APOLLOPIPENSENovember 17, 2022

Apollo Pipes Limited

7,547words

120turns

12analyst exchanges

4executives

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Management on call

Sameer Gupta

MANAGING DIRECTOR

Ajay Kumar Jain

THE CHIEF FINANCIAL OFFICER

Anubhav Gupta

GROUP CHIEF STRATEGY OFFICER

Udit Gajiwala

YES SECURITIES

Key numbers — 40 extracted

25%

30, 2022. As you all know, the PVC industry is witnessing a carnage. The resin prices collapsed 25% in Q2 and 12% in Q3 till date. This is after the fact that the prices crashed almost 35% from the

12%

ou all know, the PVC industry is witnessing a carnage. The resin prices collapsed 25% in Q2 and 12% in Q3 till date. This is after the fact that the prices crashed almost 35% from their peak till 3

35%

ollapsed 25% in Q2 and 12% in Q3 till date. This is after the fact that the prices crashed almost 35% from their peak till 30th June 2022. We have not seen such situation in our history. What it did

15%

rent PVC price levels are way below pre COVID levels given the fact the dollar has appreciated by 15% in the last two years. This suggests that correction may be adjusted soon from here on. This shou

rs,

correction may be adjusted soon from here on. This should instill confidence in our channel partners, which will lift volumes in coming quarters. Another data point I want to share is that in seven mo

20%

so far, we have maintained sales volume run rate of 5,000 metric tons per month, we suggest that 20% Y-o-Y growth for the current fiscal year. So I would like to appreciate the efforts put by the te

INR 37 crore

era, we are continuing with our capex program as planned earlier, we have spent INR 37 crores in quarter 1 and INR 8 crores in quarter 2 to meet our full year capex guidance of INR 60 crores

INR 8 crore

capex program as planned earlier, we have spent INR 37 crores in quarter 1 and INR 8 crores in quarter 2 to meet our full year capex guidance of INR 60 crores. I would like to remind every

INR 60 crore

INR 37 crores in quarter 1 and INR 8 crores in quarter 2 to meet our full year capex guidance of INR 60 crores. I would like to remind everyone that this ongoing capex is majorly for a greenfield plant, whic

100%

would like to remind everyone that this ongoing capex is majorly for a greenfield plant, which is 100% dedicated towards value-added products. We expect the new production to start in FY '24, which wi

gher input costs. Sales volume for the quarter stood at 15,465 metric tons, reporting a growth of 7% as against 14,518 metric tons in Q2 FY '22. Sales volume for H1 FY '23 stood at 29,871 metric ton

INR 207.0 crore

ic tons as against 24,920 metric tons, up by 20%. Volume from operations for the quarter stood at INR 207.0 crores as against INR 208.02 crores, in the Q2 FY '22 lower by 1% Y-o-Y. In H1 FY '23, half year revenu

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Guidance — 20 items

Sameer Gupta

opening

“At the same time, we have to improve our share of value added products such as HDPE, CPVC pipe and fittings and pipe fittings et cetera, we are continuing with our capex program as planned earlier, we have spent INR 37 crores in quarter 1 and INR 8 crores in quarter 2 to meet our full year capex guidance of INR 60 crores.”

Sameer Gupta

opening

“We expect the new production to start in FY '24, which will help us to meet our revenue targets of 25% CAGR.”

Ajay Kumar Jain

opening

“Going forward, we anticipate EBITDA margins to be stabilized.”

Anubhav Gupta

“So that balance will be inventory write-down.”

Sameer Gupta

“And of course, and in the next few days, we also expect some more drops.”

Anubhav Gupta

“If the drop sustains at this level, then the inventory losses will be much lower than what we saw in Q2.”

Anubhav Gupta

“So seeing -- going forward, we will be actually maintaining, you can say, maintaining the normal level of in-force in coming days.”

Jenish Karia

“If you can just broadly help us with the estimated market share currently that Apollo has annually to be going forward.”

Anubhav Gupta

“And given our revenue growth target of 25% CAGR till FY '25, we expect this market share to take it to 3.5%, 4%.”

Jenish Karia

“Sir, 25% CAGR level revenue run rate in terms of [inaudible 0:16:27] volume guidance?”

Risks & concerns — 1 flagged

So today is not a time to go and ask for a new distributorship with any new client because right now, the sentiments are too weak, so I guess, like I said, I mean, once the prices become stable and the sentiments are back in the industry, we will try to make up for all the losses, whether it was in terms of volume loss or distribution expansion loss.

— Anubhav Gupta

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Q&A — 12 exchanges

Sir, two questions from sir. Firstly, if you can just elaborate on the magnitude of inventory losses that you have resisted for the quarter.

