APL Apollo Tubes Ltd
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APL Apollo Tubes Ltd
Earnings Call Analysis
Q2-2024 Analysis
APL Apollo Tubes Ltd
APL Apollo Tubes Limited's Q2 FY '24 earnings call reveals a strategic emphasis on adaptable growth and margin improvement through varied product initiatives. The company aspires to surpass its previous quarter's absolute EBITDA number each quarter, a goal that may entail more sales of either higher or lower volume products depending on market conditions. Diverse product segments across multiple industries, particularly within the construction sector, allow APL Apollo to mitigate underperformance in any one segment by leveraging profits from others. They've indicated that with new facilities in Raipur and Dubai ramping up operations, both known for higher-EBITDA margin products, there's an anticipated expansion in EBITDA per tonne.
The company did not report significant inventory gains or losses, attributing this to stable steel prices quarter over quarter. APL Apollo expects an improvement in the value-added product (VAP) mix to 70%, once the Raipur and Dubai plants fully ramp up, although recent quarters showed a VAP mix at approximately 55%, slightly lower than historical highs of around 63% in FY '22. Current conditions such as monsoon and floods have affected product lines like Apollo Z but the recovery is anticipated in subsequent quarters. Strategic partnerships, as seen with Shankara, continues to grow, with volumes doubling since the collaboration began, and APL Apollo is on track to align Shankara's growth with the company's overall sales growth.
APL Apollo's total capacity including the Raipur plant has reached approximately 3.6 to 3.7 million tonnes and is projected to expand to 5 million tonnes over the next 12 months. The company has undertaken a capital expenditure (CapEx) of around INR 400 crores in the first half, mostly directed towards the Raipur and Dubai projects. Plans for additional CapEx of INR 200 to INR 300 crores are in place for the next six months, suggesting ongoing investments into existing and newly operational facilities. Interestingly, the company indicates that their gross debt level has peaked and asserts that they could become net cash positive once the current CapEx phase concludes, also noting that the gross debt could be significantly reduced if the company desired.
APL Apollo reported an EBITDA of INR 50 crores for Q2 and expect this to increase as operations in Raipur and Dubai plants ramp up over the next few years. As cash flow improves, the company plans to reduce debt proportionally. In terms of overall capacity, APL Apollo claims to be the largest player globally in the structural steel tubes segment, with the exception of two competitors in China. With a current export volume of 100,000 tonnes and an EBITDA spread reportedly 20% higher in export markets compared to domestic, the international business is earmarked to account for approximately 10% of Apollo's business by FY '27.
Market creation for new and innovative products began prior to their commercial production. Activities such as the education of fabricators, distributors, and retailer networks for products like heavy structural tubes and color-coated sheets were initiated early on. The utilization level of these two products is at 27-28% and 50% respectively. The company intends to play patiently, focusing on high margins and a paced product introduction. The overall target is to utilize 100% of the 1.2 million tonnes by FY '26. With regards to the next phase of growth (5 million additional tonnes), APL Apollo is withholding CapEx commitments until monthly sales reach 400,000 tonnes. The forthcoming quarters may reveal a more firm plan for future investments, aligning with the company's successful history of scaling up.
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Ladies and gentlemen, good day, and welcome to the APL Apollo Tubes Limited Q2 FY '24 Earnings Conference Call, hosted by IIFL Securities Limited.
[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anupam Gupta from IIFL Securities Limited.
[ Welcome to ] the Q2 2024 conference call for APL Apollo Tubes. From the management, we have Mr. Sanjay Gupta, Chairman and Managing Director; Mr. Deepak Goyal, Director of Operations and the Chief Financial Officer; and Mr. Anubhav Gupta, Chief Strategy Officer. To start off with, I'll hand it over to the management for the opening remarks, post which we will the Q&A. Over to you.
Anupam, can you hear us?
Yes. You can go ahead, yes.
Thanks, IIFL Securities, for hosting Apollo Tubes quarter 2 FY '24 earnings call, and I welcome all the participants on this earnings call.
