Ladies and gentlemen, good day and welcome to APL Apollo Tubes earnings conference call hosted by Emkay Global Financial Services. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation completes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Lahoti, Emkay Global Financial Services. Thank you and over to you, sir.
Thanks, Avirath. Good evening, everyone. I would like to welcome the management of APL Apollo and thank them for this opportunity. We have with us today Mr. Sanjay Gupta, Chairman and Managing Director; Deepak Goyal, Director - Operations; Anubhav Gupta, Chief Strategy Officer; and Chetan Khandelwal, Chief Financial Officer. I shall now hand over the call to the management for the opening remarks. Over to you.
Thanks, Amit. Thanks, Emkay Global for hosting APL Apollo for its Q1 FY26 earnings call. I welcome all the participants and thanks to all the participants for dropping by. Q1 performance for APL Apollo Tubes was definitely below our expectations. He said volume should have been higher by at least 5% but there were various reasons why we could not achieve the target set by ourselves. Number one reason is the continued slowdown in the macro environment, which is evident from the weak industrial production data from the government side. As we know, for April and May, the IP growth was mere 2%- 3%.
The.
Expectations for quarter one FY26 GDP growth is also a bit on the softer side. Reason number two which resulted in loss of volume was the elevated geopolitical tensions which hit our volumes in two ways. Number one, India Pakistan war which impacted northern state volumes for almost one week, and then in the last 20 days of July, the Middle Eastern war between Israel and Iran led to lower volumes in the Middle Eastern market and it hit our export volumes also from EMLs. Third reason is the early onset of monsoon, wherein the construction activity got halted. Whether it were ongoing projects or the commencement of new projects, everything gets slowed down because no one was expecting that the monsoon should start or would hit the country within June month itself.
Lastly, what we are witnessing is the softer money supply in the system which is leading to the reduction in the buying power of our dealers and the stockists because their money is also stuck with the agencies and EPC contractors who are working on the government projects. What we are seeing is that the buying power of our channel partners has gone down a bit. Now coming to the EBITDA spreads for the quarter one, of course they are up year-over-year significantly, but on QoQ basis they are down by like INR 250 a ton. The reason for that is of course lower volume which led to negative operating leverage. INR 100 per ton is impact from the one-time notional expense led to ESOP which increased our employee cost. Coming to the ongoing quarter, things remain sluggish as compared to quarter one.
We do believe that the second half of FY26 should be pretty promising. By that time, the monsoons will get over and the government spends would also turn into the actual money supply into the system which will increase the buying power of our channel partners at the start of the year. During Q4 FY25 earnings call, we had guided for 15% to 20% volume growth for FY26. However, we believe this is slightly unlikely given the softer start to the first half. We believe that the sales volume portfolio should increase between 10% to 15% assuming the macro environment does not worsen from the current levels. As you know, APL Apollo started its brand premium strategy in January of 2025 wherein we are focusing on maintaining EBITDA spreads.
What we believe is that once the demand environment comes back or it recovers, APL Apollo is ready with its capacity, its product line, its distribution network, its brand pool. Volumes will come on its own. There is no point chasing volume at the cost of EBITDA spread. That is why we are not into the push strategy as of now. Our focus is to continue to generate higher EBITDA spreads and elevate our APL Apollo brand in the customer's mind. Thankfully, we are pretty successful now. It's been seven months. We started this, we implemented this strategy, and it is going fine so far for the full year. We are hopeful, we are confident that EBITDA spreads should be between INR 4,600- INR 5,000 per ton, which is significantly higher than FY25 spreads of below INR 4,000 a ton.
In the midst of this economic slowdown, we continue to focus on our long-term capacity expansion plan and fill in the gaps where we believe that we can take our capacity from 4.5 million tonnes- 7 million tonnes in the next two to three years. There are four areas where we are working. Number one is expansion in the newer markets, which are Eastern India and Dubai market. In Eastern India, we are putting up two plants with capacity of 500,000 tonnes. In Dubai, we are expanding capacity by further 200,000 tonnes. In South India, we are also coming up with 400,000 ton of plants where existing products are building utilize the capacity. The second area we are focusing on is the expansion of new products, wherein we are adding 500,000 tonnes of coated capacity and 100,000 ton of heavy structural tubes.
The third area which we are focusing is on export sales from Indian mills. That is why we are planning to set up a plant in Bhuj, Gujarat area. The plant will be majorly focused towards export sales and then it will also feed the Gujarat market for localization. Lastly, we are also working on putting up capacity for specialty tube offerings, wherein we believe that 300,000- 400,000 ton of multiple product categories can be created over the next two to three years in non-structural space. On balance sheet front, we are net cash and our working capital days remain prudent in single digits. By end of FY26, we shall be sitting on much larger cash surplus than what you see today.
