I have to use steel, right? There is no alternative. I may delay my project by one, two months, but then eventually I have to finish that project, right? Demand will always come back. Always.
Given the recent correction in steel and commodity prices, are we expecting rest of the three quarters to sort of make up for the volumes that we lost in Q1?
Definitely, yes. Same phenomena happened in second half of FY 2022. In Q3 FY 2022, our sales volume went down to 405,000 tons, right? In Q4, we achieved 552,000 tons, right? Fully for the second half, we finished at 0.96 million tons, right? Same way, first half, we also believe that, what was that? 1-1.1 million ton, our initial sales guidance we should definitely meet.
Okay. Thank you.
Thank you. The next question is from the line of Kunal Kothari with Centrum Broking Limited. Please go ahead.
Yeah, thank you for the opportunity. Sir, during the quarter we have seen falling steel prices and a lot of destocking happening in the market. For the product business, we've seen the net working capital going to negative 11 days. Margin at the consolidated level has been flat at 8 days. Kindly please throw light on the same. Thank you.
See, Tricoat is a very small business in the overall scheme of things, right? It's around 10%-15% of the total volume and in terms of the total balance sheet size. It only has two plants, okay. Those plants run very efficiently. The inventory levels or whether it is debtor days as well because the products are highly innovative offerings from Tricoat, so the payment terms are even better there, right? I guess, I mean, yes, it is around negative 10 days. But that's only because the operations are small, and it's only two plants to manage, right? That's why it is like super efficient.
For Apollo managing below 10 days at a size of INR 13,000 crore-INR 14,000 crore turnover and the balance sheet size, it's like it's a little bit better. Yes, I mean, we are very happy with our working capital cycle, how we have been able to bring it down with our very hard work of two years. Yes, I mean, I don't think there is enough to read into Tricoat's net WC versus group's net WC.
For example, for Tricoat, does our business working capital increase in the quarter or it remains the same?
We have given this in our presentation. On March 31, it was around 7-8 days. Today it is 8-9 days. It's mentioned in our presentation. Only 1-2 days of increase in net WC.
Okay, fine. Thanks.
Thank you. The next question is from the line of Rahul Jain from Systematix. Please go ahead.
Yeah, hi. Thanks for taking my question. Can you give some more color on the product profile that we will see from the Raipur plant? Will it be like our existing, you know, products that we have or will it be very different? Can you give some more color on this?
Raipur, there are three product categories. All three are sort of these, out of these three product categories, one product category is where we are launching the product for the first time in the world, which is Color Coated products, Color Coated Tubes. The second product category is the Heavy Structural Tube, 500 square diameter. That we'll be the first ones to do in India. Globally, there are two, three companies which do that, but in India, we are the first one. Then there is another third category, which is Color Coated Sheets. That's an established market, and we'll be competing against the existing players.
The first two product categories are totally innovative and we will be producing and selling them for the very first time.
In terms of our margin profile, should we see that it will be remaining where we are today or we can see some 15%-20%?
For Raipur project, we believe that the EBITDA per ton should be INR 6,000-INR 8,000 per ton, right? Our existing margin range is INR 4,500- INR 5,000 per ton.
You've got good market acceptability for these products, or it's like in the works and everything?
We have started the exercise to create the market, right. There is a very strong base which APL Apollo provides, right? In terms of the distribution network, in terms of the retailer reach out, in terms of the influencer reach out. It's not in terms of the brand, right? Today we have to get 100 architects under one roof. It's not a difficult task, right? Because brand Apollo speaks for itself. We have been creating new market for our products historically.
Our 20% volume CAGR is all because of new products which we have been keep on innovating, whether it is a choker tube or window frame tube or octagon tube or electrical tube or oval shape tube, D-shaped tube, handle- shaped tube, right? All these are innovative products for which we are creating markets. For our team, our marketing team, our sales team, both have a very strong in-hand experience of creating market for our products. At the same time, we are hiring new people in the marketing and sales as well to be able to sell these products efficiently.
Right. What I actually have seen that in terms of results announced other similar types. They've taken a lot of inventory write down and things like that. Because of our low seven-day kind of lead and order, we have such kind. This won't happen in the future also, right? That is how we should look at it, right?
Yeah. I mean, that's the efficiency what we have achieved, right? To be able to turn around the HR coil which comes to our plant and produce that into 1,500 different SKUs and sell to our 800 distributors, right? The whole turnaround time is like 20-30 days. That's the learning. That's our learning curve of running our operations, and that's helping us today in all these volatile environments.
