APL Apollo Tubes Limited (APLAPOLLO) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the APL Apollo Tubes Limited Q2 FY27 earnings conference call posted by ICICI Securities Limited. 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 concludes. Should you need assistance during this conference, 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. Vikas Singh from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Darwin. Hello, everyone. Good evening, and a very warm welcome on APL Apollotips due to an H1FR27 results conference call. From the management side, we have with us Mr. Sanjay Gupta, Chairman and Managing Director, Mr. Rahul Gupta, Director, Mr. Deepak Goyal, Director for Operations, Mr. Anubhav Gupta, Chief Strategy Officer, and Mr. Chetan Gandalwal, Chief Financial Officer. I'll hand over the call now to Anubhav for his opening remarks. Over to you.

Thanks, Vikas, and thanks to ICSI Securities for hosting ATL Apollo for its quarter to FI27 earnings call. We have delivered our best quarter in terms of sales volume, EBITDA and net profit. The volume of 960,000 tons was not easy to achieve in the quarter 2, given our UAE operations remained disrupted due to ongoing Middle East disruption and high swings in the raw material prices So what we did to achieve this performance was we focused on our core strengths, which are number one, brand APL Apollo. So, we ensured that the products in the Apollo category get better pricing, and we achieve better realizations and better EBITDA spreads on those sale numbers. Number two, strength was our highly increasing focus on the value-added products beyond construction and renewable sector. We have started to seed the product line for defense and aerospace sectors also on the back of a recently commissioned specialized tube mill, which can produce sizes from 250 by 250 millimeter dia with 16 millimeter thickness. So these products are going in the defense and aerospace sector. We have mapped the applications, and we have started producing samples and giving to various authorities and agencies, which shall bear results in the next two to three months. If you look at the quarter to volume, APL Apollo and the roofing products' sale volume increased by 20% on YY basis in the first half. We expect that this momentum will continue in the second half with double-digit volume growth. So in the absence of export sales and UE operations, these are the two product verticals which are supporting superior volume growth and also the margins. Because of better pricing and better brand value. In terms of EBITDA, which has been our goalpost, I am glad to share that we are on track to achieve 20% growth on the absolute basis by March 27th fiscal. So, again, we are getting boost from the better pricing, increased sale of value-added products in all categories, and decoded to EBITDA per ton of 6,000 rupees. We believe this is sustainable now as we enter in the second half because the contribution is coming from brand ABL Apollo products and roofing category, again, which are high-value-added products. And if the As the UAE operations recover in the second half on stable geopolitical situation, we may do better than our expected 20% EBITDA growth, which we are guiding for FI27. On balance sheet front, the working capital days remain zero, and the cash on books increased by 15% as in September 2026 to 16 billion INR versus 14 billion INR in June quarter. So our prudent working capital cycle remains intact, which continues to generate solid cash flows. And our capex also is on track as we target to achieve 7 million ton of green field plus brown field capacity plus 1 million ton of de-bottlenecking capacity, which we have target to achieve in the next two years. That's it from our side. We'll be happy to take questions.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Darshan from Dollars Capital. Please go ahead.

Yeah, thanks for giving me the opportunity and congrats on very good set of numbers. I just wanted to know your volume guidance for FY27. So, earlier we had guided for 15% volume growth, but now for H1, given our volume growth is at close to, I think, 4%. So, just wanted to know whether, what is our revised volume guidance for FY27.

Good evening. Now, if you see our volume growth of profitable business like APL Apollo brand and the roofing product, we are intact with a guidance of 15% growth, but due to Dubai problem and the shortage of steel in country, so we are unable to focus with the low margin business products. So, there we are not in 2% to commit any type of volume growth. What happens or not, we don't know right now. But in our main products, there is our margin. There, we are very confident that we are going to achieve our volume growth.

Okay, okay. Hardening to hear that sound. And Sanjay, I also, I think there was some element of inventory benefit that we can see in Q2. Just wanted to know from you whether, like,

Thank you.

And sir, financial assets, balance sheet, the amount fallen to 57 crore versus 282 crore in March 26. So, can you let us know what is that number as such? What bit was this?

This is more than one year period.

Okay, FD is more than one year.

Yes. So, average of more than one year now is classified within one year. So, if you see the other financial assets of the financial current assets, there is the amount has been increased.

Okay. Okay. So, that amount has basically moved to the other. And, sir, this quarter-on-quarter interest cost has increased. Also, if I remove the one-off gain on account of stake, sale and subsidiaries, I think your other income has fallen quarter-on-quarter. So, just wanted to know the reason for both of these things.