Lastly, proud to tell you that we have achieved, our plants have achieved 72% of power consumption based on renewable energy, which states our heavy commitments to our ESG goals. We target to take this contribution from renewable energy to 80%- 85% over the next two to three years. This not only helps us in meeting our ESG targets but also reduces the overall power cost for the company, which right now is 0.8% of the product value. It continues to go down, and it gets aligned with our cost optimization strategy. Amit, that's all from our side. We are open to take questions now.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, please press star and one on the touch or 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 queues up. The first question is from the line of Amit Dixit from Goldman Sachs. Please go ahead.
Yeah. Hi, good evening everyone and thanks for the opportunity. Just a couple of questions from my side. The first one is regarding the slowdown that you mentioned in your opening remarks appears to be transient, but how is the competition driven up, particularly from your peers and in the general structure category, if you can highlight that, and do you see this payables build up largely because possibly because of your cash strain on your dealers essentially. Do you see it going away in H2? Just want to get your thoughts around the same.
If you look at our general category, we mentioned the general category because earlier we were making EBITDA spreads below INR 2,000 a ton, right? Now it's been two quarters that the EBITDA spreads are near about INR 2,800 a ton.
Right.
We are able to increase our margin by almost INR 1,000 a ton in the last six months. It is no more a commodity, right? You can see that the volume also has not declined in the last six months. The market has absorbed this price hike.
Right?
I mean, in the next few quarters you will see that this general doesn't remain general, okay? Because everything is making superior margin. This suggests that there is no competition in this space even when we have increased our pricing. This general also takes account of products manufactured in Dubai, right? Because this is as per the sizes.
Correct.
In Dubai at the same size, you also make INR 4,500 per ton EBITDA spread.
Right?
I think, as a strategy of de-commoditization, we are pretty much on track, and whatever we are producing is in the range of 50 by 50- 100 by 100 millimeter range.
Right.
APL Apollo has created its own niche, own brand in this segment. The competition is playing almost INR 3,000 per ton below pricing level. We don't feel the heat from the competitors at this price point. On second question, you talked about payable days, right?
Yes.
Payable days are not related to these stress at the dealer level. If you see our receivable days, it remains unchanged quarter on quarter basis. Creditors, of course, have come down because we generated cash.
Right.
We just kind of like, you know, paid two steel mills in advance, and we did get some benefit also on cash purchases.
Okay, fine. The second question is essentially on the employee cost. You mentioned that there was a one-time impact of ESOP, so possible to quantify that. What could be the sustainable employee cost? Also, is there any element of dealer incentives in the other expenses?
Right.
That notional ESOP cost was INR 6 crore, right. Going forward, you can assume INR 88 crore. INR 87, INR 88 crore to be the sustainable quarterly, it should come around eventually. INR 600 to INR 700 per ton, right.
Right.
Now you would see it at INR 800-900 a ton. The absolute cost will not go up from current level. It will settle around INR 600-700 a ton.
Okay. Okay. Dealer incentives, any element in this quarter?
No, no. No discounting, nothing.
Okay, thanks a lot and all the best.
Thank you. The next question is from the line of Richa Singh from ICICI Securities. Please go ahead.
Thank you for the opportunity. My first question regarding your 10%- 50% volume guidance. Even if you look at currently, since the last year, second half was heavy, our asking rate is staying closer to 900 KTA or more.
So.
You talked about the slowdown, which usually takes time to reverse. I just wanted to understand which are the pockets from where we are generating this confidence of meeting that 15% kind of the volume guidance.
So.
Richa.
Hello.
Yeah.
Yeah. There are two, three areas, right? From where we will get the volume. Number one is our exports and Middle East, which slightly got impacted in the month of July due to the war, right? That volume will recover in quarter two. We have already started seeing that from July, right? That is one big pocket where we are getting incremental volume. Number two is our two new product lines got started, right? Which will contribute in the next seven to eight months. Number one is the 1000 by 1000 heavy structural tube, right? With capacity of almost 100,000 tons. And second is rustproof tubes, right? That also, 300,000 tons of capacity has come up. That will give incremental volume because we are already running short of capacities in that segment. Thirdly, see, I mean, second half normally is always skewed over H1 for the construction material sector, right?
