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APL Apollo Tubes Ltd
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Ladies and gentlemen, good day, and welcome to APL Apollo Q2 FY '23 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumant Kumar. Thank you, and over to you.
Thank you. Good afternoon, everyone, and very warm welcome to APL Apollo Limited 2Q FY '23 Post Results Earnings Call hosted by Motilal Oswal Securities Limited.
On the call today, we have management team being represented by Mr. Sanjay Gupta, Chairman and Managing Director; Mr. Deepak Goyal, CFO; Mr. Arun Agarwal, Chief Operating Officer. Mr. Anubhav Gupta, Chief Strategy Officer, will begin the call with key thoughts from the management team. Thereafter, we'll open the floor for Q&A. I would now like to request the management to share their perspective on the performance of the company. Thank you, and over to you.
Thanks, Sumant, and thanks, Mike. It's a pleasure to be here and talk about our Q2 FY '23 results. So the quarter which went by, in terms of volume, it was pretty exceptional with all-time high sales of 602,000 tons of volume. We are glad to share that we almost hit our peak capacity in September month with the volume of 203,000 tons.
Again, this shows that the capacities what we had to put up over the last 2, 3 years, they are near to the utilization levels. And this number is more important because the distributors were still under destocking mode as steel prices had not bottomed out. We believe prices shall plateau over the next 2 to 3 months, and we only see destocking happening at distributors post Q3 December month.
There is some disappointment in terms of margins as the EBITDA spreads were under pressure. It was basically because of 3 reasons what we see. One was the weak sales mix as commoditized sales contributed 45% to the overall volume versus 35% to 40% what we have seen historically. These sales were important because the markets had just opened up after the sharp correction in steel prices. So we also wanted to gain market share, and we went pretty aggressive on the sales and offered some extra sweetener discounts to our clients.
And also, if you see the contribution from Raipur has started in terms of volume, but in terms of margins, in terms of profitability, we are just at the breakeven level. So as the volume starts ramping up from October, November months, we'll see the contribution in terms of EBITDA also coming up significantly. Without Raipur, without new Raipur plant, the EBITDA spreads were near about INR 4,000 per ton.
When you compare our margin performance and sales performance with the other companies in the building material sector and value-added businesses of steel companies, we believe our performance was pretty satisfactory. Our partnership with Shankara has proven to be fruitful in the last 6 months. We finished the deal in the first quarter. And again, we're glad to share that the first half sales with Shankara has grown by 110% on Y-o-Y basis. This suggests that the ROI on that investment is pretty much on expected lines, and it will match our business ROCE of 30% plus.
The operating cash flows in the first half, again, were super strong with OCF forming 110% of the first half EBITDA. We could improve working capital slightly as we liquidated inventory as the volumes -- sales volume were all-time high at 602,000 tons.
This operating cash flow of INR 400 crores were utilized for Raipur CapEx and some other CapEx which we are incurring. And then there was a dividend payment of around INR 100 crores. That led to marginal increase in debt to INR 300 crores. But these debt levels will come down as the Raipur CapEx is near completion. And the operating cash flows which will be generated, they will help us reduce debt over the next 3 to 4 months.
The Raipur plant is pretty much on track, as you can see that, over the last 2, 3 quarters, there has been an increase in the volume coming up, but substantial increase, we will start seeing from months of November, December. And Q4, there should be pretty much all the lines will be commissioned, and the plant will show its true color from Q4 onwards. And our whole team is working day and night to ensure that all the lines are commissioned on time. And at the same time, all the products are innovative there. So the teams are also working to create the market for those products. And the results, whatever has come up, they are pretty much encouraging.
Lastly, I would like to say that as we ride through this top wave of global uncertainty and inflationary environment, our laser-sharp focus remains on the innovation, market creation and ESG. We have ensured that most of our new products, which are starting, whether in Raipur or other plants in APL Apollo, are 100% innovative, and they are being launched in India or globally for the first time ever. So our efforts towards market creation are at the same pace, so that the volume ramp-up from these new capacities can be pretty quick and fast.
All in all, our long-term volume target of 4 million tons by FY '25 remains intact, which suggests a 30% volume CAGR from FY '22 to FY '25, and this will be much higher than what the group has achieved over the last 4, 5 years in terms of volume CAGRs.