Right. Thank you so much.
Pleasure.
Thank you. The next question is from the line of [Pranati Narang] from Yellow Jersey Investment Advisors. Please go ahead.
Good evening. Thank you for the opportunity. Can you please provide us with the update on the merger of Apollo Tricoat?
We had a last hearing was in mid-July for the merger with the court. We had provided all the relevant data information to the court, and we were expecting that it should be through. There was a new date which then we applied for the earlier date. Now what is it? The next hearing is in first week of August, right? Hopefully it should be through. There is nothing pending from our side. Once it is through, from 30-60 days, the shareholder should get the swapped shares. There is a process which will start after the court order comes in.
We are very, very hopeful that the next hearing in first week of August should be the last one.
Okay. Thank you.
Thank you. The next question is from the line of Bharat Shah from ASK Investment Managers Limited. Please go ahead.
Good evening, Sanjay ji. In a very choppy and difficult raw material environment, very commendable performance. I didn't get a question actually on APL Apollo, but I wanted to understand the acquisition of Moongipa Securities which has occurred. Therefore, the details, rationale and thinking and kind of the bearing on our business.
Bharat, Good evening, Bharat bhai.
Good evening.
Bharat Shah, Moongipa Securities acquisition, this is a new NBFC company which is coming for the steel bill discounting system. It's we are going to do the steel in the steel sector. The steel sector, total steel sector is almost INR 9 crore steel sector. Now, INR 1.5 lakh crore- 2 lakh crore exposure. I just think this is totally risk-free zone. We started this new venture.
Yes, can you give some more detail as to what it will mean for APL Apollo?
Bharat bhai, if you suggest us, so we can talk on this in the other platform. Yeah. If you suggest us this platform, Bharat, I can talk on this platform also. Whatever you suggest, we are ready.
No. It is, if you can give a kind of broad outline or a rationale, and details we can discuss separately for sure.
Bharat bhai, in this we have INR 300 crore equity infusion and INR 200 crore-INR 300 crore we have collected from the bank. Total we want to make it INR 500 crore-INR 700 crore book size for this company. In that, wherever people have problems, which company can go, wherever its totally different team is, which will understand the guidelines as per itself, that whom to loan, whom not to loan, so they can give the loans or discount the risk. We are just totally focused on the steel sector discounting bill system. We are not going other than steel sector in the real estate or share funding. I mean, not in any other business. This company is totally focused on the steel sector financing bill discounting system.
In this, no doubt, we will get a lot of help from Apollo distributors as well, where they are not able to get money from the banking system. If we come and sell the goods here, then they can also take money from us. The OEMs they supply to, there they are not able to get discounting from the bank. If the OEMs are good, then they can also get their help there. If they do other business, they will also get their help. Because we have a very good number of data with us in the last 35 years. We can use this data and we do this business. That's why I'm saying we are not going steel sector, we will not go out and do any work.
Essentially, it will mean once that gets operational, APL Apollo receivables will probably become close to zero. Therefore we'll be able to crunch working capital further down, close to barring inventory of the raw material. This is the main benefit we'll see.
APL Apollo debt will be hardly zero almost.
Okay. You're talking about receivables?
Yes, APL Apollo receivables will be hardly almost zero, sir. Almost INR 50, crore-1NR 55 crore receivables are there.
Bharat Shah, I mean, as on 31st March balance sheet, the debtor days what APL Apollo had was 3-4 days. That's it, right?
Yes.
Receivables even today.
Got it. I suppose APL Apollo has nothing to do per se with this. It will be some members of the family which will be part of this. Is there any impact on APL Apollo because of this?
It's a completely separate venture by the family. APL Apollo has no role to play here. Family decided to get into NBFC business, right? In the steel sector itself, there is a big opportunity, which is INR 7 trillion-INR 8 trillion of steel sector. We put up 16 plants, and out of this, INR 1 trillion-INR 2 trillion is what the pocket which this NBFC company will address to, right? APL Apollo, some of the clients may take this facility, which may be buying products from Apollo, but then Apollo distributors deal into lot of other products, right? Not just Apollo. They sell TMT bar, they sell light structural angles and channels, they sell welding rod, etc., etc., right?
The distributor, the client could be of APL Apollo, but it is not to fund Apollo receivables because Apollo's receivables are anyway zero today.
