APOLLOPIPENSEQ3 FY25January 30, 2025

Apollo Pipes Limited

8,213words

130turns

19analyst exchanges

5executives

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Management on call

Sameer Gupta

CHAIRMAN AND MANAGING

Arun Agarwal

JOINT MANAGING DIRECTOR – APOLLO PIPES LIMITED

Ajay Kumar Jain

CHIEF FINANCIAL OFFICER

Anubhav Gupta

GROUP CHIEF STRATEGY

Harsh Pathak

EMKAY GLOBAL FINANCIAL SERVICES

Key numbers — 40 extracted

43%

quarterly performance in terms of sales volume of 27,000 metric tons registering strong growth of 43% Y-o-Y and 34% Q-o-Q. The reason for this performance was our aggressive sales strategy which work

34%

ormance in terms of sales volume of 27,000 metric tons registering strong growth of 43% Y-o-Y and 34% Q-o-Q. The reason for this performance was our aggressive sales strategy which worked pan India a

rs,

product categories. Please note that we are yet to receive contributions from three revenue drivers, PVCO pipe segment, window profile product segment and Varanasi plant. This will drive our volumes

Rs. 430 crore

will drive our volumes higher in Q4 and FY26. In last seven quarters, we have incurred capex of Rs. 430 crores including Kisan investment and yet we remain debt free. We have a plan to invest further Rs. 400

Rs. 400 crore

0 crores including Kisan investment and yet we remain debt free. We have a plan to invest further Rs. 400 crores over the next 3 years to finish ongoing projects and set up a Greenfield South India plant which

3.6 lakh

oing projects and set up a Greenfield South India plant which shall take up our total capacity to 3.6 lakhs tons. And to fund this investment, we got commitment from an Oman based fund Kitara Capital whic

INR110 crore

fund this investment, we got commitment from an Oman based fund Kitara Capital which is investing INR110 crores at almost 30% premium to today's market price. This demonstrates the faith and conviction in our

30%

got commitment from an Oman based fund Kitara Capital which is investing INR110 crores at almost 30% premium to today's market price. This demonstrates the faith and conviction in our business model

BITDA margin mainly due to Kisan consolidation. At APL Apollo level, margins remain stable around 9%. Higher depreciation cost further pressurizes our net margins. However, we are not much concerned

25%

expense, 3. margin pressure and 4. Weak macro environment. However, we are confident of achieving 25% of ROCE in next 2 years as we increase our sales volume 25% CAGR with margin improvement. This is

INR250 crore

ed a very high margin as that's the product profile. So in Q3, when we increased our revenue from INR250 crores to INR310 crores quarter-on-quarter, so the overall product sales mix which was there till Q2, i

INR310 crore

rgin as that's the product profile. So in Q3, when we increased our revenue from INR250 crores to INR310 crores quarter-on-quarter, so the overall product sales mix which was there till Q2, it rammed up. So

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Guidance — 20 items

Sameer Gupta

opening

“This will drive our volumes higher in Q4 and FY26.”

Sameer Gupta

opening

“We expect good demand from Agri and housing segments for the last quarter.”

Sameer Gupta

opening

“As the prices have reached low level, we expect demand recovery in Q4.”

Sameer Gupta

opening

“We expect government trust on water infrastructure and housing to return after some important state elections are over.”

Sameer Gupta

opening

“However, we are confident of achieving 25% of ROCE in next 2 years as we increase our sales volume 25% CAGR with margin improvement.”

Utkarsh Nopany

“And so what would be the margin guidance for both Kisan and for standalone operations, say for FY26?”

Anubhav Gupta

“Given that, the high margin OPVC and window profiles will contribute significantly in FY26.”

Anubhav Gupta

“So margins should be better by about like INR500 to INR1,000 a ton minimum, but then we also need to see that what is the intensity of market growth in FY26 because as of now the macro factors continue to remain pretty sluggish.”

Utkarsh Nopany

“And sir lastly, how much capex we have incurred in 9 months FY25?”