On the ESG front, we committed to reduce Scope 1 and 2 emissions per ton by 25% by 2030. And more than 50% of our power consumption will be met through renewable energy by 2030. So our efforts on the ESG front are also encouraging, and we continue to ensure that all the goals of the company are aligned with the ESG goals in the coming years.
All these efforts towards ESG are in addition of -- or in addition to 250,000 trees which we save by manufacturing environmental end products like chaukhats and window frames, et cetera. So as a group, we are pretty much committed to ensure that our ESG goals are met in an aggressive manner. That's it from our side. Mike, we can open the floor for Q&A.
[Operator Instructions] The first question from the line of Rahul Agarwal from Incred Capital.
Just 2 questions. Firstly, on Raipur. Just wanted to know the status of capacity addition and ramp-up. You alluded some bit of it in your commentary. If you could quantify, I mean, what kind of sale volume are we looking at in second half and more so for fourth quarter? And will the entire 1.5 million ton be ready by March?
Thanks, Rahul. Our ARPU plans, we are talking Q3 we almost, we are going to close about 70,000 to 75,000 tons. And Q4, we are targeting for on net ton with some of our machines from China. And there is no percent allowed to come from China to India. So some bottlenecking still, we are getting from the government in should allow them to give the [indiscernible]. So we are not sure -- maybe we delayed some 1 or 2 or 3 months. We are trying our level best to start with machines by online process. Next year, we are targeting in a Raipur plant almost close to 600,000 to 700,000 ton. And in the next '23/'24, we are targeting a target of 1 million ton. And 1 million to 1.5 million ton, we have some -- again, some bottlenecking, we have to order some machines. We are still waiting to first we ramp up this 1 million ton, then we go for the 1.5 million ton.
Got it. And then one more question on pricing of [indiscernible] What is the gap between primary and secondary streams? I mean, the price right now, how are they different from international pricing? And any outlook you could provide what's really happening on the [indiscernible] market? That's all from my side.
Rahul, today, the international market is close to going and landed at [ CFR ] Mumbai or Chennai. It's close to 5 40, 5 50. And Indian steel prices are close to 54, 55. And the price is still turning on around 50,000. [indiscernible] this is in our favor. And we are thinking if the people are saying in the investor market, the price are bottomed out because of coal prices are very high, the cost of steel also very high. So we are looking in maybe there is a slight decrease in the steel prices in India in the next 1 or 2 months. And then the price settled out or maybe in particular market go up, maybe there's no price fall in India. So we are in the middle of the situation in this time. What time you can say earlier, but before that time, we can't comment, and we can't forecast anything. But the better way we are to maintain our set, very light. [indiscernible] So we are trying to maintain as very light.
Got it, sir. And lastly, I have one question for you. I mean, the discounts and schemes offered gained market share is the key. How that should go off again in third and fourth quarter and EBITDA per ton should improve significantly. Is my understanding correct?
EBITDA per ton, we are targeting for [indiscernible] Earlier, our business plan is 22 to 23 lakh ton of total year volume. Further volume, we are very short in the cross 32 lakh ton easily. Now we are looking this is a cakewalk for us. On the margin side, maybe slightly -- I think right now, we are in the pressure. But we're looking -- we are -- we can maintain around EBITDA margin of 5,000 tons back on track. [indiscernible] go to INR 6,000. [indiscernible] we are not looking at this as possible. This year, we are targeting in the second half if we maintain the 5,000 tons [indiscernible].
We have the next question from the line of Sujit Jain from ASK Investment.
Anubhav, you mentioned that why the costs came in. So if I look at the [indiscernible], which you've given in the presentation Slide 19, [indiscernible] costs are at INR 10 crores. If I add that -- divide that by 6.02, your volume, then that can add back only about INR 1 70 a ton in terms of OP, whereas your commentary was that, because of those costs, ex of those costs, OP would have been at 4,000 per ton.
So Sujit, if you see in quarter 2, I refer the [indiscernible] has been shown at 0. Okay. In Q4/Q1, there was some operating profit, but in Q2 as the plant and machineries are ramping up and commissioning so because of higher labor costs and, obviously, there was some inventory, which we have to keep as the plant is ramping up. So there were some minor write-downs also on there. So that's why it is at 0 EBITDA level.