Hello? Yeah, yeah. So, other income, if you see, right, for the quarter, it is around 80 crores, right? The interest income has increased from 25 crore to 46 crores. So, 20 crore increase in the fixed deposit interest income.

No, other income, you are saying, is 80 crore. Only X1.

Q1 and Q2 put together from 40 crore, it has gone down 30 crore.

No, I am just saying that if September 26 versus June 26, if I am seeing, and I am removing the 10 crore divestment gain from other income, so 30 crore versus 40 crore in June 26. So, just wanted to know reason for that.

So, some forex currency gain and losses between the two quarters.

In quarter one, there was some foreign currency. I don't know if I can tell you, but I think it will be the same. Now, what is the deep study?

Okay.

That's okay.

Thank you.

Thank you. Ladies and gentlemen, to ask a question, you may please press star and 1. Our next question comes from the line of Silesh Raja with 361 Capital Market. Please go ahead.

Yeah, thanks for the opportunity. Congrats, sir, for the great set of numbers. Sir, our roofing sheet volumes appear to have improved significantly, which I believe would be one of the key drivers of implementing EBITDA per kg. So what is driving the sales growth in this segment and who are all the competitors? What is our right to win? How do you see this business scaling up in the next two, three years?

This business is, our capacity is right now 50,000, 60,000. 60,000 into 12. 7,10,000 capacity. And I think we have done with the 45,000. We are focusing on building materials and solar structure. Solar is also a part of the industrial roofing studio, and some pub panels are also a part of the heat. This is all put together. There are 500 products in it.

Just to add to it, Salish, 50% goes into housing, 25% go into commercial and industrial, and 25% go into other industrial applications.

Okay, okay. So, this is all above 2mm dia or how it is? Thickness, I am talking.

Thickness is mixed, 0.4mm to 3.5 thickness.

Okay, okay. So, around two years ago, you know, we had targeted a reduction in power cost by two rupee per unit, bringing down the cost to five per unit. So, where do we stand against that target today?

We have 6.2, 6.3 to the next year. Next year we are targeting 500 to achieve. Now we have 6.2, 6.3 to the next year.

Okay, okay.

Cost is our main focus area. Cost is always working. This quarter, we have reduced freight costs for a day. Thank you.

Payment to the suppliers in exchange for yearly payment discount. That by improving margins, or is there any other... Yeah.

Boss, now we have our net cash balance is 1600 crore.

We have our net cash balance is 1600 crore.

Now, if you are looking at our 1200 crore EBITDA, then our cash balance will be 600 crore and more. It will be 1600 crore, and it will go 200-300 crore in cash. We are targeting the cash flow, Then we take a call according to our big sale orders and with the board, so we need to know how to use that price.

Okay, sir. Thank you.

Thank you. Participants, you may press star and one to ask a question. Our next question comes from the line of Bharat Shah with Bharat Shah Capital Ideas Private Limited. Please go ahead.

Now, once again, a hearty, hearty congratulations. I think a difficult quarter, like last quarter, but I'm glad that our focuses remain unstinted on profitability rather than just getting away by volume or this and that. I think overall focus on expanding the total profit pool, whether it comes from the mix, whether it comes from the volume growth, if it comes also from the cost efficiency, all of that are levers for improving the profits. And I think, I personally believe that in a difficult environment, challenging situation, this is wonderful focus and excellent outcome, which has been attained. So, we're really glad about it.

Thank you, Bharat Bhai. Thank you, Bharat Bhai.

This was a difficult quarter. Last quarter was a big difficult.

Thank you. Thank you.

And, Anubha, on the free cash, I wanted to understand. Relatively, last year, our free cash generation was stronger. Anything which has impacted our free cash generation in the first half this year?

So, Bharat Bhai, we have paid some capital advances for the capex. If you see in the first half, we have spent 400 crore rupees already in the first half versus in FI26, the whole year we spent 600 crore. So, in second half, the cash outflow will be pretty low in the next six months. So, that will improve the free cash flow. And below free cash flow, we We did make dividend payments in the month of August-September, so that also impacted the total net cash flow. So, if you look at the EBITDA to OCF, that will be better in FI27 versus FI26 once we close the books annually. I see.

So, last year, our free cash was around 1600 crore, right?

Last year, it was around free cash flow 1,300 crores. 1,300 crores? No, it was a lot in America last year.

Did you take a dividend in that?

No, before dividend. If you look at our presentation, slide number 19, we have shown the cash flow. One minute. 19. One second.