Utkarsh Nopany

“And what is our capex outlook for the current March quarter and for FY26?”

Risks & concerns — 8 flagged

It's been an interesting quarter as the macro factors related to infra and retail demand remained weak.

— Sameer Gupta

I want to reiterate that here Apollo Pipes will always remain debt free which help us to ride any slowdown smoothly.

— Sameer Gupta

In Q3, our profitability got negatively impacted due to decline in EBITDA margin mainly due to Kisan consolidation.

— Sameer Gupta

So industry is under pressure on selling price, everyone is trying to gain market share here.

— Anubhav Gupta

And do we see any challenge in terms of fund flow challenge from the government and due to as the capex has been slowed down, there is a slowdown from the government end.

— Pujan Shah

So do we feel any challenge out there due to might there would be a spike in our RM that could impact our realization?

— Pujan Shah

Second is BTL below the line, because of stress in the demand, stress on the margins, we decided that it doesn't make too much sense to go above the line.

— Anubhav Gupta

The first fee comes right from the origination of the group where we don't want to have debt on the books because whenever there is a downturn in the industry, the revenue is under pressure, the margins are under pressure at the operating level and then interest cost also brings companies down.

— Anubhav Gupta

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Q&A — 19 exchanges

Hi. Good morning, sir. Sir, wanted to know on the margin performance for December quarter. So we have seen a sequential contraction in our margin in December quarter. What is the reason for the same and have we booked any M2M inventory loss also in December quarter?

Anubhav Gupta

So if you look at the Q-o-Q comparison it is not comparable because in Q2 the volumes had fallen pretty sharply and OPVC had started contributing to Q2 which was like higher as a proportion and that carried a very high margin as that's the product profile. So in Q3, when we increased our revenue from INR250 crores to INR310 crores quarter-on-quarter, so the overall product sales mix which was there till Q2, it rammed up. So that's why the margins I would say are more nominal now at around INR10,000 per ton at APL Apollo level. And Kisan anyways is ramping up. So Kisan is at INR4,000 per ton. S

So my first question would be on the OPVC side. So we are hearing more on the side that many Chinese lines have been coming and disrupting the market. So could you just state your views and what are the current industry dynamics and what could be the potential dynamics could be changing out in next 2 years to 3 years?

Sameer Gupta

You're asking about OPVC? Yes. So it's a very new product segment which has emerged in India in last 1 year to 1. 5 years. It's a replacement of ductile iron pipes in the water infrastructure projects. If you look at the transition of PVC piping industry over the last 10 years, 15 years, 20 years, it's always been the shifting of metal pipes to PVC pipes because of better handling, low cost, easy to install, etcetera. So wherever, like earlier the transition was in the low dia pipes in plumbing and agri. Now it is coming to large dia pipes, which are being used for the water infrastructure pro

Firstly, congrats on good volumes. Just wanted to gauge to this particular quarter specifically, we have outperformed the industry. If I look at the volumes, even X of Kisan is coming out to be around 13% Y-o-Y growth. What is it leading to outperformance and versus the industry leader was already giving the number out. And how confident are you in terms of outperforming over the next 2 years to 3 years? Some insights would be helpful?

Anubhav Gupta

So Sneha there are like two, three factors here. One is that, I mean, if you look at our trade sales volume growth over the last two, three quarters has been pretty strong, but when we report the numbers because of poor demand from the water infrastructure, the numbers had been looking pretty bad, but our trade sales volume growth has always been in like high single digit or low double digit in the last three, four quarters, when you saw that our overall volumes were not growing. It's not that water infrastructure demand has revived. It has not - that segment still contributes less than 5% of

Hi, good morning. Thank you for the opportunity. A few questions firstly to start with South India Greenfield project, I just wanted to hear your thoughts on the broader thought on the complex which you think should come up whenever you decide the location. How would you want to take up this project? Can we do better in terms of product offerings, supply chain, input- output ratio for production and stuff like that? So just broader thoughts before the project actually gets finalized. What would you want to do in South India and what kind of products will you offer and things like that, please?