Maybe I will take this offline. And to Sanjay, if I heard it correctly, Raipur plant to contribute 6 to 7 lakh tons in FY '24 and about 1 million tons in FY '25 and then 1.5 million in FY '26. Is that correct?
Yes. Yes.
Okay. And INR 5,000 per ton on track. This commentary is for full year FY '23?
No, no, no. For the second half.
For the second of [indiscernible] per ton?
Yes. About maybe INR 200, INR 300 per ton minus or plus we can't say right now net amounts, but we are looking -- we can manage it around INR 5,000 per. So that in the first half, we did from INR 4,000 to INR 4,500, right, if you take 2 quarters separately. In second half, we are targeting from INR 4,500 to INR 5,000 per ton. So for the full year, the blended should be about INR 4,500.
Right. And this commentary, Chinese people could not travel to India and visit the plant. What exactly we are taking in Raipur plant from China?
Our 500 square mills from China, mainly this mill we are starting and struggling. And with 1 or 2 small, small things we are spending, but this is not a big matter. But our 500 square mills, which is our main [indiscernible] we're aggressively waiting for this mill. And true the Chinese are not coming to India. So we are steadily moving to ramp up this mill.
Sure. And one last question in the initial base of selling Raipur production, Q3/Q4, [indiscernible] and 1 lakh tons. Would that be centered on direct sales to large [ mans ], or this would be through distributors?
[indiscernible] and us mainly.
So the channels will remain same, okay? Barring some projects, which we get directly. But 70%, 80% of sales will flow through the same existing sales channels.
Okay. And finally, April Apollo Tricoat volumes now will go in light structure when Apollo had good sectors and a segmentation that you gave, right? It will not be mentioned separately.
That is right.
We have the next question from the line of Pallav Agarwal from Antique Stockbroking.
Sir, I had a question on what are we planning as our advertising and promotion expenses since you are planning and you see increasing volumes. So what is it currently as a percentage of sales and to what are we planning to spend going ahead?
So Pallav, right now, it is around -- in the range of INR 8 crores to INR 10 crores per quarter, okay? And this is still very low versus what we did in the Year 1 of FY '20 when we had launched the sale campaign and we did INR 50 crores, right? So we've been able to efficiently rationalize the brand expenses from INR 50 crores to around INR 25 crores to INR 30 crores annual range, right? And the visibility is same because, first year, we started with a bang and then second, third year we are taking help of more efficient and more cheaper medium like other holdings or social media. So I guess, for the time being, we are okay with INR 30 crore kind of annual run rate. And next year, there could be a slight increase as, of course, the Raipur products are coming online, the expenses to promote those products will be there. But then the volume uptick is also there, right? So on EBITDA per ton, this is -- it should be around INR 200 per ton per annum.
Okay, okay. The other -- Okay, yes. Okay. Fair. Sir, just wanted to also understand, given that the Raipur facility will be coming out with products which are relatively new in the market, so how do you see this acceptability -- like are you in your current interactions with builders or architects, how the traction or acceptability of these new products, how do you think that's going to play out?
So Pallav, we started this exercise already like 8, 9 months ago, okay? Obviously, because of [indiscernible] law, there has been a delay in the Raipur capacity ramp-up. But our earlier plan suggested that the plant should be ready between like -- or by mid of 2022 calendar year, right? So our marketing plans, we had started already last year, and then Jan/Feb of this calendar year. And so there are like 2, 3 types of promotions or market education, what we are doing here. One is -- so we have identified the influencers, okay, who are going to promote our products. So one influencer is the fabricator who will sell our product in retail, right? So that data we already had from the last 6, 7 years because we were very aggressive in organizing fabricator needs and doing direct communication with them, right? So we have reactivated that fabricator meetings on a large scale across India where our teams are on the ground, and they are meeting fabricators one on one. They are doing private search out kind of stuff where they are trying to assemble 20, 30 fabricators at one place, and we are also doing fabricators meets where 100, 200 fabricators come, and we tell them about our products, right? So one part is fabricator need.
Second part is taking part in architects and structure consultants who are more smart and more polished audience, right? So there also, we are doing one-on-one meets. So we are organizing a lot of seminars where we are trying to educate them about our products, for example, color-coated tubes, thicker sheets, and heavy structural tubes, right? A lot of seminars. It's all on our social media, our working YouTube channel. You can go and have a look. That we would have -- we would be doing at least one seminar, one exhibition per week. That's been the run rate for the last 4, 5 months now. So that way, the promotional activities are going on.
