Apollo Pipes Limited (APOLLOPIPE) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Apollo 5 limited Q2 and H1 FY27 on a conference call. 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 the conference call, please click the none operator by pressing star, then zero on your touch-tone phone. Please show that this call is being recorded. I now hand over the corner to Mr. Rishabh Botraf from Systematics for his opening remarks. Thank you and over to you, sir. Thank you. Good afternoon and special greetings to all. It is a pleasure to welcome you all on behalf of Systematics Share and Stock Media to Apollo Pipe's Q2 FY27 earnings call. I would like to welcome the management and thank them for providing us the opportunity to host this earnings call. Today from the management team, we have with us Mr. Samir Gupta, Managing Director, Mr. Ajay Kumar Jain, Chief Financial Officer, Mr. Anubhav Gupta, Groups Chief Strategy Officer. I shall now hand over the call to Samir, sir, for his opening remarks and provide an update on the quarterly performance, followed by a Q&A session. Over to you, sir.

Thank you. Good afternoon, everyone. This is Sameer Gupta, MP of Apollo Pipes. I would like to extend a warm welcome to all of you to our Q2FI27 Earnings Score. Q2FI27 saw a gradual improvement in market conditions as polymer price volatility moderated from the levels witnessed in Q1. Geopolitical uncertainties in West Asia continues to influence raw metal prices, but government measures including the Minimum import price on suspension grades EVC resin, and the withdrawal of custom duty exemptions supported the domestic market. Our focus was to ride this ride without hurting our balance sheet and losing market share. Apollo 5's Q2 F527 console sales volume grew 13% YOY to 24,501 tons, and revenue grew 31% YOY to 309.6 crores. Our console EBITDA recovered to 11.5 crores from 3 crores in Q1, with a margin of 3.7%. Needless to say the margins are still below the levels we want. Apollo 5 standalone, excluding Kisan, delivered a 5.7% EBITDA margin. And fixing Kisan's popularity is a key focus. During the quarter, we made our entry into ceramic tiles through Mazini tiles are considered extension of the group's building material journey. Mazini brings an operating base in Morbi, modern manufacturing capability, an established domestic network, and a growing export presence. Now, the focus is to accelerate volume growth, strengthen our product mix, improve profitability, supported by the new commissioned warranty plant. Looking at the current scenario, I believe the second half will be better than the first half. As monsoon impact is over, the PVC prices are stabilizing. We are on track to expand capacity to 288,000 tons in the next two years from the current level of 240,000 tons. And we remain committed to funding this expansion from internal cash flow without leveraging the balance sheet. That concludes our opening remarks.

Shall we start with the Q&A?

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 touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

To ask a question, please press start and run.

A reminder to participants, anyone wishes to ask a question may press start and one on their touchstone telephone.

The first question is from the line of Richard from Systematic. Please proceed.

So, after your line has been unmuted, you may proceed with your question.

Am I audible?

Yes, sir. So, sir, just wanted to understand your thought process behind moving into adjacent categories like ties. What are we exactly looking at with geographies and how else do we plan to scale up this part of the business? Thanks.