Okay, 19, means the first half, how much is the free cash that we have generated?

So far, we have generated 700 crores, year about. First half? First half, 700, and then KPEX of 400, so free cash flow is around 200 crore rupees.

So, last year, I was 1,300 crore in the first year, and in this year, I was 1,180 crore in the first half.

So, one is that dividend payment has been fully accounted for, the dividend payment in the first half. Yes. So, now for the second half, we generate, like Manjai Ji mentioned, that we should do around 1,200 crore EBITDA, right? And minus taxes and zero dividend and hardly 200 crore towards capex. So we would reach, like we will surpass 1,300 crore of free cash flow which we generated last year on whole.

Last year, it will be more than last year.

Yes, yes.

Okay, perfect. I think that's about it. And congratulations once again to the whole APL apollotty. Thank you. This is really an entrepreneurial delight, I suppose, of Senteji in a difficult year to achieve this. Congratulations.

Thank you, Barbai. Thank you.

Thank you. Ladies and gentlemen, to ask a question, you may please press star and one. Our next question comes from the line of Akshay Chedda with Canera Robeco Mutual Fund. Please go ahead.

Thank you for the opportunity. I just have one question. So basically, if I just see that the product has improved QOQ or YOY, at least in the volume terms, but the same doesn't get reflected in the GP. Actually, if I just see the GP per turn that has contracted QOQ, so the entire EBITDA per turn improvement that has happened in QOQ appears to be more from the operating leverage and the cost efficiency that we spoke about. So, sir, what explains this GP per turn contraction? Logically, it should have improved, right? So, that is the only question I have.

So, Akshay, you are right. It is just one fact that, I mean, Apollo brand also has now light structures, right? So, realization of light structures is slightly lower than the overall APL Apollo product portfolio. So, that's why the GP per ton is around 500 rupees per ton lower on quarter-on-quarter basis. So, this is mainly because of light structures where the validation is low and so NSR is low and the GP is also low.

And what could be the contribution of these light structures in APL if you could quantify?

25% of the mix.

35%? And what was it in the 25% in second quarter? And what was it in 1Q?

Earlier, it used to be like mid-double-digit to high-double-digit.

Okay. Okay. Thank you.

Thank you. Participants to ask a question, you may press star and 1. Our next question comes from the line of Sneha from Duvama. Please go ahead.

Hi, team. Good evening and congratulations on greater numbers. I just wanted to understand how is the current demand scenario. The reason I'm asking is quarter 1 versus quarter 2, we have seen a very big jump in volumes. Although we understand that Dubai has more or less remained muted, but leaving apart the roofing sheets where we have seen expansion happening, why did the A.P. Laporo tubes' volume increase so much? Where is the demand uptick coming from? That's the first one.

See, April Apollo demand is very good right now also, and because we leverage the total brand value, when we use our retail, before we first used our energy premiums, then our focus is on the Apollo brand. We are looking also at more than double digit growth in this quarter and second half also. I think this quarter we are targeting roofing product 175,000, we are targeting roofing product also.

Understood, sir. Understood. So you are saying the same mix which we have seen in the second quarter?

I can't commit anything because we have no visibility here. But APL Apollo brand and roofing product, we are very confirmed.

Understood. And how has October been for that, sir?

So far, it's good. Good. As far, our guidance is up to us.

Industry. Industry. And so, secondly, with respect to, you know, especially if you used to give that EBITDA bridge of how your margins are increasing and above, we've seen a big swing happening from 5,500-odd levels to now around 6,000-odd levels. So, majority of the contribution is where to come with respect to EBITDA margins?

Good morning, everyone, and welcome to the call.

No, no problem at all, sir, but when I know that this now EBITDA part of 6000, this looks sustainable.

This will be much better than this.

Q3 will be much better than this.

6,000 over here, Q3.

Understood, sir.

If you check the channel, how do you check the price level of the Black Pipe?

No, sir, I completely agree that there is a premium.

One minute, the black price is about $70,000.

Yes, the rest are 68, 69 types.

Thank you.

That was really helpful. Thanks a lot, team, and all the very best.

Thank you, Srinadi. Thank you. Participants, you may press star and one to ask a question. Our next question comes from the line of Bharat Shah with Bharat Shah Capital, Ideas Private Limited. Please go ahead.

Sir, Anupo, on the slide 18, I think EBITDA per turn of the first half, we have mentioned it is some 11,000 odd rupees. I think it looks to be a typo.

Yes, it is. Thanks for highlighting. We'll correct it.

Yeah.