And then thirdly, our distributors and retailers that also we keep on meeting them and educating them about our products and innovative products. So that activity is ongoing. And that's why like Sanjay just a few seconds that said that we are eagerly waiting to start about 500 square mill because we know that we have been able to create market for that product, right? And the momentum will start. So we will have a lot of orders and flow coming in. And we hope that -- I mean, the mill capacity gets booked too quickly.
Sure. Sir, just final question. So with this large diameter pipes, will this cater more to the institution segment with the share of B2G or will that go up in our mix, or we don't really expect that to happen?
Not really because -- see, I mean, when we are creating the market, of course, we have to talk to the government agency who undertake the project or we talk to the contractors who are doing the project or we talk to the real estate developers who are doing the projects. But then the sales happen through our distributors, okay, the OEM business, which currently is 5% of the total sales. I don't think it should go up significantly. And anyway that there is any direct sales, whether B2G or B2B we are not going to compromise on the payment terms, okay? You can check with our -- I mean, clients like last year, we executed -- last financial year, we executed this hospital for B2G and the payment terms are same as -- which is like on cash, okay? Payment first year to deposit advance, then we won't deliver even one kind of pipe without money coming into our accounts. So that model continues, okay? The OEM sales, I don't think it should go beyond 7%, 8% of our total volume.
[Operator Instructions] We have the next question from the line of Bharat Shah from ASK Investment.
I heard of -- the conversation, but I still could not fully understand that what we were looking at almost about INR 6,000 a ton [indiscernible] 3,850 or thereabouts? I mean, what are the major sources to which such a sharp reduction has occurred in the final number? If you can help in reconciling, then it will be easier to comprehend what has happened.
[indiscernible] still come down from 6,000, which we are targeting to 4,000 [indiscernible]. One is all the committed parties with [indiscernible] due to the volume, we have to sell more. Number two, [indiscernible]. We certainly are buying [indiscernible] 8,000 [indiscernible] this cropping system [indiscernible] the steel prices are almost close to 74,000 ton, and we are closing the close to our price at 30 September, INR 54,000 per ton. [indiscernible] from the slide from INR 74,000 to INR 54,000, everybody wants to restock the material. So when we want to sell the material, we have to push the material. These are the main 3 results to INR 6,000 is a reason. This is not practical. I mean, [indiscernible] 6,000 [indiscernible] but at a promoter level, at a Chairman level, I can't take the easy target. [indiscernible] I'm not a promoter. I made a target to [indiscernible] took a target [indiscernible] destocking the entire. This is the 4 main reasons you can say clearly the [indiscernible].
Since the team is happening, i.e., to commodity shares, destocking and dry plants typically. Interactive platform, sir?
So on the target, we made a [indiscernible].
[Foreign Language] destocking [indiscernible] per ton...
50% over which matter destocking at. And 25% that plant has. 20%, 25% [indiscernible] aggressive target.
So purchase percent the impact it is destocking through right here.
74 to 54 price is higher. [indiscernible]
[Foreign Language] It ended up just kind of breakeven. [Foreign Language]
[Foreign Language]
[Foreign Language]
We paid up 53 to 55 cash for copper.
Okay. [Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language] I'm not worried about the November quarter. [Foreign Language] So I'm not worried about these margins for [indiscernible]. There were 55%, 60% gas market shareholder [indiscernible] very easy to increase the margin.
So are we to destocking for price and repeat steel prices and at the big moment pay. So now can we say that the picture is more normal now?
I think Q3, this picture will be over.
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
Impact will be low. I mean.
[Foreign Language]
Okay. If I have to read between the lines for the actual second half [Foreign Language]
Yes. [Foreign Language]
[Foreign Language]
[Foreign Language]
Okay. So if I had to summarize, destocking of the inventory movement impact was [indiscernible], that sector is behind us after this quarter. Secondly, [Foreign Language]
Last we have done 15,000 tons from app. This month, we are targeting 25,000 ton. And next month, we're targeting 25,000 ton. And January offers, we are targeting 50,000 at least.
I see. I see. [Foreign Language] Should be normalizing.