Hi, Karan. Sorry. Hi, Rishabh. This is Anubha Gupta. So there are two variables, right, in our strategy to get into a newer segment, which is tile, and we started through Apollo Ceramic, a subsidiary of Apollo Pipes Limited. Number one is that it's the extension of the broader building material category. Plumbing pipes go into. And the architects, contractors, they, and homeowners also, right? So, influencers are kind of similar to decide on the brand for the plumbing fittings plus the… So, at some point, it will be good to launch this product into our own brand and distribute it and benefit from the APL Apollo Building Product Umbrella, which is selling almost 30,000 crores worth of goods in India on an annualized basis. Second thought process is that, I mean, because it will have a long learning curve. I have not had experience of doing business in Tiles category. So what we are doing is that we have acquired the... These are profitable. We are going to acquire in next few quarters, and they are already supplying the material to branded players, right? Top 7, 8 brands are already registered with those units, and they are already supplying. The important process is that through acquisition of such operational ethics and being able to service larger brands, our learning curve can be shortened up, and it will give us a lot of experience to enter into. Branded category, whenever we decide, but for the next few years, we don't have immediate vision to launch our own line of brand. First, we need to cater to the existing brands, to contract manufacturing. And it's a massive business in Morbi, almost 25 to 30,000 crores worth of tiles are being manufactured, and out of those, We believe that 10,000 crore worth of tiles are sold to top 10 branded, organized tiles manufacturers. So there is good scope of consolidation in Morbi. The branded players will be having much more comfort dealing with an organized player like Apollo versus, right now, mom-and-pop factories in Morbi. So, we see a very large opportunity to consolidate this segment and offer contract manufacturing services to organized brands. And at some point, whenever we feel there is a need to launch an available line of products, we will see into it. But right now, there is no focus. And the... Return on investment, what we are looking to achieve through these investments is between 15% to 20% right at ROC level. And the timelines will not be too much stress because, like I said, these are already profitable units. We are not acquiring any loss-making or NCLT units. These are operational profitable units with good tie-ups with all the large brands.

Hello. Are these entities exporting as well or are these supplying to domestic market only?

So as of now, the unit what we have acquired, they don't have export vertical yet. And a few more units what we are evaluating right now, they also, one unit does have export vertical. So we will not open export vertical on our own as of now. So whatever verticals come with the acquired asset, we're going to continue with that and scaling that up.

Got it. And lastly, sir, on the polymer side, we are more so into UPVC or CPVC or PPR. Where does the tracking come from for us?

So, UPVC is 45% of our sales, CPVC is 15% to 20% of our sales, and PPR is less than 5%.

Okay. And the balance comes from?

Balance comes from, we have products like water tanks, window profiles, OPVC pipes, HDP pipes.

Got it. Multiple. Thank you. Thank you. I'll come back in.

Thank you. Before we take the next question, we would like to remind participants that you may press start and want to ask a question. The next question is from the line of Nandan from Nirvana. Please receive.

Hello, sir. Am I audible?

Yes, please go ahead.

Hello. Sir, my question is with regards to our margins. In Q2, the margins have improved as compared to Q1 as you have guided the last quarter. So, if you can provide any tentative guidance for the H2 as well as the next financial year margins.

I will divide our two businesses. Number one is Apollo Standalone and second is Kisan, right? So if you look at Apollo Standalone, we are at 7,000 rupees per ton EBITDA in quarter two, which was below 4,000 rupees per ton in quarter one. And last year, we did around 8,000 to 9,000 rupees per ton on like yearly basis. So first target is to To reach 9-10,000 rupees per turn in the second half of FI27 at Apollo standalone, which we believe is achievable. Our Varanasi plant is ramping up, so there were initial costs which got front-loaded, but now volumes are ramping up, so margins will improve. Then we have shut down smaller unit in Ahmedabad and Raipur, which were dragging the overall EBITDA spreads. That shall improve our overall EBITDA pattern. Also, window profile business, which right now is in the phase of scaling up, that is also adding to some extra fixed costs. But as the volumes keeps on coming over the next six months, so that... That will start contributing positively at the EBITDA level. So Apollo, we are confident that from 7,000 rupees per ton in quarter two, we can reach 8,000, 9,000 to 10,000 rupees per ton in next six months. This will be gradual recovery. Kisan right now is at like 3,700 EBITDA loss, which obviously was 9,000 rupees per ton loss in quarter one. So here the target for the next six months is that we should bring it at at least zero break-even. And then in FI28, we'll take it up to like 4,000 to 5,000 rupees per tonne positive EBITDA per tonne. This is how the margins will...

Sir, my second question is with regards to this new vertical where the company has entered. So, I just wanted to understand the broader perspective that is it, I mean, are we getting the advantage of the, as we recently heard that due to, you know, this Hormuz crisis, Morby business was in bit of a scene. So, Are we getting advantage that, you know, we are getting a good deal.

Sorry to interrupt, Mr. Nandas, your line is very keen, sorry.