To start with, I would like to share that Apollo Tubes reported its highest-ever quarterly sales volume of 675,000 tonnes, highest-ever EBITDA of INR 3.25 billion and highest net profit of INR 2.02 billion on a quarterly basis in Q2 FY '24.
Coming to the highlights for the quarter, number one highlight is Raipur update, where the [ third ] complex for the thicker-coated sheet and [ superlight ] tube also started. And the commercial production for [ superlight ] tubes has started. And for thicker-coated sheets, the commercial production will start in November. Now almost 1.2 million tonne of capacity in Raipur is online. And we did around 27% utilization levels in Q1.
The plant generated EBITDA of INR 5,000 per tonne in Q2. With such low utilization levels, we are getting good EBITDA per tonne spreads. And as utilization level go up, the EBITDA spreads will go beyond INR 5,000 per tonne to the desired numbers of INR 6,000 to INR 7,000 per tonne.
Within Raipur, the roofing sheet is ramping up pretty fast, with the utilization levels upwards of 50%. The heavy structural tube also is ramping up, with utilization levels for 500 square mills in Q2 was 25%.
As the Raipur is ramping up, we are working pretty hard on market creation as well. Apart from heavy structural tubes where we are working towards transformation in the construction industry, the sales for heavy and super heavy section for the Q2 was 56,000 tonnes versus 41,000 tonnes in the earlier quarter. So we are seeing almost 35% to 40% jump on Y-o-Y and Q-o-Q basis.
Other than heavy structural tubes, we have identified other high-margin value-added segments like solar [indiscernible] tubes, the thicker-coated sheets, which will start from Raipur. The global business for Apollo, which comprises of export sales from India and our Dubai plant, is under a lot of revamping. Export sales increased 28% on Y-o-Y basis in Q2. And even the H1 sales for export segment were up 28% Y-o-Y.
The other value-added products from Raipur are [ CRC ] tubes, which are [indiscernible] tubes for industrial applications and furniture applications. Then the coated sheets for roofing also, the utilization levels were around 50%, and we intend to ramp it up in the following quarter that had good speed. So from Raipur, we expect utilization levels to go up to around 40% in the third quarter.
The other update is on our branding strategy. Last 2 years, you'd see that we have been pretty soft on our branding strategy. Now this year, we have decided to go aggressive, and we have appointed 2 Bollywood superstars, Amitabh Bachchan and Akshay Kumar. The campaign is going to be rolled out over the next 1 to 2 months. It's a 360-degree campaign, which is comprising of outdoor [ holdings ], television and social media campaigns.
The ad spend and the sales [ proposal ] expenses were around INR 300 million last year. This year, the budget is around INR 500 million to INR 600 million.
Coming to the quarterly update. The sales volume were [ 675,000 ] tonnes, up [ 3% ] Y-o-Y. The value-added proportion was slightly low because of softness in our Apollo [ deal ] sales, which got hit in the coastal markets due to heavy monsoon and floods in some of the regions. So that segment should ramp up in the second half.
The EBITDA per tonne for the whole company was stable at INR 4,800 and in our circulated guideline of INR 4,500 to INR 5,500 per tonne. Working capital days remained stable at 5 days in H1. The operating cash flow to EBITDA was 76%, which helped us fund the CapEx of INR 356 crores.
The ROC, including Raipur plant, was 32%, this was despite that the Raipur plant generated EBITDA of around INR 500 million. Now once the utilization levels go up to optimum level in the next 2, 3 years, the EBITDA should increase at least 3x from Raipur. So without Raipur investment, the ROC for the Apollo ex-Raipur was 40%.
If we maintain our FY '24 volume guidance of 2.8 million tonnes, although there could be some softness in October or November months, but as you know, the company recovers sharply in terms of its sales volume. The reason for softness is, number 1, the festive season, which is normally weak for the construction sector; and second, the regional HRC prices are quite low compared to domestic prices.