Yes. [Foreign Language]
[Foreign Language]
Yes. [Foreign Language] Remember, I am targeting at least INR 300 crore plus Q3 now, and Q4, we're targeting INR 350 as per the target, at least 30% of growth in Asia. [Foreign Language] I think INR 60 to INR 70 crore metallics [Foreign Language]. I mean, there are no guidelines to [indiscernible]. Still, I am hopeful to give up the INR 200 crore [indiscernible].
So appreciate, I understood the picture. Totally unusual circumstances despite the robust sales.
[Foreign Language]
[Foreign Language]
[indiscernible] You might like to talk some things.
Okay. [Foreign Language]
[Foreign Language]
[Foreign Language] We know that for sure. No, no. So to summarize, basically, a quarter with unusual circumstances comped with [indiscernible], which has taken us to kind of a result which became something we'd make in the past. [Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
We have the next question from the line of [ Pankaj from Kotak Mutual Fund ].
My question was more on cash flow. So when I look at our first-half consolidated cash flow, there has been a significant release from the trade receivable, and you have reduced your trade receivable by about INR 250-odd crores, which is roughly a swing compared to last year about almost INR 280 crores, INR 290 crores in one single half. So I just wanted understanding that how such a large number has been achieved, one?
And second, what is a little surprising is that, despite a huge generation of cash flow compared to the last half and after CapEx, we see that the noncurrent borrowings and current borrowings have gone up by INR 400 crores. And that has been then reinvested in fixed deposits. So can you just help us understand the cash flow part that why INR 400 crores have been raised on borrowings again despite of higher operating cash flows.
Thank you, Pankaj. There's 2 -- as far as what I understood your questions, there is 2 main questions. One about the generation and one about the cash flow. The bank debt is increased. [indiscernible]
[indiscernible]
[Foreign Language] almost close to 200 crores percentage. [Foreign Language] Now we [indiscernible] APL is not going to give you a refund. You take your own fund from the banks, and now you go perform. [Foreign Language] All the numbers are mismatched. You have to see old APL and the EBIT could see after 2 quarters.
[Foreign Language]
Condition of net debt, taking in net debt only INR 75 crores increase the cap and that balance may be INR 300 crores to increase it.
[indiscernible]
[indiscernible] Okay, 3 entities is there. [indiscernible] there is a cash outflow of around INR 250 crore. The APL Apollo maintenance is around INR 50 crores or INR 100-odd crores. So may have demand all [indiscernible] and either occupants [indiscernible]. That's why after borrowing [indiscernible]. Or secondly, how many exports advertisement export where we have the interest of mentions there to [indiscernible].
Because our export rate of interest is less and a rate of interest is aligned.
Almost 3% to 3.5%.
3.5% wherein we gain more interest.
[Operator Instructions] We have the next question from the line of Lavanya from UBS.
[indiscernible] So I just wanted to check on what is the current export share and what it was in the base quarter as last year?
So Lavanya, it's been quite stable below 5%. That's the contribution we get from exports. Now that some of our value-added products will start in that quote, that proportion will rise. But right now, it's just below 5%.
Okay. Even in the current quarter, export share is similar -- at similar levels.
Yes.
Okay. Okay. So maybe on the heavy segment that you're seeing -- I mean, participation or interest from private cost because I just wanted to check on that because for the max health, company has highlighted on structural steel usage for hospitals. So I just wanted to know your view on how you're looking at private hospitals also for the segment?
So Lavanya, it's not just about private hospitals, See, there are 2 types of influences there. One is the government. Second is a private owner or developer. If you look at government today, they want fast hospital today. They want faster schools. They want faster educational buildings. They want faster transportation, whether it is metro station or railway station or airports, and they want faster housing projects. Now coming to the private side, whether it's a hospital chain, hotel chain, real estate developer, right, if they are able to finish construction within 2 years versus 3 years, it boosts their highlights. Okay. So interest is from hospitals, yes. And second, I mean, whether you take up hotels, you take up data centers, you take up warehouses, you take up manufacturing facilities, you take up shopping malls, you take up commercial buildings, office complexes, we are working on all types of projects.
Okay. So can you help us understand what's the progress in any of this? Like everything is in still talks or discussion stage and...