Anubhav Gupta

So Rahul, this is also part of our overall strategy which we have been following for the last 2 years to 3 years. So if you look at Apollo in last 5 years, we had one mother plant in North India, where we were among top two, top three players in terms of market share, in terms of pricing. Then we had smaller plants in West India, in Gujarat, very small plant with capacity of 15,000 to 20,000 tons, even lower than that. Then Kisan in South, we acquired in Tumkur, which had capacity of 15,000 tons to 20,000 tons. We did some Brownfield there. Now the capacity is like 35,000 tons there. And then

Thank you so much for the opportunity. My first question is related to OPVC. Sir, you mentioned that we have two lines operational and one line will be commissioned in the next couple of months. I just wanted to understand how much capex that we have incurred for these three lines?

Arun Agarwal

It is close to INR100 crores. Is it close to INR100 crores? Yes. Okay and how should one understand the margins of this OPVC segment? It will be obviously better versus what we are clocking right now? It is a bit sensitive issue. We do not want to give the exact profitability numbers, but it is much more than what our other products are making. And this investment we plan to like the return on this investment is like 2 years to 3 years payback. Okay, sir it would be fair enough if we say that margins are in a similar range of CPVC? We do not want to comment on this, please. Got it. And sir can

Yes, team with respect to the inventory levels in the channel. Now that PVC prices have not seen that much of volatility starting from November. So, how do you see things at the inventory level?

Anubhav Gupta

Sameer ji, you want to answer this? Yes, if you see that the PVC prices are almost near to bottom. So, the inventory levels right now still there is a fear in the mind of our distributor or dealer segment. So inventory levels are quite low with them. They are not keen to keep any high inventories or high level of stocks with them. So it is normal or below normal, not high. And one last question from my side. Sir, our operating margins on the standalone business is holding good because the infrastructure contribution has come down significantly, but if government capex was to come back in next

Hello, good morning, sir. I just wanted to understand if possible, can we have the revenue share from UP? And do you think there could be meaningful contribution in the coming quarter because of the Kumbh Mela?

Anubhav Gupta

Which product you asked? Overall company revenues from UP Uttar Pradesh? So see North has been our main market as of now. 65% of our sales come from North. Obviously, with Kisan the Western market started to contribute to our consolidated numbers. Kumbh has not been too much driver for infrastructure spending. In fact, it brings a lot of disruption in movement of materials. Whether it's residential, housing, construction, private or it's government infra. Of course, I mean for last 1 year, 2 years government had been focusing on modernizing the railways there the aviation, airports, etcetera w

Hello, good morning sir.

Management

Good morning sir. My question is related to OPVC. Are we facing some trouble selling into Chhattisgarh market? We were hearing some rumors that we will be listed in Parliament list due to some criteria to your experience criteria. Is it correct? Are we facing this problem in other states also?

Anubhav Gupta

No, Aditya, if you could understand can you repeat the question for us?

Is it clear now?

Management

Sir my follow-up question would be on the OPVC side. So we broadly understand that the Spain or the technology has been the capacity has been limited. And even we say that the Chinese companies extrusion machine are not up to the mark. So do we feel that in the coming years ahead we'll start procuring from the domestic company which might - which they claim that they have cracked the technology as well. So do we start procuring from them and what could be like is there any consideration for that?

Arun Agarwal

Yes, Pujan, actually, if you see the technology is evolving. And right now as of today, the difference between technology, what Spanish or the European manufacturers are giving are way above than what we are getting from the Chinese manufacturers. So it is you can say, it will take some time right now for them to evolve and get them to the level of - to the level of European manufacturers. Of course, they will get to this level in the coming years, but for the next 2 years to 3 years we don't see significant you can say, upgradation of the Chinese machines to the level of European manufacturer

Just wanted to ask how is the traction in plastic faucet tap and shower that we have launched? Any thoughts there, just wanted to hear how that business is doing?