Assuming that we are over with monsoon by August, September, right? It will give a very good runway for projects to take off, right? In the third quarter. In Q4, the focus areas from the government side, whether it is Indian Railway where a lot of our product is going or whether it is aviation, again a lot of our products go there, healthcare infrastructure, and then private infrastructure which comprises of warehousing, new factories from the. We expect a lot of activity within the economy to pick up, right? We are present in all these segments. Lastly, which has not done well for the last 2 years now, Vikas, is the retail side, right? Which comprises almost 50-60% of our sales. I'm talking about independent homes right now. With inflation coming down and interest rates coming down, at some point discretionary spending will also take off, right?
People will go for home renovation, home improvement, right? Our distribution network, our product portfolio, our innovation, our innovative products, everything will fall into place. We see pickup in that segment also. I guess there are multiple levers, Vikas, which can give this asking run rate over the next three quarters. Of course, second quarter will remain soft, right? As far as July is concerned. A lot of skewness will come in the last six months of the financial year, assuming macro does not worsen from here.
Right?
Doesn't worsen.
My second question pertains to our capital allocation. This has come in the past as well. Our capex requirement and working capital requirement is far below than the cash we are generating. How should we look at the excess cash in terms of dividends you would distribute or what would we do with that cash? If you could just throw some light on the capital allocation.
There are two things, right? One is that if I generate $100 of EBITDA, my operating cash flow will be similar, $95. We have created four buckets of $25 each. Number one will go for certain tax which will go to the government. First bucket, second bucket will go into capex. We are a growth-oriented company. We are looking for newer geographies, newer areas, newer products. 20-25% of our cash flow we want to spend on capex. Third bucket of 25% is shareholder reward in form of dividend or buyback, right? It will depend on the board and shareholder approval, right? Yes, we do want to distribute more dividends or go for buybacks. The last bucket, which is 25%, we are keeping as a buffer which gets added onto our balance sheet and we repay our liability, right?
If you see that in Q1 also our current liabilities, which are payable creditors, are reduced by almost INR 4,500 crore, right? As we generate more cash, we want to have our balance sheet as totally liability free. We are debt free today, but we want to be liability free and maybe we buy steel on cash and look for some discounts from the steel mills.
Understood. If I may just ask one more question. If you see our value added product sales has jumped 3% and general has also relatively done pretty well. Still our EBITDA pattern was on the lower side. In past we have maintained that we have a low fixed cost kind of the thing. We are lean production. What else are we missing basically if you could just give us some more color on that.
The quarter on quarter EBITDA decline was INR 180 per ton, okay? Now, out of this, employee cost is almost higher by INR 300 per ton actually because of better value added mix, right. Our EBITDA spread increased by INR 100 per ton. If you look at my raw spread, they also increased by INR 400 per ton.
Right?
If you deduct this INR 100 per ton of ESOP expense, which is notional one time, and also the reversal in the employee cost which happened in Q4.
Right.
My improving gross spreads are because of my improving product mix and our strategy of de-commoditization coming into play.
Thank you for answering the question. All the best proceeds.
Thank you. The next question is from the line of Muskan from B&K Securities.
Hi sir.
Thank you for the opportunity. My first question is in Middle East your sales were at an average of 17,000 per metric ton last quarter. What is the monthly average sales from Dubai plants now? How is the demand and pricing situation in Dubai?
The mix, I mean the run rate was same, right? It was supposed to go up in July. Because of the tension which came from the geopolitical war, the United got a bit disturbed. Overall, Dubai contributed 6% to our overall volumes.
Okay. Okay. How is the demand tightening situation in Dubai now?
It's back on track. Things are pretty stable now, and the utilization rates are going up.
There have been some delays in commissioning of the HRC capacities in India, which is one of the reasons that is keeping the spreads higher. When do you expect this to ease out?
I didn't get your question. Come again?
There have been some delays in commissioning of the HRC capacities in India, which is one of the reasons that it's keeping the spreads higher between HRC and Patra. When do you expect this to ease out?
See, commissioning a steel plant is five to six years process, right? I mean, delay of six months, one year is very normal when projects at such large magnitude come online.
Right?
We expect that in the second half steel supply should increase.
Right?
Depending on what's the pricing strategy from the females, we'll see how spread behave. When APL Apollo decided to change its strategy to elevate its brand in January 2025, we were pretty sure that our general segment should not fight with the Patra.
Right?
We are confident that within the same segment we can demonstrate the desired volume growth.
Okay. Sir, till the last mentioned, you are charging some premium over general products. What is the current premium that you are charging over other players in general products? If there is continued increase in spreads between Hindalco and other players and also introduction of HG brand, do you expect the EBITDA per metric ton for general products to sustain?