Hello, am I audible, sir? So, my question was with regards to this ceramic business. I mean, in the last six months, we have heard that, you know, Morbi business has been struggling due to this foremost crisis. So, as we are planning to acquire some more businesses, so are we getting the assets at a better price due to this situation as well?

So, to answer this question, please understand the first parameter for us to evaluate any asset is that the company should be profitable with long-term contracts with the organized players for the sale of material, number one. Number two. Our target valuation multiple is 4 to 7 times EBITDA multiple, basis, product categories in which they are present, EBITDA margins what they are making, and the type of climb deal they are having. So target multiple is 4 to 7 times EV EBITDA. So, yes, I mean, the first asset what we acquired is near about 4.5 to 5 times EV beta multiple, which we believe is a good deal, and it came because of the stress what this industry is having in the last 6-7 months.

Thank you for answer, sir. Can I ask one more question, sir?

Please go ahead.

So, sir, what is the long-term guidance? I mean, say, for instance, by 2030, where does the company want to see the ceramic business together with the current business? In terms of, say, revenue, the EBITDA, the ROC, like you have given the guidance for the other business by 2030, if you can give some longer-term perspective on it as well, sir.

So, ceramics business, we wish to acquire four or five assets, okay, with investment of around 400 to 500 crore rupees. Which will give revenue base of 1000 crores and EBITDA of 225 crores.

Okay. Thank you very much for answering my questions. Wish you all the best. Thank you.

Thank you. Before we take the next question, we would like to remind participants that you may find star and want to ask a question. The next question is from the line of Karan from AM Securities.

Hi, Karan from AM Securities. I just wanted to understand, Kisan has been a big drag for multiple quarters now. So, how do we plan to take this ahead?

So, see, I mean, Kisan, there are, like, two challenges which have been dragging the performance, and it is taking longer than expected time, right, what we had thought. So, one is that, I mean, the volume which Kisan is doing, say, 5,000 to 6,000 ton per quarter. Right, so this is pretty much stable, right? When we acquired the company, they were at like 3,000 to 4,000 ton per quarter. That run date is now 5,000 to 6,000 ton per quarter. So we've been able to improve at least the volume in the last two years' time. What we have not been able to achieve is the, like, to make the... Now, factory profitable, right? Kisan brand profitable. The reason is that the high disruption in the industry in the last 24 months, right? I mean, you look at all the top five listed players in PVC pipe space, the EBITDA spreads of all the companies have gone down versus what they were making in 2023, what they're making in 2026. And this is because of the aggressive competition, aggressive pricing in the industry. One big chunk of the industry, which was HDP priced into government infrastructure projects, that has gone. So a lot of capacity is idle, and it is coming into trade markets, which is disrupting the pricing. So we have not been able to exploit Kisan brand with the premiumization due to the industry dynamics. Plus, I mean, adding salt to the wound is the fluctuation in PVC prices. Although Kisan, we are operating with very minimal inventory levels, but then whatever inventory levels are there, it does impact the profitability, right? So we believe that for Kisan to come out of the challenges, we need favorable industry dynamics. At the same time, we are not waiting for that to happen because it is in no one's hands, no one's control. We are taking necessary steps to keep on bringing down the costs at factory level, at corporate level for Kisan. And we believe that, I mean, in the current scenario also, whether industry improves or not, but within next six to nine months, We should be able to bring Kisan EBITDA per ton loss from, like, say, 3,000, 4,000 rupees per ton to at least a break-even, 0 to plus 1,000 rupees per ton. So this is the first target, and by then, industry should improve, and then immediately you will see that Kisan brand should start generating 4,000 to 7,000 rupees per ton kind of EBITDA spread also. So I think from today till next 12 months, We are excited to work on achieving these numbers. We have the business plan ready. It's just that some favorable condition comes at the macro level, and then that brand should show its true colors.

Right, right. And how is the trend inventory as of now? How do you see October shaping up for you?

Channel inventory was a bit soft. It's just that in last few weeks, prices went up. So now people have started stocking up. We'll see if prices remain stable here so that stocking should continue.

All right, and now is October for you?