Essentially from the point of view of APL Apollo, if at all impact is positive or neutral, but it is no per se other implication for APL Apollo operations.
I think this company should give help to APL Apollo to increase their sales, because in the last two year exercise, we left lot of customers due to credit. Banks are not funding them. Apollo is not giving them credit. We left these customers because Apollo policy is very clear, we are credit-free.
It will become a customer acquisition tool where credit risk is passed on to the new entity, while APL Apollo will be able to expand the sales footprint.
Yes. As Apollo, the customer said Excellent.
Excellent. Thank you, Sanjay ji.
Thank you, Bharat bhai.
Thank you. The next question is from the line of Anupam Gupta from IIFL. Please go ahead.
Yes, Sanjay ji. The question is basically related to the heavy structural which capacity is coming in.
Right now we are making 300 square up to 12 mm thickness. Now our new plant is coming with 500 square up to 20 mm thickness. Yeah, the market is creating lot of people are wanting up to 1,000 square, up to 30 mm thickness. We have made some arrangement in the Faridabad to give this material to them with the fabrication.
200 KL.
200 KL. Yes. They are constructing with the RCC. Depending on the capacity. We have submitted a design to IIT Roorkee for the construction of RCC. It is the first phase of design pass ho gaya wahan se. Ab wo ek second stage ka design pass hota hai uska authority se, usko authority hai Jal Nigam. Jal Nigam se phir ye Lucknow se hi pass hota hai. तो almost I think isme lagbhag 70,000-80,000 aur tonnage ki requirement hai. Woh contractor jo aaya tha na uske pass 1,500 ton ka order tha. Woh itna excited tha jo bola ki bas company ki kisi se isko pass karado fatafat. Mera toh kaam itna easy ho jayega. Jo project mere ko ek saal mein bhi pura karna mushkil hai, main do mahine mein pura kar dunga.
No doubt uska cost koi 15% uska cost high add ho raha tha. Bola which is manageable. Toh kitna too excited I am. Our facility abhi material nahi mil pa raha, toh abhi zyada kuch nahi bol sakte. Ek baar hum material dena shuru karenge tab uska actual position clearly aayega.
Okay, okay. Second question, sir. Assuming that acceptability is very strong, and you have aapka plant Raipur mein hi rahega. Will you at some point of time think of having more such plants, let's say in north and south? Or do you think Raipur se hi saara service karenge for now and then?
That's a very good question. Bahut jaldi first ka jawab aapko main de sakta hu. Main bahut aggressive banda hu but abhi already main bahut saare projects liye, main laga ke baitha hua hu. Raipur abhi mera almost ek saal delay ho chuka hai. Aur idhar ye Kolkata aur Dubai mein jo meri additional machines free ho rahi hai. Un dono ka bhi plant setup hona hai. Toh abhi main to inke alawa bahut kuch soch nahi sakta hu ki main wapas that track mein phir pak jaun. Even I am not dreaming, I am not thinking. Mera ek hi baat aur ek hi jawab hai. Let us first mere ko 4 million ton ka capacity create karau. At least mere ko 3 million ton tak main nahi pahunchunga.
Main abhi further kuch bhi soch nahi, chhote mote 50,000 capacity, improvement capacity main baat nahi karta. Main position mein nahi hu kuch bhi sochne ka right now.
Sure. Understand, sir. Thanks a lot.
Once I cross 3 million tons then I think about this.
Sure, sure. Okay. Thanks a lot, sir.
Thank you. The next question is from the line of Aditya Welekar from Axis Securities. Please go ahead.
Thank you for the opportunity. Just for understanding perspective, sir, the spread between primary and secondary steel. We know that the primary steel prices have come down because of a host of factors. The secondary steel prices, have they increased because of the energy prices, thermal coal prices? What are the factors playing out there?
Boss, I don't think the secondary steel is increased. Primary will come down. Like hum toh ek woh kaise Raipur ko milate hai ingot se. Raipur mein usko ingot karte hai jisse patra banta hai phir jisse pipe banata hai. Toh right now in Raipur the ingot is close to INR 48-49/kg. Uske upar at least inko patra aur pipe banane ke liye 7-8 INR/kg chahiye hota hai. They are close to ex-Raipur INR 57-58 ex-Raipur. All India usko maal supply karne ke liye almost INR 3,000/ton chahiye hota hai. Toh their price is close to INR 60,000 or 61,000 per ton. Right now we are selling our tube discounting everything 60, around 65 INR/kg per ton. There is a gap of 4 INR/kg.