Okay, so coming to first question that earlier when we increased our prices, before that we were selling or I would say our competitors who make HR coil based structural steel tubes, they were selling INR 1,000- 1,500 per ton below APL Apollo pricing. Okay? Now the gap is INR 3,000 after we increase our pricing by INR 1,000 to 1,300 a ton, right? Adding to this that HR coil tube pricing and Patra pricing will always, like you know, right now the gap is INR 8,000- 10,000 a ton, right? With us, with APL Apollo increasing its selling price by INR 1,500- 2,000. That is INR 10,000 per ton. With competition against Patra, it could be INR 8,000 a ton, right? Again, see, I mean as a strategy, whether to add products, whether to utilize capacity, right?
Our business model is to switch away from that general sales, right? Which can impact volume or which suffer because of this gap which is between Patra and HR coil. We want to move our business model away from this and be consistent with the construction activity in the country.
Thank you, sir. Sir, one last question. The SG Mart has won orders of solar module mounting structures under APL Apollo sunscreen. How is this product different from the products that APL Apollo is trying to cater to solar industry? Could you please talk about the order events in solar?
They are very different, right? What Apollo does for the solar sector is the manufacturing of top tubes, right? Or our flat seal which goes into solar mounted structures, right? That's like pure manufacturing. What SGMart is doing is mild processing profiling of solar structures. Both are very, very different products and they have very different applications.
Thank you. The next question is from the line of Pallav Agarwal from Antique Stock Broking. Please go ahead.
Good evening, sir. With HRC prices, you know, softening a little from the month of June, do you expect any destocking at a distributor level?
Pallav, it's been almost one and a half years that dealers have been stocking only right from October 2020 when we started seeing the decline in steel prices in India. Except that INR 23,000 per ton uptake which came in March, April 2023 after the tariffs were imposed. Dealers have been sitting light only, like you know, since October 2023. It's not that now that steel prices are again coming off to INR 3,000 a ton that we will see massive destocking because dealers are anyway sitting light on inventory for the last 18 months now consistently.
Okay. Also, you know, you mentioned this payable we've reduced. How does the pricing work with the dealers team? Is it like do they give some credit pay, or do they insist on upfront cash payments? If you could just explain that broadly.
Pallav, this is a bit sensitive matter, but what I can tell you is that we have been getting credit from our supplier, right. As you would see, creditor days of 25, 30 days throughout in our balance sheet. Now, with surplus cash coming in our books, we want to reduce some current liabilities and see if we can get some extra discounts, which we are. Quantum is a bit sensitive.
Sure. Okay. Yeah, thank you.
Thank you. The next question is from the line of Sneha Talreja from Nuvama . Please go ahead.
Hi, good evening sir, and thanks for the opportunities. A couple of questions from my end.
We, of course, entered into, you know, H2 demand revival and we always do.
That in the building material phase.
What is the real change that we're expecting, and how confident are we for that demand space pick up, especially on the infrastructure part as well?
Sneha, two three factors which give us confidence. Number one is like the critical infrastructure from the government side, whether it is railways or aviation. These two sectors have not seen any slowdown in the funding. Roadways, of course, but we don't supply to roadways except some pseudo or bridges where our products go for NHI projects.
Right.
The critical infrastructure remains the focus area for the government.
Right.
That gives us a lot of confidence. Second, private infrastructure, whether it is warehousing and corporate expanding which are putting up factories, our structural steel goes in both the segments.
Right.
Another category in private infrastructure is commercial, whether it is like large developers, organized developers, adding more A grade, B grade office space, data centers which are coming up.
Right.
It requires a lot of steel, successful sea tubes. The third segment which we see as sunlight area is solar.
Right.
Whether it is top tubes or our flat field which is going in this segment, we are getting good traction from here as well. A mix of these segments, we believe that second half should be significantly better than first half.
Secondly, on the primary and the secondary field gap, I clearly recall that even you telling that you know, things actually worsen when gap hits INR 10 and INR 38 probably will say we are almost at that level now. Are you seeing demand moving back on the general structure side to Patra players? If yes or if you know what is the structured way of dealing with this volatility? Whenever we see gap reducing, we of course see great amount of volume uptake for your company, but then it always reverses whenever the gap extends. What is the way of looking at this gap?
Sneha, addressing the second part first. Right. As a strategy, we are de-commoditizing our portfolio. That means we add products such as heavy structural tubes, light structural tubes, coated products.
Right.
Rustproof products.
Right.
Galvanized products.
Right.
These are all which don't get impacted from whatever is happening between primary and secondary, because the inability of secondary steel to produce such products. Second, moving or increasing sales in Dubai and export markets, right there also we do not get impacted from primary secondary. Sanjay, you want to add.