October, the run rate is similar to what we had quarter two, right? Because, I mean, ahead of festivals, there is a shortage of labor, and then now in Delhi NCR, there is like a pollution ban also for construction. So we believe that December quarter should remain flattish QoQ, and March quarter, Varanasi ramp-up, etc. will also happen. So then quarter four, we expect volume to be 10% plus 10% up versus quarter three and quarter 200. So if you look at Q1, Q2, Q300, we are at 25,000 ton per quarter. So, in nine months, we'll be like 75,000 tons. And then in quarter four, we could do... For the quarter four, so which will take full year numbers too.

Yes, so these assumptions are based on the fact that PVC prices are expected to remain range bound.

I mean, see, I mean, if you look at the first six months, prices were highly volatile. We have been achieving 25,000 ton quarterly volume run rate. So we don't see fear to this number as such. Quarter four is seasonally strong anyways, right? So if we are able to maintain 25,000 ton quarterly volume run rate, 30,000 ton in quarter four shouldn't be a challenge.

The CPVC team for you for first half, both in terms of volumes and Hike in GSP.

So, like, our first half overall volumes are up 4% YOY, right? CPVC has performed much better than this.

Double digit?

Yeah, double digit.

Thank you. Before we take the next question, we would like to remind participants that you may press star and want to ask a question. The next question is from the line of Trenov Mehta from Experience Security. Please proceed.

Yeah, thank you for taking the question. So, I just wanted to understand on your broader volume value tradeoff for the... So how are you seeing things over the next two to three years in terms of, let's say, you'll be aggressive more towards the volume side or you want to be kind of taking a back step on volume and focusing slightly more on the profitability side? That was my first question.

Number one target is that our total capacity will be 288,000 tons, to be precise, right, in next 12 months. Now, if we utilize 70% of it, which is like 200,000 ton volume, with the current realization of around 1,25,000 rupees per ton, the total revenue from the existing capacities should be 2,500 crore rupees in the PVC business, plumbing business. Then we are going to start a greenfield plant in South India, because the current plant in Tumpur is pretty small. So we are going to acquire new land in next six months, plus we will set up full operational capacity of minimum 50,000 ton to start with there, which will give 300-400 crore rupees of revenue before 2030. So, plumbing business should be like 3,000 crores all in all from the existing capacity plus new capacity in South India plus all the verticals like window profile, which already is at a run rate of 70, 80 crores annualized. It will reach 250, 300 crore number. Then government infrastructure segment, which right now is like almost zero, that should also pick up in next. So we believe that 3,000 crores from the plumbing business is what we should achieve. And then 1,000 crores we have targeted for the ceramic business. So all in all, the total guidance for 2030 is 4,000 crores revenue. Now coming to the strategy for next 2-3 years for the plumbing business. See, I mean, market is competitive for the last two, three years. Revometrial prices are highly volatile for the last two, three years. So, APL Apollo has been able to sustain 8 to 10,000 rupees per ton EBITDA, right? So, this is bare minimum what our business is generating currently. Next three, four years, this EBITDA spread will only improve. Okay, because of, like, our business getting comments from Varanasi, then we are shutting down Raipur and small Bangor units after the new South India plant will start, plus Ahmedabad plant, which we are almost shutting, right, smaller plants.

So, there is, like, good 2,000-3,000 rupees per ton of

EBITDA spread improvement visible for us. Plus, the CPV business, growing double digits of contribution from that business is going up. Window profile business, contributing like 15-20% to the revenue with high margin, that will contribute to the product. Then government infrastructure, whenever it gets kick-started, OPVC-5, SDP, those products will contribute to the profitability. So, for Apollo, standalone, we are confident that, I mean, Without being too much aggressive in the pricing war, we can sustain 8,000 to 12,000 rupees per ton kind of spreads. This journey, that's how we see over the next three, four years. Kisan, immediate target is to make it break-even in the next six to nine months, and then take this brand to 7,000 rupees per ton, if not 10,000, right, because of, like, high operating costs in the state of Maharashtra. But yes, in two, three years, definitely you want to see Kisan brand at 7,000 rupees per ton. So overall plumbing business on consolidated basis, we should be like 10,000 rupees per ton EBITDA with 3,000 crore kind of revenue. This is how we have put the building blocks for plumbing business.