Anubhav Gupta

So, Akash, we started that business 3 years ago and we made a small investment to test the waters. And we did build a business which started contributing a little to our overall revenue, but then we realized that it requires much more bandwidth, much more investment into multiple SKUs, multiple modes for the complete SKU range. And we just decided not to invest further in that segment because the focus shifted more towards larger volume products which we found OPVC is one of those or window profiles and then expansion in Varanasi and South India. So, we just thought let's give a pause for...

Can you hear me now?

Management

So I will repeat, I'm sorry. So what I was saying was that we stopped ourselves from making further investments into that product segment because it required more bandwidth, more investment to have the complete SKU range and more focused approach. So we thought that let us first get into more voluminous products which we found in OPVC and window profile and then expanding geographically Varanasi and South India. So once we finish with these expansions, then we'll see that how we want to take basketing as a category. I mean, in between we were evaluating some inorganic opportunities also. A lot

Akash

Sure. Thank you.

So, my question might be repetitive because I joined the call lately. So what was the reason behind this pref issue?

Management

So, I was asking what was the reason behind this pref issue? I mean, how are we using the funds?

Anubhav Gupta

So, Manan we have a capex outlay plan of INR400 crores for the next 2 years to 3 years. And as per our business model, we shall be generating operating cash flow of INR300 crores in the next 2 years to 2.5 years and balance residual INR100 crores which was residual we thought it is better to have equity infusion rather than going for any debt. You would appreciate that we have invested INR400 crores in the last 2 years so far and remain - and yet we remain debt free. So, we want to remain as a debt-free company while building aggressive capacity. The first fee comes right from the origination

Yes or we take the last question. If Aditya is not there we take the last question.

Management

Just a quick question. Could you give some color on the receivables on the agri side? Do we operate on a cash-in-carry model or is there a credit cycle involved in that?

Anubhav Gupta

So, I mean, 90% of our products are sold to dealers, Chinmay. Now, whether they sell to housing players or they sell to agri players, that's their purview. If you look at our receivable cycle, that's around 30 days 35 days which we have with our dealers. So yes it doesn't matter to us whether my dealer is selling in agri or he's selling in housing. We don't offer more than 30 days, 40 days of credit period to our distributors. From there 90% of our sales are generated. Sure sir. Thank you.

Yes. Thank you, Team Emkay and Chorus for conducting this concall. 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 for taking the time to join us on this call.

Management

Speaking time

Anubhav Gupta

Moderator

Pujan Shah

Sameer Gupta

Arun Agarwal

Bhavin Rupani

Utkarsh Nopany

Sneha Talreja

Rahul Agarwal

Rishab Bothra

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Opening remarks

Harsh Pathak

Thank you, Yashashri and good morning everyone. I would like to welcome the management and thank them for this opportunity. We have with us today Mr. Sameer Gupta, Chairman and Managing Director, Mr. Arun Agarwal, Joint Managing Director, Mr. Ajay Kumar Jain, Chief Financial Officer and Mr. Anubhav Gupta, Group Chief Strategy Officer. I shall now hand over the call to the management for the opening remarks. Over to you gentlemen.

Sameer Gupta

Thank you. Good morning everyone. This is Sameer Gupta, CMD Apollo Pipes here. I along with my colleagues, Arun Agarwal (JMD), AK Jain (CFO) and Anubhav Gupta (Group CSO). Welcome everyone to the Apollo Pipes Q3 FY25 Earnings Call. It's been an interesting quarter as the macro factors related to infra and retail demand remained weak. However, Apollo Pipes has given its best ever quarterly performance in terms of sales volume of 27,000 metric tons registering strong growth of 43% Y-o-Y and 34% Q-o-Q. The reason for this performance was our aggressive sales strategy which worked pan India and we could improve our market share after a gap of few quarters. We continue to focus on sales push and increase our capacities across new geographies and new product categories. Please note that we are yet to receive contributions from three revenue drivers, PVCO pipe segment, window profile product segment and Varanasi plant. This will drive our volumes higher in Q4 and FY26. In last seven quarters,

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