[indiscernible] We have got 4, 5 confirmations, okay, across categories like A grade warehouse, okay, and office building, right, one more hospital, okay, and there are 3, 4 more projects. So 4, 5 confirmations have already come, a school building also for that matter. So that work will start over the next 1 to 2 months for these projects. And right now, there is a pipeline of more than 45 projects where -- which could put up the steel tube demand of 250,000 tons, okay? So we are working aggressively on these projects. And as and when the projects start, right, that pipeline will keep on rising, and you will see more and more similar buildings across India.
Okay. Got it. And if I may ask one more question. So for new projects, like four or five which you have mentioned that you got confirmation, so the current capacity which is there, will that be sufficient? Or the deal which we are facing related to [indiscernible] that impact for these projects. So I just wanted to understand that.
So we already have a mill which is running in old APL plant, right? So that is sufficient to feed any upcoming demand, right, 3, 4 projects, which will start over the next 1, 2 months. And maybe by December, worst case last week of December, we will have our 500 square ready, right? So that will feed any kind of demand. We are not worried about that.
We have the next question on the line of AXA Securities from [indiscernible]
So I have one question on the balance sheet on Slide 28. So if you see the inventories are still at a higher level of INR 1,100 crores from INR 850 crores in FY '22, does that mean that in Q3, there will be further liquidation of these inventories, and we will see kind of repeat of what has happened in Q2? Or is it a raw material inventory or more of a finished good inventory. And if it is a finished good inventory, then again, in Q3, we will see more offloading of that.
See, I mean inventory, you see in number of days, right? So you compare FY '22 and September '23, right? So in days, it is like 24 versus 27, right? So it's pretty much same. In terms of value, it has gone up, of course, because of the rising sales volume, right, starting off the Raipur plant where we have to keep some inventory like we are projecting 75,000 ton of volume in Q3, right? So we need to have some readily raw material there. So that's why it is -- and like majority of this inventory is raw material. We keep very less or low finished good inventory at our warehouses.
Yes, understood. And secondly, on CapEx. So with this Raipur plant now being 80% complete, so what's the guidance in FY '24? Will the CapEx level go down further?
So for the next 3 years until FY '25, we think we're going to spend around INR 500 crores maximum, which will be similar to our CapEx, right? Then we are putting up one plant in Dubai, right? We might do Calcutta also, right, and some maintenance CapEx. So all put together, cumulative FY '20 -- second half FY '23, FY '24, FY '25 in 2.5 years, it should be INR 500 crores cumulative.
Okay. Understood.
And this will take up our capacity beyond 4.5 million tons.
We have the next question from the line of Kunal from Centrum Broking.
Sir, my question is that you mentioned the major reason for the fall in the EBITDA margins due to fall in the steel prices. But during the quarter, if we see the movement of the steel prices, it has been quite stable from June to July, July to August and August to September. Despite -- and also like our inventory base is also very stable to around [indiscernible]
Kunal, Sorry. Sorry to interrupt. We didn't say that EBITDA per ton declined because of falling steel prices. Our EBITDA per ton declined because of destocking with our distributors. They were in the destocking mode because steel prices are falling, so they were not ready to lift material. Normally, our distributors work on 20 to 30 days of inventory at their warehouses. But when those prices are falling, they go into destocking mode, and they work on 15, 20 days inventory. So they destock, right. When they destock, we have to offer some discounts to our distributors. That's why EBITDA per ton declined not because there were inventory write-downs on our books.
Okay. Okay. Okay. Got it. So like as we believe that the destocking will further continue in quarter 3, so how does the discount will increase it for the quarter 3?
So obviously, see, I mean, in Q3, we don't expect steel prices to fall INR 15,000 per ton as they did in Q2 or INR 10,000 per ton as they did in Q2, okay? So there should be a marginal drop. And obviously, we will lift the discounting, which we have been giving. So it should boost our margins in Q3 and Q4.
We have the next question on the line of Akshay from Canara Robeco Mutual Fund.
Just if I understood it correctly, so you are guiding for Q3 to be around 70,000, 75,000 tons from Raipur. And Q4, you are talking about 1 lakh ton. So that amounts to say 1 to 1.75 lakh tons. And then FY '24, you are talking about 6 to 7 lakh tons from Raipur. And then FY '25, you're talking about 1 million tons and, in FY '26, 1.5 million tons. So then how does the math look like? How do we achieve 4 million ton in FY '25? Like is there some mistake in my numbers? Or how is it? Or maybe if you can reiterate your guidance, like what is the new expectations over the next 2, 3 years? And what part of it will come from Raipur, and what is the EBITDA part and expectation from your side? So if you can clarify this, that would be helpful.