So there is fear of some price decline in steel, which is leading to some destocking. But you must have observed in last year also that after destocking of 20, 25 days, then restocking starts, so the company recovered its sales volume pretty sharply. So there is no threats to our FY '24 sales volume guidance of 2.8 million tonne.
And given that the capacity expansion in Raipur, in Dubai is online, so we should be ready with 5 million tonne capacity by FY '25. And we target to hit this number in terms of sales volume in the following year, which is FY '26.
So overall, our quarter 2 performance was pretty good, with all-time high numbers for each volume, EBITDA and PAT. And as the Raipur and Dubai plants are ramping up pretty well, we expect this momentum to continue over the next few years.
That's all from our side. We can now have a Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Amit Dixit from ICICI Securities.
I have two questions. The first one is on -- if I look at EBITDA per tonne individually, then for coated products, in particular, it has jumped substantially compared to last quarter. So could you please explain the reason for that, and whether this kind of bump-up is sustainable?
Right. So this is mainly for the roofing sheets in new Raipur plant, right? EBITDA per tonne jumped because of better utilization levels. So all the products in Raipur, so one is this coated and second is light section, right? So both these 2 categories saw good jump in EBITDA per tonne, so this is sustainable.
Okay. So as I understand it correctly that going ahead, we expect this Raipur plant utilization to [ increase ] and essentially these value-added products that you are mentioning, their proportion will also go up, so is it fair to assume that we shall close the year at somewhere close to around the upper range of the EBITDA per tonne guidance?
So Amit, see, I mean EBITDA per tonne, yes, I believe, should go up. But at the same time, if you see the commodity segment, the general segment, which still accounts for 40% of the business, in that segment, there was pressure, right, because of pricing gap, high price gap between the inferior-quality scrap steel and HR coil, right?
So I guess that pressure should be remain for next few months, unless we see a drop in HRC prices in India, which seems logical and visible as [indiscernible] current scenario. So til then, there could be some pressure in general category. But as a company, we don't see like EBITDA per tonne, what we are bothered about is absolute EBITDA, right, so if you see our absolute EBITDA, how it has progressed quarter-on-quarter, right?
So the idea is that every quarter, we are able to surpass the last quarter absolute EBITDA number. Now whether that is by selling extra volume at slightly lower EBITDA per tonne or by selling less volume at higher EBITDA per tonne, right, so that depends on the market behavior, market situation in different categories.
So the Apollo has different, multiple product segments in multiple applications, multiple industries within the construction sector also, right? So based on that, what we see is that we are able to squeeze profits, right, from one segment if some segment is not doing well.
So yes -- but yes, I mean, ideally, Raipur, Dubai, both ramping up, they both are higher-EBITDA margin products, right, versus our existing portfolio. So yes, EBITDA per tonne should expand.
[Operator Instructions] The next question is from the line of Aman Agarwal from Equirus Securities.
Many congratulations on wonderful set of numbers again. Sir, firstly, on the inventory gain or loss impact, did we see anything of tad short in 2Q in the current reported numbers?
No, Aman. The steel prices were pretty flattish on a Q-o-Q basis. So nothing substantial which could give us any inventory gain or loss.
Sure. And secondly, on our value-added product mix, there has been some sideways movement as in last 4 to 5 quarters now. We are trading at around 55% value-added product mix, which is clearly low from our previous highs of around 63%, which we saw, I guess, in FY '22.
So on the movement towards VAP, 70% VAP share this quarter, is it mainly because of affected Apollo Z volumes? Or was there any other impact in this quarter?
So I guess, there are two things that you highlighted: One is that the comparison for the last 2 years, right, and comparison for the current quarter, for the Q2 quarter.
Now last 2 years, what has changed is that the share of general segment has increased considerably because in 2021 and '22, those sales were down because the steel prices globally had gone through the roof after Corona, right? So because of the pricing gap between scrap steel and HRC, if you see that our general segment volumes were going down year-on-year, right?