This is good enough for us to capture the market.
Okay. Understand, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Mudit Jain from Hem Securities. Please go ahead.
Good evening, sir. Congratulations for good set of numbers. Sir, my question was, sir, as you mentioned that we have not reduced the prices despite sharp correction in metal steel. Sir despite that our EBITDA margins have come down from last quarter. What is the reason for that, if you can explain?
Boss, maine aapko ye kaha ki maine price reduce nahi kiya hai. Ye aisa nahi kaha maine. Maine ye kaha ki as per current raw material prices maine price reduce nahi kiya hai. Right now jiska maine aapko kaha ki abhi mera raw material price is INR 57. I am selling the tube at INR 65. There is a spread of almost INR 8/kg. Normally ab ye spread 5-6 rupees/kg rakhte hai. Because we have the old raw material in our house, so we don't reduce the price.
Okay, sir. Sir ji EBITDA mein difference aaya hai March quarter se. Uska kya reason hoga sir, woh samajh nahi aa raha hai sir.
That boss, hum jo material bech rahe hai aaj woh mere ghar pe inventory jo hai 60, 61 ka pada hua hai. Isliye mera margin tuta hai.
Okay.
Main toh INR 67 current price bol raha hu.
Theek hai sir, aapne 61 mein becha hai.
Mere paas ghar ke andar inventory tha woh toh 60-61 ka tha na boss jisko maine becha hai.
Okay. Current levels are INR 57.
Yes.
Okay sir, understood. Thank you, sir.
Thank you. The next question is from the line of Varun Jain from Edelweiss. Please go ahead.
Good evening sir. Am I audible?
Yeah, yeah.
Sir, you had indicated that, other than Raipur, you will have a capacity expansion of 300,000 tons in Dubai and 200,000 tons in Kolkata. Can you give us any update on that? Secondly, we had an app called Aalishaan, which you had said that it had 45,000 or so downloads, so and we wanted to build a B2B building materials platform for steel products. Any update on that would be very helpful. Thank you, sir.
Boss, in Dubai we identify the land. We've done the agreement with the Dubai real estate property. Now I'll also give the contract for the building to local contractor. The process is starting. In Kolkata, we are in the phase of taking the land. We're just identifying the land. Yes, we're in Dubai, we have done everything. Aalishaan app, Anubhav can give better update.
Aalishaan app was launched to cater to the B2C demand for structural steel tubes, right? Today we have around 55,000 downloads, right? And almost 25,000 fabricators are enrolled here. Here the idea is that the end consumer who has been using our tubes anyways they should know that with our tubes they can get their home decor products made. We have made the nearest fabricator available to your home in almost 150 cities. Idea is to promote Apollo brand and to have larger mind share in the consumer. That's the objective. This app is not for B2B platform. For B2B platform, we are having discussions internally. Probably we are moving with Salesforce.
Probably in next quarter call, we'll have some better concrete plan to discuss for B2B trading platform.
Thank you, sir. That is very helpful.
Thank you. The next question is from the line of Pinakin Parekh from JP Morgan. Please go ahead.
Hi. Thank you, sir. Sir, a question here. Tata Steel JSW ne bola ki hum log maintenance shutdowns le rahe hai. As a company, sir, have you started booking large import orders? In the near term ye logo agar maintenance shutdown le rahe hai, they may not be keen to reduce prices very sharply.
No, boss. We are not keen for import. We just do some little bit import because of the for doing the export. After giving the taxation on the import, maybe prices are not workable. But we also have a very good relationship with Tata Steel and JSW Steel or other steel suppliers. They are in problem because of their raw material is too high in the current situation. We are not want to create any problem because of Apollo to them. Because we have a long-term relationship with all the steel suppliers. We are cooperating with them, and we do not want to increase import price. Ab inko problem hai. Jaise hi woh thik honge toh they also cooperate us. We have a very good relationship, so we are not scared of import.
Okay. Understood. Thank you very much, sir.
Thank you.
Thank you. The next question is from the line of [Akash Pawar] from Canara Robeco Mutual Fund. Please go ahead.
Yes, sir. Sir, thank you for the opportunity, sir. Just demand side pe, I mean, aap kuch color denge? I mean, aap demand kahan se dekh rahe hai? I mean, aapko kya confidence, I mean, 2.3, 2.4 ka confidence aapko matlab kahan se aa raha hai? Because if you see one of the building material product category, company did allude to that there could be a possibility of a slowdown in the demand because of the increase in the interest rate, et cetera. I mean, just on demand side, if you can put some color, I mean, what gives us confidence that we could still do 2.3, 2.4 type of number? Thank you.