Anubhav Gupta

Hi Aman. Good afternoon. This is Anubhav here. See, if you look at our quarterly revenue, which was around INR 210 crores, on a manufacturing level, we did make EBITDA spreads of like 12% to 13%. And of course, because of falling prices because of destocking in the channel, we had to push materials or some extra discount, et cetera, we gave to our channel partners. So let's say, we did a 10% EBITDA margin at operating level. And what we reported is 1.5%, 2%. So that balance will be inventory write-down. So this would be the tune of like INR 15 crores to INR 20 crores that should be what it is.

Two questions. First about PVC resin, how much we are importing currently, how much percentage wise of total?

Sameer Gupta

It is roughly around 70% of our total consumption of PVC, we are taking through imports. So is it fair to assume that inventory losses may continue in the Q3 also? Yes, of course, some part because in Q3 also -- as I told you in my opening remarks that there has already been a drop of around 12% till date. And of course, and in the next few days, we also expect some more drops. But I think that this should be a -- like I say, the bottom in near to bottom prices that we are witnessing. And once the prices take a U turn, then there should be some corrections in the prices. So we are not because

If you can just broadly help us with the estimated market share currently that Apollo has annually to be going forward.

Anubhav Gupta

So if you look at our market share, right, we are at a run rate of INR 800 crores to INR 1,000 crores of annual revenue run rate. On a market size of, say, INR 30,000 crores on reduced PVC prices. So this gives us a share of around 2%, 2.5. That's what where we are today. And given our revenue growth target of 25% CAGR till FY '25, we expect this market share to take it to 3.5%, 4%. Sir, 25% CAGR level revenue run rate in terms of [inaudible 0:16:27] volume guidance? So what do we say is that 20% volume CAGR and 20% to 25% volume CAGR and the rest will be the realization increase or, I would s

My question is regarding the distributors which you have. So you have 600 distributors across India. Can I know what percent of distributors sell the value-added as well as the commoditized or everyone sells everything at the end of the day?

Anubhav Gupta

So see, I mean, majority of our distributors will sell all the products at their counter. And that's the right to win for Apollo in last two, three years. When we go to our distributor and we sell all kind of products. That's where they see value being added from our side, and that's why they are sticking to us. So it is better to go to any distributor, reach out to him and sell the -- or offer him full SKU range. And that's how the stickiness will be there. Otherwise, if we do single product with single distributor, then my right to win goes away. My second question is just a follow-up on tha

I was just asking the percentage of our distributors who would be overlapping with our Apollo brand. So…

Anubhav Gupta

5%. 5%. Yes. When you talk about this right to win because of the power brand, what exactly are we talking about? Is there such little overlap? Because -- see I mean, ultimately, it's a building material segment. So today, any Indian who is buying -- who is renovating a home or buying a new home or doing some work at his home. So he would know Apollo because Apollo because in steel tubes in structural tubes, we are the biggest brand. So the number one pull comes from the end customer. And then the entrance -- today the distributors say, I'm going to a new market in South India. I would talk --

My first question is on inventory. So if you look at September '22, the inventory looks a tad bit higher at about INR 167 crores versus INR 132 crores in March and about INR 80 crores in September '21. So any particular reason for the high inventory?

Anubhav Gupta

So Bhargav, if you see in terms of days, in terms of days, we are at around 65 days. Now, if you look at the industry average also, that's also in the same range between 60 to 70 and this is because we are expanding our SKU range, right? We have to improve our serviceability with our channel partners, with our clients. So I guess as the industry is on average 60, 70 days. So you will see our inventory also being at similar levels of 60 to 70, although we try to become more efficient in terms of the raw material supply. But of course, because of this volatility in the pricing, we have not been

My first question is that our guidance of about INR 1000 crores for FY '23. Any change in those numbers after the subdued prices and the volume of that?

Anubhav Gupta

Yes. I guess there could be little, not much. One on the fact that, the PVC prices are down. But then also, we thought that we will be able to match INR 1,000 crores with our improving value- added products. And also when we gave guidance of INR 1,000 crores, we had not considered the PVC prices at INR 170 a kg, which were at like all-time high towards the end of FY '22. So we had already taken the normalized PVC prices while giving guidance of INR 1,000 crores. So I guess, there shouldn't be much of deviation from this number. Except the fact that in 2Q, of course, the volume growth was a lit

So the first question is basically on the EBITDA per kg side to, as you highlighted in the different like value add what is the normal margin of 17 to 20 to 25 per ton value added side. So what is the, like the blended EBITDA per kg that we make in normalized cases once the, what price volatility is gone in terms of PVC?

Anubhav Gupta

So that's like INR 16,000 to INR 17,000 per ton. And let's say the next two years to three years for our value-added product share. So how much ideally we are targeting internally right, so you mentioned around 55%, so how much we are targeting to… So we think there is a good chance to take it beyond INR 18,000 a ton. And in terms of percentage of revenue, value-added product. Share? It should be, okay. So then the mix will be at least 70%, 30%. 70%, 30%. That’s fine. And lastly, on the brand building side, sir, are we taking like what is the strategy that we are deploying to like we have some

I might have missed this earlier but, sir, on average, how much cheaper are we compared to, let's say, some of the larger players in terms of pricing? That's the first question.