So last year, when the commodity cycle reversed and steel prices came down from INR 70,000, INR 75,000 per tonne to INR 55,000, INR 60,000 per tonne, it led to a recovery in our general sales, right? So that trend is continuing, right? The sales mix will eventually improve to 70% as our Raipur and Dubai plants ramp up, right, and the volume, you will see from those segments which are high margin.
So we are not bothered to hit to 70% in next 2 to 3 years. Quarter-on-quarter, yes, of course, Apollo Z sales were down, right, because of monsoon and floods. This will recover in Q3 [ and Q4 ].
Understood. Now on Shankara -- our distribution includes Shankara channel, whether if you can give any update on what's the number or what's the kind of growth that we've seen in the first half of FY '24?
So Shankara, we continue to get the desired [ release ], Aman. We are doing around 20,000 per tonne volume from Shankara though its platform. And this has been there since we got into this strategic tie-up with the company. And this number of 20,000 tonne on monthly basis is up 100% before there was a strategic tie-up. And now, we are confident that the number from this platform will match the overall sales growth of the company.
Sure. And any update on our investment in Shankara? Do you plan on adding any more investments to it or maybe liquidating the existing investments?
So Aman, we are due to exercise our warrants next month, right, which we will be doing.
The next question is from the line of Rahul Agarwal from Incred Capital.
Sir, first question, Raipur has reached about 1.2 million tonnes. After the balance of the [ lift ] capacity gets added, what's the eventual capacity here?
So eventual is 1.2, eventual is 1.2, which is today. So yes, earlier, the plan was 1 million tonnes and incremental 200,000 tonnes. So that has also come online. So now, we are at 1.2 million tonnes.
Okay. Perfect. And company level, the total capacity, including Raipur, has gone to -- like October end, what would that be?
It will be around 3.6, 3.7, okay? Eventually, this will be 5 million in the next 12 months.
Got it. And CapEx, the cash flow sales are about INR 400 crores for first half. Could you elaborate a bit where was this spend, just different projects? And full year, what's the budget; and next year, what's the budget? Just the breakdown, please?
So mostly Raipur and Dubai, Rahul, okay? Other than that, some valuation brownfield expansions that continues, right, but -- where the CapEx amount is very small. But out of this INR 350 crore [indiscernible], mostly was Raipur and Dubai.
What's the full-year budget?
Full year, we could see another INR 200 crores to INR 300 crores. Idea is INR 200 crores, basically, then -- because Raipur is completed and Dubai balance also, we should be spending like INR 200 crores in the next 6 months.
Got it. And lastly, on the debt side, INR 1,150 crores, just wanted to know where would this peak because capacity expansion is mostly done except Dubai. So will there be more project debt here or INR 1,150 crores is the peak?
So Rahul, don't look at our gross debt, okay, because we have a cash balance also. So the net debt on the books was INR 2.2 billion, INR 220 crores.
Yes, I'm aware of that. My question essentially was on gross debt. Just wanted to know that out of this INR 1,160 crores, this will include project debt from Raipur as well as Dubai, right?
Yes, that's right.
So just wanted to know if this number has peaked out already?
Yes. Our gross debt level, yes. Now we -- now after this CapEx is done, we will be net cash pretty [ sound ], Rahul.
Perfect. And how will this gross number comes down as in -- is there a firm repayment plan to the project debt?
So Rahul, see, I mean I can repay INR 900 crores today, right, because I have fixed deposits worth of INR 900 crores, right? So this is like some advantage of interest costs, right, what we are getting and obviously, how we see ABPL, the Raipur plant, as a separate company, although it is 100% owned.
But we want ABPL to stand on its own to show its own performance, to have its own ROE, ROC, right? So that's why this structure -- I mean, this INR 1,150 crores can become INR 950 crore tomorrow.
Yes, absolutely. I completely agree and appreciate. My sense was, as you said, ABPL is a separate entity, so there will be a repayment plan based on their own cash flow, right?