Okay, and my next question was related to the ceramic business. So, within this, how would you be strategizing on the, let's say, export to domestic mix, and how would be the funding happening, because you already raised 300 crores, so any additional funding would be coming via debt, or how are you going to fund the… Let's say next three, four assets that they are looking at. And what would be your strategy on, let's say, taking a majority stake or running the day-to-day operations within those plants, if you can throw some hat on that?

So number one, we are buying majority stakes in these assets with us, with the Holo team managing day-to-day operations, right? So this is like in first asset, Mezzini, we acquired 76% stake, right? And then rest of the stake is still able to us in next 24 months. The other assets which we are evaluating, they are also like in a word of 75-80% stake. Right. So one thought process is clear that we're going to acquire majority stake and we will manage these assets on our own. We will not leave it to the existing promoters to manage these assets. Point number one. Point number two is that like the thousand crore target what we have for ourselves, right, to reach revenue for a bowl of ceramics, we see that we must be having minimum five assets, right, minimum five assets. which are going to generate this much revenue for us, and the investment requirement will be around 400 crores to achieve 1000 crores, although right now we have 300 crore investment plan, but after we finish 2-3 assets, we will increase it by 100-200 crores, this is the requirement. The product mix, third point to answer your question, the product mix will be... 80% domestic, right? 20% exports provided those assets have export business, right? So we don't want to tweak the business model of these assets, right? So if they are selling 100% to organized brands within the country, we are happy scaling that up, right? If there is an asset which is 40% dependent on export business, so we'll scale that up, right? So it will depend on what kind of assets come into our balance sheet. And then we see what the mix would be. But what I can say is that for 1,000 crore target, I mean, it will be like 80% domestic and maybe 20% exports.

All right. Thank you.

Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Shrishti from Auraavia. Please proceed.

Hello. Am I audible?

Please go ahead.

Yeah, thank you, sir, for the opportunity, and wishing you all a very happy Diwali. So, sir, most of my questions are answered. I just wanted to ask, against the established players, such as Supreme Industries, Astral, and Finalex, where does Apollo Pipe see its biggest competitive advantage, and is the growth strategy primarily driven by geographical expansion, distribution reach, or premium product penetration? And also, what market share gains does management target over the next three years?