You have to see there are two types of market in India. One is the primary steel used market in India, and number two, the secondary steel market of India. When the gap is more, primarily what we are doing, we are doing well. When the gap is narrow, then we eat in the market of all super secondary market also. Then this is, we have another market, 20%, 30%, 40%. We can take any type of growth. If there is a gap between the secondary and primary is too much, then we have a growth strategy near about 15% depending on the market.
Understood. I think the change in strategy as per the gap changes is likely to continue even ahead.
When the gap is narrow, we also go for killing the Tatra material. When the gap is too much, when the gap is neared down by INR 45,000.
Almost.
We are going to each other market again.
Understood, sir, understood. That was quite helpful. Thanks. Thanks a lot, team, and all the best.
Thank you. Participants, we would like to remind that you may press star and one to ask the question. The next question is from the line of Anupam Gupta from IIFL Capital. Please go ahead.
Yeah, thanks for the opportunity, sir. First question is on the sale in Shankara which you have done in the quarter. Can you just give your thoughts on why that sale happened?
When we had invested in Shankara in March, April of 2022, the idea was to have a small stake to ensure that Shankara started selling more of APL Apollo products. At that point of time, our market share on Shankara counter was like 20-25%. Whereas all our distributors of large size were selling 80-90% of Apollo products.
Right?
We wanted Shankara to sell more of APL Apollo products.
Right?
We identified that the company needed some capital, which we infused.
Right?
There was this understanding that with this infusion of capital Shankara will start selling more of APL Apollo products. In the last three years, now three, three and a half years, the sales on Shankara counter has quadrupled. Now that we have achieved this target, there is no point of holding Shankara shares.
Right?
Anyway, stake was below 10%. We sold 4.5% last year and the balance shares we sold in last quarter. Yes, now the dependence between Shankara and Apollo is high on both of the sides.
Right?
There is no benefit or advantage of Apollo holding shares of Shankara.
Okay. Second question is on the general structure profitability. You mentioned that this INR 2,700, 800 which you are achieving also has the benefit from Dubai. If we assume Dubai is studying almost entirely of general structure, it is a meaningful contribution coming from there. If you exclude that, the India profitability of general structures would not be INR 2,800, would be closer to about INR 2,000- INR 2,300.
If I.
If my calculation is correct.
it will be no, Anupam. It will be INR 24,2500 a ton.
Okay. Are you comfortable with that level or that again comes at risk as this gap is increasing?
The idea is to take it above INR 3,000 a ton.
Will that be doable? If, let's say, this, the gap vs. Patra continues to expand, which you said is right now at 10, would be the Anupam.
That's what Sanjay explained, that the primary steel market is different, right? Which is like 5 million tonnes, and secondary steel market share is another 5 million tonnes. A 5 million tonne market, out of that, the general segment is 40% out of that 5 million tonnes.
Right?
That will continue to grow at 5%- 10%. If the gap reduces, then the 5 million ton from secondary will come to primary.
Right?
That's where we will get our incremental volume. Since we don't know when this is going to happen, there is no point building a business model around it. What we focus on is the primary structural feed to market, which right now is 5 million tonnes. Out of that, almost 3 million tonnes is commodity general and 2 million- 2.5 million tonnes is value added. Yes, that's how we build our sales strategy, understand?
One last question on the profitability guidance which you gave, INR 4,600- INR 5,000. Last time you had said, let's say somewhere around INR 4,900 or so achievable with 20% volume growth. The INR 4,500 is understandably, you have increased the range because of lower volume growth. Does this include the benefit which you are trying to accrue by having lower payable days? Lower payable days also impacts your ROE in that sense. Does this range include the benefit from better margins due to lower payable days?
Of course, yes. It was just like in the last month of July, only like we could have such cash to lower our payable days. Yes, we are talking to our supplier, we are talking about suppliers, right? If we see the benefit, then yes, we'll continue with this strategy. If we don't see the benefits, then the surplus funds will generate 6.7% of fixed deposits.
Right. Okay. One last question, sorry. On employee cost, you said the ESOP cost is notional, but your note says that ESOP, no ESOP was granted so far. Has this ESOP which you have approved in today's board meeting, the notional cost for that has been booked entirely or will it recur in the following quarter?
No, no. Today's bond meeting approval is separate. This was for the previous ESOP which were issued like a year back, year and a half back. They got accrued and they're getting converted. That's why this notion.
What you have announced today will have additional cost in the following quarter.