Oh, thank you. Ladies and gentlemen, if you wish to ask questions, you may please press star and one. Our next question comes from the line of Onkar. Go Gattare with Shree Investment. Please go ahead.

So, what do you think about the whole company level?

Boss, we have the capacity. We cover all the brands and segments for one month. So, we commit a lot to that. So, overall company level, we can't give any guidance on the overall level. Boss, we have two things.

Good morning, everyone, welcome to the call.

Good morning, everyone, and welcome to the call. Good morning, everyone, and welcome to the call.

Sir, good morning, I'm talking about the capacity utilization.

I can't tell you about the UAE and the LG brand. I'm telling you about the following brand that I will take 20% growth. I don't know if there will be any growth, but I don't know how to commit. But I don't know why the LG premium brand has a margin, so I don't need it. Thank you.

Your touch-tone telephones. Our next question comes from the line of Shaleen Kumar with UBS India. Please go ahead.

Yeah. Namaste, Sanjay-ji.

Good evening, Shaleen.

Sanjay-ji, I had a call for a late join. If you have already answered, then sorry for repeating.

What about you, Shaleen?

Sanjay-ji, this year, when you're talking about performance, you're talking about 6,000 years ago. So, it's coming from 2-3-3 years. Good morning, everyone, and welcome to the call. Good morning, everyone, and welcome to the call.

Good morning, everyone, and welcome to the call.

Good morning, everyone, and welcome to the call.

Good morning, everyone, and welcome to the call. Good morning, everyone, and welcome to the call.

So basically, we can, with the caveat that Dubai comes back, we can work with the 3,000 crore number in our mine for FF28.

Dubai and the steel ability in the country. This is the normalization of the situation. We are ready for 3,000 crore.

Thank you, sir. Good, sir. That's it for myself, sir. Thank you.

Thank you, sir.

Thank you. Our next question comes from the line of Shweta Dixit with Systematics. Please go ahead.

Good evening, sir. Congratulations on a good set of numbers. Sir, we are at 6,000 rupees per ton of EBITDA, but it's time to steel prices be supportive. Last time, I agree completely that the product mix has definitely improved, but last time when we saw these kind of margins, the steel prices were very supportive. That was in FI23, roughly after the COVID-19 revival. So, the prices are just normalized. It's from 65,000. HRC falls back to 60,000 or maybe 55,000. Thank you.

Number two, the second reason, which is our roofing product, extra capacity, has extended our margin. Number three, which we work on the day-to-day basis on the day-to-day basis. Like, we have a lot of items that we have developed for the GRB and GRB. Now, if we give it to the November 1st, then it will be approved for 1-2-3-4 minutes. Thank you.

So, Shweta, in quarter to FI23, the quarter you are referring to, in that quarter, we had very substantial gains in the coated pre-galvanized tubes. Okay? Because the difference between HR coil and pre-coated coils was very high. Because of COVID, China exports were shut. So, Indian companies were exporting outside India. So, there was shortage of GP coils in India, and that category did really well for us, performed really well for us, and we had backward integration there. But this EBITDA of 6,000 rupees per turn in quarter 2 FR27, this is much, much sustainable, like the point Sanjeeji mentioned, and also the capacity utilization operating leverage benefits, What we are getting at 100 of 960,000 ton per quarter, our utilization rates are almost 70-75%. So this EBITDA per ton is much, much more sustainable than what we saw in quarter 2 of FY23. And you may see the repetition in quarter 3 also, in December quarter. So once we are able to deliver 6,000 rupees per turn and above in two consecutive quarters, you will feel much more confident that this is now sustainable.

And then we change our guidelines, then we are talking that now we are talking about the price of the target.

Yes, 528, 4 years ago.

Yes, then we will change our guidelines in a quarter, and then we will change our guidelines. Good morning, everyone, and welcome to the call.

Understood. Just a follow-up. Is this the margin after the quarter of the discount? Or is it the demand in this time?

This quarter of July would not have discounted, but I would not have discounted.

Okay. Understood. Thank you, sir. Thank you.

Participants wish to ask questions. May press star and one. Our next question is from the line of Kumar Soumya. with Ambit Capital. Please go ahead.

Hi, sir. Good evening. Am I audible?

Go ahead, Kumar, please.

Yeah. Yeah. So, on the Dubai 500 crore data, currently the capacity is about 300,000, right? And with 200,000 in addition plan by the end of SR28. Yeah.