Yes. So APL did Q2 EBITDA of INR 50 crores, right, it will ramp up over the next 2, 3 years. So yes, as the cash flow comes in, we have no option but to repay debt, right?
Right. So the gross number will continue for 2 years in the balance sheet? I understand the net thing. I know the company has enough amount of cash. But this gross number should continue for 2 years, is that fair?
Yes. So we will keep on reducing as cash flows from Raipur plant comes in.
The next question is from the line of Bhavin Pande from Athena Investments.
Congratulations on great set of numbers. So just first part, I wanted to understand that in terms of capacity. Now, are we the large [Technical Difficulty]. Secondly, could we see a [Technical Difficulty].
You're not clear. Can you say it again, please?
[Technical Difficulty].
Still cracking.
Am I clear now?
Yes, go ahead.
So as you've shown in the presentation, are we the largest player in the world in terms of capacity? And second follow-up would be that regarding the announcement we made for 3 [ Indian ] personnel being appointed, one for branding, one for information and I guess, the CFO, Deepak the [Technical Difficulty] behind [Technical Difficulty] CBO and CIO?
So yes, there has been hiring of 3 senior people. Like I said that now you plan to go aggressive on branding side because 2 years we were soft, right? So we wanted to have talent and capable resource, who could manage this kind of yearly budget what we propose to have, right?
And Deepak Goyal, of course, he got elevated as Director Operations. So we hired a new CFO, right, and yes, even Chief Information Officer because we are doing a lot of automation and IT softwares for different operations, functions we are implementing. So better to have good senior resource. And our exiting CIO, he's also retiring, so we got [indiscernible] with more senior resource.
And sorry, what was the first part of your question, Bhavin?
Now in terms of capacity, are we the largest player in the world now for steel tubes?
So in structural steel tubes, yes, right, we're the largest player. In steel tubes segment also, barring 2 players in China, we are largest, globally.
Okay, wonderful. And just one part I missed. So the existing utilization, I guess, of 50 percentage, and you mentioned that we could see an improvement of 40%. So was it absolute of 40% or 50% that would be up to 70% utilization?
No, Raipur 50% was for roofing sheet segment. And when I say 40%, that is for the overall Raipur.
Okay. Okay. And optimum level should be somewhere around 70 to 75 percentage, if I'm not wrong?
100%.
Wonderful. Okay.
[indiscernible] sellable capacity.
The next question is from the line of Madhav Marda from FIL.
I just wanted to understand a bit more on the export side. So which are the key countries we are exporting to? And then also, will the exports happen from the Dubai plant or will the Indian facilities also be exporting? And is there like a 5-year target in terms of like for -- how do you see export volume in Q2? And how do you see this ramping up for us over the next, say, 3, 4 years, 5 years?
And how does the economics [ set ], basically? I mean, is it more value-added grade, which we can sell more in the export profits or -- who is the competition? If you could give us some sense because it seems like a new area that we are entering into and looking to scale up?
So Madhav, if you see our last 7, 8 years of growth, right, which we have achieved 20%, 25% volume CAGR, it was mainly through the domestic markets, right, because all the resources were focused to grow the domestic business. Last 2, 3 years, we evaluated that given the size of Apollo on global stage, right, we cannot afford to be a low-exporting company, right? We need to have a good presence in international markets also.
So 2, 3 years ago, we kind of focused on this segment, and we started appointing distributors in Middle East and Europe and North America, right, for the [ vital ] distribution of our products.
And given the quality, given the capacity, it was easy to catch hold of large distributors of steel pipes. So we started exporting, right? Now, 2, 3 years, we -- what we have found out is that the demand is pretty strong, right, for someone like Apollo Tubes that is easy to penetrate the market.
So after having 2, 3 years of good sales momentum, so if you see first half also, our export sales have increased by 28% on Y-o-Y. So we believe that it is good to have presence in Dubai, in Middle East, and we would able to export to other countries, Europe and North America.
With the [indiscernible] Middle East, obviously, is going to see a lot of demand, sort of a lot of construction activities happening there.