This is just an approval. We have not decided how much, what ESOP will be given. I don't think in next 12 months we'll be issuing any ESOPs. [Foreign language] Anyways, in next 12 months any ESOP will be issued. There is no cost which is expected in next one, two years.
Thanks a lot.
Yes. Anubhav, just to add to your previous question on the return profile, like you said that if credit days come down, right, payables go down. Our return profile will look low, right? I think that is the strength of our business model, that if we generate cash and we are able to lower our payables and since we churn our inventory 15 times in a year, with 20, 25 days of inventory, that means turning my inventory 15 times in a year and whatever cash discount we get.
Right.
From our supplier.
Right.
We are sure that it will give more return compared to the money lying in the fixed deposit.
Right?
We are very ROC focused company, Anubhav.
Right.
Whatever we will do, we will ensure that it is ROC accretive.
Right.
Optically, it may look a bit low.
Right.
If you include cash, but if you look at the gross ROC where you take working capital as inventory plus debtors and you remove creditors.
Right?
That's how we look at our business model.
Sure. Okay. That's it. Thank you.
Thank you. The next question is from the line of Akshay from AK Investment. Please go ahead.
Hello sir, am I audible?
Please go ahead.
Thank you. Sir, my first question is, there are lots of traction in sectors like data center, solar, electronics manufacturing, consumer delivers. These players are doing very heavy capex. Do we supply in any of these sectors? Over the next two to three years, how much volume growth do we see from these emerging sectors?
If you talk to the large fabrication companies in India, some are listed also, right? These companies are called pre-engineered building companies, PEB companies, who take contracts from all these corporates who are expanding massively.
Right.
Only such companies, even APL Apollo are putting up 4 plants.
Right?
Yes, Indian corporate is expanding, and they're putting up a lot of new facilities, new plants. These large PV companies do take a lot of hollow steel sections or structural steel tubes from APL Apollo. Our market share is 60-70% in this segment. We expect the growth to be 20-25% for the next three to four years, particularly for this segment. That's why on this conviction we introduced 1000 by 1000 mm diameter pipe, which obviously we are first in India and the second in the world to be able to produce such an SPU.
Okay, sir. Sir, what is the current capacity utilization in our Raipur and Dubai plant?
Dubai plant is around 60% plus, and Raipur is stacked below 60%.
Okay. Earlier we said that we are supplying our steel tube to Indian Railways. Which are the use cases in Indian Railways? Can you please justify.
Indian Railways all the modernization of railway station which is taking place.
Right.
Maximum railway stations are coming on steam. That's where we are supplying. We have given this in our presentation also, almost 20, 30 railway stations where we are supplying our products which are under modernization.
Okay. Okay. Fair enough. Thank you so much.
Thank you. The next question is from the line of Hardik from White Whale, please go ahead.
Hello. Hi. Thank you for taking the question. First question is why is EBITDA per ton lower in this quarter compared to last quarter? The second question is, last quarter you had mentioned that you want to reach ROIC of 35% next quarter, next year and 45% the next next year. Will it be achievable saying that capex tables increase? Thank you.
EBITDA spread decline on QoQ basis is mainly because of increase in the employee cost per ton by INR 300 per ton. Employee cost goes up as the volume declined, right? In Q4 we did 850,000 tonnes. In Q1 we did 794,000 tonnes. Employee cost goes up, which is negative operating leverage. The second was, like I mentioned, was.
The.
ESOP expense, which is notional and one time, right? If you exclude that, we will be at similar EBITDA spread, what we achieved in Q4. Coming to the second question, payable days. As businessmen, what we believe is the real ROC, which is based on gross working capital, right? Creditors also we consider as liability which we have to repay.
Right?
Like you have liability in form of borrowing from banks. Same way we consider current liabilities, something which you have to pay towards the suppliers no matter what, correct? Yes, I mean optically, 35% will not look on paper if we reduce our payable to zero.
Right?
Like I said, that will depend on how much discount we are getting by making cash payments, right? It's too early to comment on that. If at all, our investors, shareholders, board suggest that ROC should be 35%, we can always go back to taking credit again from the fuel suppliers.
Right?
I think it's something which the shareholders and board have to take decision right along with the management. Like what is good for the company, whether to show optically 35% ROC or to generate more cash. If we are able to churn our inventory by 15 times in a year and generate more return than a fixed deposit return of 6-7%.
Yeah, but instead of fixed deposit you always get the opportunity to reinvest rates. Isn't that always the goal with APL Apollo?
Say it again.
No, instead of the fixed deposit which I mentioned, we always have the opportunity to reinvest back in the business. How is that not a case?