So, this capacity will increase to 500,000 ton as the brownfield expansion is underway. Right, we are adding two new mills. So, by March, during all this disruption, we did not slow down on the brownfield expansion, Kumar. So, by March 27, the Dubai capacity will be half million tons, 0.5 million tons. And on that, we can achieve 8,000 to 10,000 rupees per ton, because those two new mills which are coming up, they are also a pretty high margin products.

Okay. And secondly, on the heavy and super heavy, if you could give some ballpark number as in what is the share of this super heavy and heavy during this quarter specifically?

So again, I mean, we have stopped giving that sensitive information. We can take this.

Yes, it's ballpark. Okay. Sure. Lastly, we talked about operating leverage helping us, but then again, we are adding 2 million tons of capacity over the next one year. So, do you see this 6,000 ton still sustainable after we are adding those 2 million ton capacity over the next 1-1.5 years?

So, Kumar, those new plants which are greenfield, they are pretty small in size. So, they will not add to my fixed cost bill too much. Then, rest of the expansion is in brownfield, which anyway will not hurt my existing fixed cost to a great extent. So, that's why we believe that now the capacity expansion does not hurt our EBITDA spreads too much like it used to do two, three years ago.

Got it. And lastly, on the price gap that we discussed in the start of the call, is it possible to maintain this gap when, say, steel price starts to revert back or if there's a modulation in steel price and the competitive intensity starts to go up? Because right now there is a lot of space between you and the second player and the third player. So I just wanted to understand your view, how you are looking at it when the steel price starts to normalize.

So Kumar, see, I mean, right now the two main segments, like Apollo brand and roofing products, they contribute almost like 92-93% to the total volume. Now here we are not seeing much of impact from the lower or higher steel prices, right? Demand remains intact, our margins remain intact because of better pricing, so no softness in EBITDA spreads as such. Now, if steel prices go down, our SG premium sales will start going up, right, so that will boost the overall volume, and like we are saying that on metric basis, on Excel sheet, EBITDA curtain may look slightly soft, but then whatever incremental If the total volume comes from SG premium, it will add to my absolute EBITDA. So we are not concerned per se if steel prices go down that my EBITDA growth should taper down. No, it will only accelerate with the better volume from the SG brand.

Thank you.

Participants, you may press star and want to ask a question. Our next question comes from the line of Shantanu Mishra, an individual investor.

Good evening, sir. So, my question is slightly based on FY28 guidance that you had given earlier of 8 million in capacity. So, if we consider that capacity, so can we expect slight improvement in utilization post that capacity enhancement?

So, see, again, you need to look our business from four verticals, Polo brand, roofing product. These two segments, we are pretty confident given the current existing geopolitical situation. We are confident that we will deliver double-digit volume growth in these two categories. Dubai, I mean, we have currently at a run rate of 100,000 ton per annum versus capacity which will be ready by March 27 will be almost 500,000 tons. So, whenever Dubai situation improves, we can immediately hit 200, 300, 400,000 tons in subsequent quarters, right, that run rate. And once the geopolitical situation improves, so we assume that there could be some softness in the commodity prices also, which could lead to decline in steel prices in India as well. So then our SG premium sales will take over. So the point what I'm trying to make is we are not too much concerned with the movement of steel prices going up or down. Our business model is so resilient that we can drive our profitability if steel prices are going up by having better pricing by focusing more on value-added products. And if steel prices are going down, at the same time, our low-value-added product, SG, can add to the momentum with the increased volume.

Yes, definitely. Thank you.

Thank you. Our next question comes from the line of Vikas Singh with ICI-CI Securities and Tips. Please go ahead.

Thank you. Sanjee Ji, just one question. Usually, we see that our housing has almost 50% of exposure. And this year, rain falls almost 13% of the deficit. So, this year, rain falls very much in deficit because the portion of this would be on tier 2, tier 3 cities and farmers as well in the demand. Thank you.

But demand, offer, inquiries are very high. Thank you.

Thank you.

Thank you. Our next question comes from the line of Prateek Talvatkar with SMIFS. Please go ahead.

Yeah, Pratik, go ahead, please.

Am I audible now?

You are audible, sir. You may proceed.

Yeah, yeah. So, thanks for the opportunity, sir, and congrats on a good set of numbers. Just one data point question. Sir, what is the back mix for the 2.2 and the H.2 for FF27?

Which mix? Value-added mix. So, value-added, Pratik, I mean, we have given this in our presentation. Barring HG Premium, everything is value-added.

Okay, okay. Thank you, thank you.

Thank you. We have no further questions, ladies and gentlemen. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thanks, everyone, for joining in. Look forward to see you again in our Quarantine FI 27 learning forum.

Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.