The other reason what wanted us to set up the factory in Dubai was the access to cheap raw material there because in India, the regional -- in India, the domestic steel prices are always higher compared to the regional steel prices. So that makes you uncompetitive, right, versus the other players who have factories outside India.
So we are very confident that after Dubai plant is operational, we have put up a capacity of 300,000 tonnes. And I'm glad to share that the product SKU range in Dubai also starts from 15x15mm dia tube till 300x300mm dia tube. So we have full range of structural steel tubes for the export market, which will be produced in Dubai.
So we are pretty confident that having the product range, which is commoditized, plus value-add, same [ mirror ] what we have in India, so the mix will be good, margins will be good, right, with the right competitiveness, which we will get after having access to cheap raw material in the Middle Eastern markets.
Understood. And the -- so the idea is that [indiscernible] more value-added grades in the export market? And how is the margin there versus domestic? Or is it a bit early to say because we're still kind of building up the basis?
So of course, it's a bit early to say, but we have [indiscernible] success, Madhav, right? So we'll talk about this over the -- maybe after 2 quarters. But what I can tell you is that the EBITDA spreads are higher than what we do in a [ year ].
The next question is from the line of Aaron Armstrong from Ashmore Group.
Congratulation for a great set of numbers. Can you talk a little bit about the ramp-up in Raipur, please? Could you talk about whether that's an operational ramp-up that it takes time to build out the kind of manufacturing capacity and actually produce the volumes? Or is the ramp-up more around market creation and customer offtake? Kind of which is the factor that dictates the speed of the ramp-up at Raipur, please?
So there are two elements to it: Number one is the [indiscernible], of course, because these are -- most of the products from Raipur are innovative products, so market creation had to start early before we got into commercial production. So market creation for heavy structural tube, for thicker color-coated sheets started last year itself before we started our lines, right?
So we are satisfied with the market creation, what we have done for both of the segments, right? And now we see that we have a structural tubes segment. Right now, the ramp-up is 27%, 28% utilization levels. Thicker coated sheet, which will start next month, we are also -- we see immediate ramp-up because a lot of exercise and activities have already been taken place in terms of market creation to educate fabricators, to educate our distributors, to educate the retailer network.
And secondly comes the adjacent product, which is the roofing sheet from new Raipur. Now that's an established market, so there, the utilization levels are higher, which is 50% today, right? And like I said, it's an adjacent product, went to the same distributor, distributor sold to the same retailer, retailer sold to the same fabricator who are selling our tubes anyways for the roofing structures, right? So roofing sheet went as an adjacent product to complete the solution in a house. So that ramp-up was pretty quick.
So yes, the market-creation activity started much in advance, right? A lot of hard work yet to be done, right, because we are talking about transformation of the construction industry products, which have not been seen in India. So it'll take time, but we are playing very patiently. We don't have a debt on our Raipur plant, right?
We want to keep our margins high. So we are playing the game patiently with the right introduction and seeding of our products.
So is it the case that, just purely from an operational perspective, you could ramp up to, say, 100% of full utilization reasonably quickly, the area where the kind of [ patience ] comes in as on the market creation side and building the awareness?
That is right. Yes. So the target to utilize is 100% of 1.2 million tonnes by FY '26. That's the target, right now, we are having.
The next question is from the line of Aditya Welekar from Axis Securities.
So just wanted to understand the next phase of growth, additional 5 million tonnes. So from when we can expect the CapEx to initiate for that, from which fiscal year?
Till we start hitting 400,000 tonnes on a monthly basis, right? Right now, we are doing 225,000 tonnes. We have a big task ahead of us to utilize this 5 million tonne first, right? So once we get to the sense, right, that yes, we are achieving the targeted number of 400,000 tonne of monthly sales, we don't want to commit any CapEx, right?
And we are evaluating a lot of options on our drawing board how to go on in the structural steel tubing within India, outside India because we see good momentum from Dubai coming in, right? Some of the other applications are also under evaluation.