25% of our cash flow, we are investing in adding capacities anyway. If there is more opportunity, yes, I mean we will spend on increasing capacities. It could be some inorganic growth opportunities, whatever comes our way.
Thank you.
Thank you. Participants who wish to ask questions can please start in one. Now the next question is from the line of Nevi Shah from Purnartha Investment Advisors Private Limited. Please go ahead. Hello.
Thank you for the opportunity.
I would just like to repeat.
On one of the previous questions.
Can I know our EBITDA spread guidance?
For the current year and also the.
Revenue guidance and the volume growth guidance.
You'll have to come again. There's an echo on your voice.
Hello, am I audible? Go ahead. Yeah, can I just know the EBITDA spread guidance and the volume growth guidance for this year?
Volume growth guidance is 10%- 15% for the full year. EBITDA spread guidance is INR 4,600- INR 5,000 per ton for the full year.
Okay, thank you. What about the top line?
Top line will depend on.
How do.
You expect the prices to move?
I mean, that's difficult to answer because that's not in our control. We don't work on like how prices move. What we want to protect is our EBITDA spread, no matter how prices behave.
All right, thank you. That's it from my friend.
Thank you. The next question is from the line of Andrey Purushottam from Cogito Advisors. Please go ahead.
Yeah, I noticed that your value added.
Cross to about 61% versus 56%, 58% the previous quarter. What I wanted to know is that if, let's say, if you make a constant volume projection, what is the sensitivity.
To every percentage increase of value added.
Product to your EBITDA per ton?
Let's say if it goes from.
61- 62, what is the incremental EBITDA per ton that you do?
Is there any outlook that you have?
For your value added mix proportion?
I guess if you want to see the real benefit of improving sales mix.
Right.
You should look at the gross spreads. Okay. Now, in Q1, our mix improved versus Q4 last year.
Right.
You can see that our gross spread also improved by INR 400 per ton. That did not translate in INR 400 per ton. Yes, my gross spread. It did not translate into EBITDA spread improvement because my volumes were lower. There was negative operating leverage came into play.
Right.
This ESOP cost was notional, right? If I remove that, then EBITDA should have been much higher compared to Q4 last year. Coming to the sensitivity, it is tough to say because APL Apollo has like 5,000 plus SKUs.
Right?
Out of those, 60% are value added. Now within value added also we have products which generate INR 4,000 per ton, and then we have products which may generate INR EBITDA also.
Right?
Depending on which segment does well in which quarter.
Right?
That's how the spreads will improve. One thing I can tell you is as our sales mix continue to improve, our spreads will also improve in the similar phase.
Would you be able to guide to what could this 61% do for the entire year?
I think it should remain at similar levels. Our ultimate goal with 7 million ton capacity, which will be live by FY28, we will be 70-75% value added.
Okay, thank you.
Thanks.
Thanks.
Thank you. The next question is from the line Sweta Dikshit from Systematix. Please go ahead.
Hi.
Thank you for your profit. I joined a little late to Smartshot of the EU object this before I joined, but volume guidance for the year is now 10%-15%, which was 20% last quarter. Is there any reason behind this revision?
Yes, the earlier guidance was 15%- 20% growth for the full year. Now it is 10%- 15%. The reason for downward revision are like number one, flow offtake in H1, right? Because of macro slowdown. If you look at the government data like index of industrial production, GDP projection, GDP growth projection, right? Everything is like kind of on softer side which is also impacted demand for our product. Second, monsoons which came a bit early in month of June.
Right?
June month got hit badly. The third was the geopolitical tension which we saw in April when India Pakistan war was there. In June, Iran Israel war started. That also led to some volume loss. Also, if you look at the money supply in the system, that's also a bit slow. Our dealers, stockers, channel partners, they don't have too much of money rotation going on, right? This is not only for our sector. You look at the other construction material, other consumer related channel partners, they will have the same issues, right? That's why we kind of revised down our guidance from 15%-20% to 10%-15% because of the slower offtake in H1.
Understood. Any potential revision if we see a second half to be stronger than we expect, then, or is this the final guidance that we could yet at least as of now seen?
No.
Why not?
Are you also including your view that?
Second half should be better. Does this include your view on the second half being stronger, or there could be an upside to this number.
I mean, we would love to have upside to this number. As far as we are concerned, we are ready with our capacity. We are ready with our product line, we are ready with our distribution network. We are ready with all the working capital which is required to fund this growth.
Right.
Our brand pull is there in the market. It's just that some external pull comes in.
Right.
Yes, I mean if environment supports.
Right.