So, if you look at our 10-year history, once we got into this business, plumbing pipe, the group got into plumbing business in 2016 in a serious way when we floated this company and Samirji exited from a steel pipe business and he got into a plumbing pipe business. So, we started from zero, of course, right? In the next two, three years, we could reach 1% market share. Right, in 2018, and then we started with, in 2016, we started with one plant in North India, and then after reaching 1% market share at Pan-India level, we decided to build three capacities and three new geographies in 2018. And by the time Corona hit in 2020-21, we had reached the market share of 2.5%. Right now, so after Corona, obviously... Two years were pretty good, 2021-22, and then last 3-4 years have been pretty soft for the PVC pipe industry. So, industry overall has not grown much also in the last 2-3 years. If you look at the sales volume of all the top 4 listed companies for the first half, they are like flattish YOY. Last year also, volume growth was very, very soft. So Apollo being like sixth largest player in the industry, we have been, last two, three years, we have been able to sustain or I would say match the industry growth levels, right? Whether industry is flat, so we were flat. Industry grew at 5%, we also grew at 5%. So whatever Apollo brand might we had to leverage, we did that in the first 7-8 years, and from zero, we could reach 4% market share. After that, now we are matching industry run rate. The reason is, number one, our Maharashtra Kisan acquisition, right, that has not performed as much as we had thought. And again, the reason there is like highly disrupted market because of intense competition in last two, three years. From Maharashtra, there were a lot of smaller players who were supplying a lot of pipes to the government infrastructure projects, and then that segment got stopped. So everyone came into the market, in the trading market, and that disrupted the industry. So one is that Kisan has not been able to deliver as per our expectations. But we are working on it to ensure that it does deliver. Number two is that, I mean, within the existing industry, because of high volatility in the rom-tool prices and, again, I'm saying intense competition, our capex... And to go aggressive into South India, that also we kind of delayed. Our earlier strategy was that we shall start South India plant in early 2026. But now, I mean, we are yet to acquire land. So that capex is delayed by, say, two years by the time new capacity will be fully operational. So what we have done is that in the last two, three years, Our North India business, we have ensured that that business does not lose its margins because of competition. So we have ensured that our pricing remains high there. We have the highest market share in North India. 70% of our sales come from North India, and we are at par with all the top two, three players in terms of pricing. So, we have ensured that our North India pricing doesn't get disturbed because of competition, and we are able to maintain industry volume growth also in that market. West, of course, because of Kisan performance, we have not been able to capture West, but a lot of actions, measures we have taken, and you will start seeing the results going forward. Thank you. I mean, from our small vipur plant, we were not able to capture much, but now Varanasi, having operationalized, you'll see ramp up in central India and east India very strongly and with better margins. That plant just started and it is already like, it is giving positive EBITDA, right? So it has good product mix, sales mix, our distribution reach also is pretty much visible there. APL Apollo is a... As a building material brand is very strong in Central India and East India. So we will get all those benefits. Then, of course, South India. Again, we have a small plant in Tumkur, which we had acquired in 2019-20. So that's a small plant. South India requires a larger plant from Apollo, which we would have put by now. But, of course, due to industry situation, we decided to delay it by two years. So, now the work has started. We are in process of identifying land parcels, etc. So, yes, I mean, so our right to win has been. To leverage on the brand APL Apollo in the building material category, putting up the capacities in North India, then acquiring asset in West India, putting up new greenfield in East India, and now putting up new capacity in South India. So once we have all the Pan-India presence, our target of 3,000 crore plumbing sales, we should be able to achieve.

Okay, sir. Thank you so much.

Thank you. The next question is from the line of Rasha Gotra. Since the semantics, please proceed.

I wanted to understand, you mentioned you will be shutting down smaller plants and shifting the volumes to other newly commissioned plants. Was there not possibility of expanding capacities in those plants? Was it a land issue or what was the case?

Yeah, so these were like smaller plants. As small as like less than five acres, right? Whereas our, I mean, larger plants are of size of 20 to 30 acres minimum. So, it always made sense for us to shut those plants and consolidate the capacity at a larger level and put up a new green field.

And these capacities will reduce the logistic cost as well? Nearby plant or is it houses? Will logistic cost increase?

It won't move the needle too much, because the volume from that smaller plant was, anyways, contributing very little to the total volume.

Got it. And what about, were these lease-owned land, or completely owned by the company?

No, completely owned by the company. In fact, I mean, we have identified two, three land parcels also, which we might sell in the next six to twelve months, and it could help us raise almost 130 crore rupees. Which will help us fund our South India Apex also.

Got it. And lastly, sir, on the child's business, you mentioned 500 crore will be looking for acquisitions, roughly. So, in what time frame and will there be an equity dilution, further equity dilution or are they internally funded?

No, so we have already announced equity raise of 200 crores, right, when we entered the ceramic business a month back. So 200 crore will come from there. 100 crore we have already invested. Apollo Pipes has already invested to acquire the first asset around 70, 80 crore rupees. So the balance requirement is 200 crore rupees. That in the next two, three years, we will have sufficient cash flow. So to acquire assets worth 500 crores, we don't need any fundraiser.

Got it. Got it. And any further adjustment category like sanicular or faucets which will be introduced or acquired in near town? Nothing.

No. First target is 3,000 in plumbing business and 1,000 crores in ceramic business.

Thank you, sir.

Thank you. Thank you.

Thank you. As there are no further questions, I would now like to hand the conference over to the management for the closing comments. Over to you, sir.

Thank you all for attending this call. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarification or would like to know more about the company, please feel free to contact our team. Thank you once again, and we wish you all a very happy Diwali.

Thank you. On behalf of Systematic Shares and Stocks, That concludes this conference. Thank you for joining us and you may now disconnect your line.