If you see in the Q2 number, sir, we then got volume from APL without Raipur with 585,000 tons. If you multiply 5.85 is close to 24 lakh ton. And with the support of demand and some are some bottlenecking, we also kick away this capital go to 2.8 million, 2.9 million tons. [Foreign Language].
Okay. So you mean that on the existing plant, you are doing some debottlenecking exercise, which will increase the capacity from 2.6...
2, 3 lakh tons, not more.
Okay. Okay. Okay. Understood, sir. And your EBITDA per ton guidance, like in '23, '24, '25, what are the expectations?
[indiscernible] My target is always high. I'm seeing at least minimum INR 5,000 ton for APL, INR 7,000 to INR 8,000 ton for APL. And what type of facility we are putting in Dubai. And there is bigger size demand is very good in the way recently we are sending the material from India is sitting there. If you see the credit side [indiscernible] more than 10,000 ton in Dubai. EBITDA, again, there is commentary, the close to INR 5,000 ton EBITDA. So all put together, I'm very -- so the 6,000 [indiscernible] EBITDA, I can get to INR 2,025.
We have the next question from the line of Pallav Agarwal from Antique Stockbroking.
Yes, sir. Sir, I just had a clarification on a minority interest. So I understand that the merger has happened, but I don't see any dilution in the share capital. So could we just clarify what will be the dilution and when that will come in?
Today, we have allotted the sale to the new shareholders of the Apollo Tricoat. So in the next quarter, impact will be then.
And could you just quantify because you know over what is the personnel dilution.
10% dilution over.
We have the next question from the line of Rahul Agarwal from Incred Capital.
And one question on the Delhi pollution. Last time, I think we had some issues with material dispatches. This time around, how is that behaving? Is there any government regulation again? Could we see some negative surprises here in third quarter?
I can't understand, Rahul. [Foreign Language]
[Foreign Language] The transport of materials had some issues for APL in history. I was asking, is that very serious even this time around?
Slightly, sightly is the difference. Transport is not a problem. But slightly in the North region in the LC demand is sluggish because all the customer activity is on hold. So there's slightly -- 20%, 25% demand is so you can say the NCR system for the whole system, which is very new for us.
Okay. Okay. So whatever number you're talking about, that is adjusted for this thing, right? We should not see any negative surprise in dispatch there.
No, no. For the volume, yes, no surprise. For the margins, we are studying, and we want to fulfill our target.
Got it, sir. And one clarification on the receivable theme. You explained some INR 250 crores shift because of some trade finance, and then I couldn't really understand.
No, no. Clearly, the [indiscernible] is not set with our almost full [indiscernible] crores, banks are not giving the channel pricing or other facilities. So this -- our -- the finance company is giving for at almost close to INR 200-odd crore. Right now, I mean not get the product. They are now taking the facility from [indiscernible].
So it's like that the team of [indiscernible] is going and meeting the steel traders in the market, including distributors who may be doing work of Apollo or not, right? And if they find their offering goods or they're going for it. And in that situation, some of the receivables from Apollo got like funded from [indiscernible].
Got it. This should also help increase volumes isn't it? Because some business would have lost because of low credit. That should come back?
Sure, sure. So there is no doubt this is the clear impact in the month of September. We have done our highest volume ever I guess all improved at 30,000 tons. Not to transact it [indiscernible] precisely 238,000 tons we are turning the month of September.
Got it, sir. And this [ SG Finserv ] supply chain finance is completely nonrecourse to APL is it? .
Without any recourse. This is a totally different body. They work differently. They [indiscernible] with all the customers, and then they give the finance.
So just to put on record, there is no guarantee from APL Apollo. There is no recourse. There is no risk on APL Apollo. As you can totally see, it's a separate entity being owned separately, managed separately with 0 default rates to APL Apollo.
We have the next question from the line of Rahul Jain from Systematix.