The growth can be better than 10%- 15% for the full year. Nothing stops us from achieving higher growth.
One last question. If I could squeeze in one more. You said that by 2028 you'll be ready with a 6.8 million ton of production capacity and that the sales number should likely be 5.8 million tonnes.
It will depend on what is the volume growth we actually achieve in FY26 and then FY27 and FY28, how they pan out. When we say 6.8 million ton capacity, that is sellable capacity. That means we can produce and sell that 6.8 million tons from our plant. This is a sellable capacity.
Okay, I'll take other questions offline. Thank you.
Thank you. The next question is from the line of Sneha Talreja from Nuvama Group. Please go ahead.
Hi team. Thanks so much for the follow up. Just two questions from my end. One is you said you're open to inorganic opportunities. That would be the case. What sort of opportunity in which area that would be? Can we see anything on the secondary pipes also to target that particular market specifically? That's one. Secondly, could you speak on more export opportunities leaving apart the Dubai part of it, which you're already doing, and which all geographies can be viable for us.
Hi Sneha, g ood evening. We are not going for the secondary any type of acquisition because secondary steel is no future, because there is equity is very bad. Number two, their cost of production is very high. In India, there is still scarcity.
They are surviving.
I have not reasoned. We are going for the secondary steel because then we Jimmy Sabha brand also the secondary business is not there in own hand. When the HR coil and the secondary price go to narrow, then the secondary business wipe off. If you see the last 30, 40 years history, I don't think this is a future, a good future. We are not going for the secondary at all. I am very, very clear in the two things. We are not going for steel making. We are not going for secondary. Number two, the export option. Yeah, there is a very, very good chances for the export because we have a very good order book in Dubai plant. Now we are also putting a plant in Bhuj for only one focusing export. Two and four is very less right now.
If you see, in the last 10 days there is a big change in the Indian steel industry. Today India is lower than the Chinese steel prices. China has almost increased by steel in the last 10 days, 12, 13%. India has decreased almost INR 1,500 per ton this month. India may be. I am very bullish. India's export, the Bhat Badega or primary steel is. This is also in my focus. Right now the things are not good for us. We are maintaining our margin, going for a little bit 10, 15% growth. We are consulting on that. Margin compromise we are not wanting to grow this time because the future is geopolitical or economy is not doing well. We are very confident back on track in the aggressive mode, 20, 30% whatever volume growth because we are ready with every sense.
Export we are no doubt we are a big vision in the future. In the seven years ton capacity we are targeting to take the duo on 1 million ton. India maybe 0.5 million ton come 3.3 million-4.5 million tons in the future. Export we are very, very okay.
There is no question.
We know this is not a future.
That was really, really helpful, and thanks.
A lot and all the best once again.
Thank you. The next question is from the line of Aditya Welekar from Axis Securities. Please go ahead.
Yeah, thanks for the opportunity. Just focusing on FY27, if we keep aside the factors which are not in our control like geopolitical scenario and all, you have guided previously that we will grow by 15%- 20% again in FY27 over FY26. Are we putting any kind of market penetration or SKU new product development which gives us some visibility over that growth in FY27?
Yes, of course. See, I mean assuming we close FY26 at 10%- 15%.
Right.
If everything in terms of macro, in terms of geopolitical, in terms of global trade war, all these things settle down along with Indian consumption starts to evolve, then FY27 growth could be much higher than 15-20% because of the low base of FY26.
Right.
Like we said, in terms of capacity, in terms of distribution network, in terms of new products which we launched in the last one to two years, new product pipeline which is there in the next two years, the new segments like renewable energy, like heavy construction, where we are adding more products and we are becoming more aggressive, we are penetrating deeper into these industries.
Right?
Yes, I mean FY27 could be much higher than 15, 20% and EBITDA.
Per ton trajectory in that financial year. Can we assume it will be north of INR 5,000 per ton?
See, our ultimate goal is to achieve INR 5,500- INR 6,000 per ton.
Right?
On the business model, what we have built for 7 million ton capacity and sales volume eventually.
Right?
This pretty much fits into it. Okay, now the question is that FY26, we are staying between 4,600- 5,000. See how second half pans out.
Right.
If volumes grow faster than what we expect because of operating leverage benefits, it could be near about 5,000 also. It is very difficult to say right now because of the uncertainty. What we have seen in the first four months of the current financial year, next year FY27 will definitely be better than whatever we closed in FY27.
Fair enough, sir. Thank you. Thanks a lot.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question for the day. I now hand the conference over to the management for closing comments.
Thanks everyone for joining by. Look forward to see you over the next results and call. Thank you so much.
Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your line.