Anubhav Gupta

So I guess on the overall portfolio, the range will be 2% to 5%. So that way, we're not even playing the pricing game too much in that sense because 2% to 5% is not, so then how do we see our volume growth going ahead? Because let's say, another large player, which has been losing distributors, is that something we are targeting? Because even at the distributor end there are only so many companies products he can keep. I guess, I mean, see our growth has been highest in the last four years, five years and it has not come at the cost of any established top brand. Where we have focused is the un

Yes. I see that employee expenses and other expenses have gone up on a year-on-year basis and sequentially also. So any specific thing that we should be looking at?

Anubhav Gupta

Not much to our analysis, except that, I mean, some increments would have been there, but nothing much. And sir, earlier we were guiding for EBITDA per kg INR 20 and above by FY '25. So are we in maintaining that guidance? So like I said, I mean, right now, we are at INR 17 a kg on a normalized level. The target is to take it beyond INR 18 and see where we land at INR 19 or INR 20, but yes, there is room to improve this to INR 20 a kg, given the top brand players are making such numbers. And just one last question, if I may. Last quarter we entered in the PPR segment, so anything incremental o

I just want a clarity with respect to your product mix. So when we say we are currently at 70% of value added product, this includes the entire non-agri portion and the PVC portion of the agri segment, right?

Sameer Gupta

No, Aman, we said that 70% is our target for FY '25. Right now, we are at 50%, 55%. I think you said around 60%, 65% is our VAP which you mentioned earlier, if I'm not wrong… What we say Aman is, see, I mean, 50% is agri, 50% is building materials. Now there is like 15% HDPE contribution, which is value-added product in agri. But then at the same time, 5%, 10% is like commoditized UPVC piping building material. So net-net, what comes to the value- added product is 55%. And when we say we want to raise this to 70%. We mean the 50% non-agri is what you want to raise to 70%, right? That is right.

Thank you all. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our team. Thank you once again for taking the time to join us on this call.

Management

Speaking time

Anubhav Gupta

Moderator

Jenish Karia

Aman Agarwal

Sameer Gupta

Dushyant

Bhargav Buddhadev

Deepak Lalwani

Vijay Chauhan

Avadhoot Joshi

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Opening remarks

Udit Gajiwala

Yes. Thank you, Michel. Good afternoon, everyone. On behalf of YES Securities, I welcome you all on the Q2 FY '23 earnings conference call of Apollo Pipes Limited. From the management side, we have with us today, Mr. Sameer Gupta, Managing Director; Mr. Ajay Kumar Jain, the Chief Financial Officer and Mr. Anubhav Gupta, Group Chief Strategy Officer. We'll start the call with the brief opening remarks from the management side and then open the floor for the Q&A session. Thank you, and over to you, sir.

Sameer Gupta

Thank you. Good afternoon, everyone, and thank you for joining us on our Q2 FY '23 earnings call to discuss the operating and financial performance. I'm sure you all have the opportunity to go through our results presentation, which provides detail of our operational and financial performance for the second quarter ended September 30, 2022. As you all know, the PVC industry is witnessing a carnage. The resin prices collapsed 25% in Q2 and 12% in Q3 till date. This is after the fact that the prices crashed almost 35% from their peak till 30th June 2022. We have not seen such situation in our history. What it did was that it created a panic in the industry, the traders and distributors went into market destocking mode to prevent stock losses. In such circumstances, we were working on 3-point strategy, prevent Apollo Pipes from inventory write-downs to the extent possible; second, push post volume to continue market share gains; and third, to increase share of value- added products to boo

Ajay Kumar Jain

And good afternoon, everyone. I will briefly cover the financial performance during the quarter and half year ended September 30, 2022. The company delivered a strong operational performance during the quarter. However, financials got impacted due to lower realization and higher input costs. Sales volume for the quarter stood at 15,465 metric tons, reporting a growth of 7% as against 14,518 metric tons in Q2 FY '22. Sales volume for H1 FY '23 stood at 29,871 metric tons as against 24,920 metric tons, up by 20%. Volume from operations for the quarter stood at INR 207.0 crores as against INR 208.02 crores, in the Q2 FY '22 lower by 1% Y-o-Y. In H1 FY '23, half year revenue from operations stood at INR 425.9 crores as against INR 345.8 crores, up by 23%. On the profitability front, EBITDA for the quarter declined to INR 2.5 crores versus INR 26 crores in Q2 FY '22. EBITDA for H1 FY '23 stood at INR 22.5 crores as against INR 43.4 crores, lower by 48% Y-o-Y. Margins for the half year ended

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