Of course. We are looking at the demand from the three sectors. Right. One from the we want to take back our shares from the which has in the last two years go to the secondary material. Inko kuch toh wahan se apna shares wapas lena chahte hai. Usse segment mein humara sales bahut se hammered hua tha. Aur July month se humne dekha ki wahan se bada sales kaafi wapas aana shuru ho gaya hai. I can give you example like Tamil Nadu market. Tamil Nadu market mein in 2019-20 my sales was close to 1.5 lakh tons. Just wait main aata hu. Tamil Nadu market mein my sales in the year 2020-21, 1.5 lakh tons ka tha.
Jo ghate 21, 22 mein 1 lakh ton pe aa gaya tha. Q1 mein ye sale mera reh gaya tha, 21,000, 7,000 ton per month. If you can see it is 84,000 tons per annum, 1.5 sales. Right now in this month I already sales this market in the 36 days, 12,000 ton. So almost I go back to 1.5 lakh ton. Aur yaha par abhi 4, 5 days rahe hai aur abhi inventory destocking ho raha hai. I'm very bullish ki jo ek baar jaise main pain se bahar aaunga apna jo high rate ka raw material tha usko khatam karke, toh demand is not a problem for me. Agar koi wapas se koi segment mein bahut bada kuch change nahi aaya toh I'm very bullish. Main bahut zyada bullish hu.
Ki ek market like ek market se mera agar 1 lakh ton ka demand badh raha hai, toh I have 32 markets.
मतलब आप ऐसे बोल रहे हैं कि secondary से आप share ले रहे हो तो वहां से growth आएगा।
Kuch bohot last 2 saal maine cash nikala, I know, mera bohot market share khatam hua tha to the gap is INR 15,000-INR 20,000 per ton.
Sir, ये जो Q1 की जो EBITDA per ton थोड़ा soften हुआ है तो आपने समझाया तो आप वापस एक बार समझा पाएंगे please.
Boss हमारा क्या problem है कि कोई भी आदमी material नहीं खरीद रहा है। Everybody know कि pricing are down, company price नहीं तोल रहा है क्योंकि company के पास old date का inventory पड़ा हुआ है, तो वो लोग भी उतना ही माल खरीद रहे हैं जितना माल उनको बेचना है। तो the process आप देखो, मेरा capacity छह लाख ton के हिसाब से है। अगर मैंने 4.2 लाख ton बेचा है तो मेरा seven-eight hundred rupees तो price, ये अपना process cost ही बढ़ गया।
Okay.
My cost is increased by INR 700-INR 800 per ton. कुछ मैंने discount देके माल बेचा। कुछ मैंने export ज्यादा किया जहाँ पर मेरी relations कम थी। अपना target पूरा करने के लिए lot of problem solve किया। Margin कहाँ टूटा है boss मेरा?
ये तो मेरा best quarter है आप मेरे से पूछोगे तो। मेरा margin तो सिर्फ ₹400-500 per tonne टूटा है। अगर आप past history दिखाओ कभी ऐसा sharp fall आया होता है कि ₹74,000 से ₹60,000 raw material आ गया। ये ₹14,000 per ton raw material नीचे आ गया। आपको APL Apollo का EBITDA zero हो जाता था। ये तो company इतनी strong हो गई है कि हमने इस पूरे share को झेल लिया है। एक मिनट, आप सब लोग बातों, एक मिनट, inventory बढ़ा रखा है due to sales कम होने के कारण। उसके बाद भी हम अपना number पूरा करके गए हैं। ₹74,000 per ton से ₹57,000 मतलब ₹17 per kilo का drop, as well inventory level of 2 लाख ton, मेरे पास 2 लाख ton का inventory level था। ये almost ₹340 crore rupees मैंने margin से या अपने business से बचाया है।
Okay, sir. Understood, sir. Thank you.
Thank you.
Thank you. That was the last question. I would now like to hand the conference over to Mr. Anubhav Gupta for closing comments.
Thanks everyone for joining us and thanks to Spark Capital once again for hosting us for this call. Thank you so much. Have a nice day. Bye.
Thank you.
Thank you. On behalf of Spark Capital Advisors, that concludes this conference. Thank you for joining us and you may now disconnect your lines.