Just want to check, sir, we are growing our volumes at 25% CAGR you mentioned. The steel market definitely -- people are looking at 3% kind of volume growth over the long term. So where do you think you're getting this extra market share from? And what are your thoughts on doing any kind of inorganic because we have not really looked at that side. So can you just clarify these 2 things?
So Rahul, coming to the second part of the question first on inorganic acquisition or opportunity, the market is under -- has been under stress for the last 2, 3 years. There has been a lot of malls who have shut down, and there are a lot of deals which come on the table. So we keep on evaluating but nothing material today, which we can talk about. And first part of the question was about how do we improve the market share, right? That was the question?
Yes, exactly because our growth rates are really outstanding income of how the market is growing. And my only concern from that point is that does it also lead to a challenge in terms of keeping your margins where they are? Because if you're offering such higher quantity, obviously basic math says that you will have to make your product a lot more attractive, right? So that is -- I just want to bridge these 2 things.
See, for market share, which reflects 55% for us okay, you need to break our portfolio into 3 segments. One is commoditized. Second is value-added, or super value added, okay? And in super value added, which are like complete innovative products where APL has a lead for next 4, 5 years because no other competitor is in the competition. Right? There, we have 100% market share because we innovated the product, we launched the product, and we control 100% of the market, right? So that portfolio of sales stood at 20% or 25%. When it comes to value-added products, where APL innovated 3, 4, 5 years ago, and then we created the market, we enjoyed the market share, but then the competitors came into picture and they also came into be competition, right? So that portfolio will be, say, 40% today, okay, where margin will be slightly lower than super value add. And the market share will be say 70% for those products. Then the third category, which is commoditized, which today is like 35%, 40% of the portfolio, there the market share will be 10% to 20% only, okay, because we started mass manufacturing of square converted tubes like 15 years ago, right? And then the computers came in. They also switched from round to around to square rectangular tube and how that segment is commoditized, right? So there, our market share is 10% to 20%. So how we will achieve 30% volumes to Asia and still improve the EBITDA spreads by growing our portfolio in the super value-added segment, right, and value-added segment.
So basically, you just buy from a new products which you're developing. So you're very positive on the kind of strategy in the customer segment and you will be able to get the margin, which will keep it very higher company levels.
That's how we have grown in the last 10 years, right? It's not next 3-year story. I mean look at our 10-year story, that's how we have grown. Our spreads are highest in this sector because of the valuation and super value addition and innovation.
We have the next question from the line of Abhishek Ghosh from DSP.
Sir, just in terms of the EBITDA per ton, if you see on a sequential basis, I think one of the major drop has come in about the general structures. The rest of the -- so is the discounting more into that particular commodity product? Or how should one read it? Because there you have done almost something like INR 1,400 of EBITDA per ton. So is that section which was more impacted by the destocking element?
Yes, because that is also the more competitive product, Abhishek, right, where I just said that our market share is 10% to 20%. So there, we have to grow most aggressive. And that's where we offer extra support to our distributors.
Okay. And how is the differential with scrap today in terms of -- because that is very important in determining the margins in this segment. So how should one look at the difference with the scrap today?
So it is back to the long-term average -- historic long-term average, which is like INR 5 to INR 7 per kilo. That's where we are today.
Okay. And just one last question in terms of the -- if I look at the volumes in the Raipur structures, that volume seems to have seen a major decline of almost about 13% on a Y-o-Y basis. Sequentially also, it is down. So is it a conscious decision as a strategy? Or how should one look at it? Just your thoughts.
Abhishek, this is another point which you highlighted, seeing it's highlighting that this school structure is our value-added product. And the sales were weak in Q2 of FY '23 because of our floods and late monsoon in certain coastal markets, which is the main market for this product, okay? So there is nothing conscious decision like that as the markets have opened up after the monsoon and flood, et cetera, you will see the uptick in volume in Q3 and Q4.
Okay. So in terms of the general structure, which has increased to almost something like 46% of total volumes in 2Q and which has -- which in certain quarters goes down to as low as 33, 35, what should this number be post Raipur comes in? How should one look at this number?
Eventually, like on 4.2 million, 4.3 million ton capacity, this number should be less than 25% on a consistent basis.
That was the last question. I now hand it over to the management for closing comments.
Thanks, Mike. Thanks, Motilal team, for hosting us for our quarterly call. See you next time. Thank you very much. Bye.
Thank you. On behalf of Motilal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.