So right now, we are on the drawing board, we'll talk about it maybe during our Q4 FY '24 earnings call, where we will come up with a more firm plan. But yes, we don't want to commit even $1 of CapEx. Still, we see ourselves hitting 400,000 tonnes of monthly sales.
Okay. And can you reiterate your volume guidance for '25, '26?
Like I said, we should be a 5 million tonne capacity company in FY '25. And after 12 months, 18 months, we want to hit sales volume of the same number.
The next question is from the line of Omkar [ Gurgure ] from Shree Investments.
Yes. As you mentioned a little while that 40% is still a commoditized portfolio. So when the Raipur plant hits 100% capacity, where can this number settle?
30. So value-added will be 70% and general will be 30%.
So the 40%, which you mentioned will be 30% at full capacity utilization of Raipur plant?
Yes. So if you see Q2, Q2 was even 43%, right? So this will go to 30%.
So that will be at around FY '25, '26?
FY '26, yes.
Another thing is that you mentioned that around 300 lakh tonnes is the export capacity you have. So if you look at even the margins, there are better. But in overall scheme of things, the contribution to the volume and eventually to the EBITDA or to the profit will be lower as a percentage of your total portfolio, right?
No, because 300,000 tonnes is [ overall ] capacity, not export. Export volume is already 100,000 tonnes without Dubai on an annualized basis, right? So after we hit 300,000 tonnes in Dubai, we expect the international business to be around 10% of Apollo.
Okay. So 10% by when you are expecting of the total 100% from exports?
FY '27.
FY '27, you are expecting. Okay. And can you share a bit about margins in the export product currently? And what is the future for that?
So keeping the sensitivity, they are higher than what we are doing in the domestic market today.
Okay. That's the only thing you can share about the margins in next quarter?
Yes, that's right.
Okay. I mean it would be great if you talk a little bit more about it, like how much higher they are, like not exactly, but like what percentage?
20% higher.
Okay. Than the domestic one, right?
The next question is from the line of [ Garvid ] Goyal from [ Nvest ] Analytics Advisory.
Am i audible?
Go ahead, please.
Congrats for a good set of numbers. Just want to know about the guidance. Like earlier in Q4 FY [ '23 ] con call, you had mentioned that we will be able to achieve somewhere around 3 million tonnes for FY '22. Then what is the reason for this reduction in the guidance?
So what we said was that our guidance is 2.8 to 3 million tonnes, okay? So yes, I mean, completing first half and heading -- finished October. So we -- right now, we think that 2.8 million tonne is what seems to be achievable.
But let us tell you that we have full capacity available, right? If there are tailwinds with us, we can go much beyond 3 million tonne also. But like I said, there are two things which are not in our favor: One is the price gap between the domestic HR coil prices and regional HR coil prices. And second is the price there between the structural steel tube and the scrap steel tube.
So these are the two main reasons that make us to believe today that 2.8 is what we should be able to do easily. But yes, if anything of this reverses, we can go beyond 3 million also.
Understood, sir. And that -- does this mean -- you mentioned like October and November are not doing that much well due to [indiscernible] the difference between the prices. So what was the run rate in October?
So October was a bit soft, right? But -- and November also because of festive season, should remain kind of soft-ish. We might see improvement in shop [ turnaround ] -- right, like towards end of November and early December. We just need like 10 days, 15 days' time to bounce back sharply, which we always do.
And can you please throw some light like how much percentage of the revenue comes from the government side and the private side? And what is the difference in the margin profile from both of these customers?
So what I will tell you is that 90% of our sales come from the distributors. Now distributor may be selling to retail or government, that's his thing. We don't sell directly to the government. 90% through trade, through distributors, 5% exports and 5% to OEM clients. We don't have direct dealing with the government.
Understood. Understood. And talking about the EBITDA per tonne, so like earlier you mentioned, it will be somewhere around 5,000 tonnes, right, on a full-year basis. But in the first half, it is less than 5,000. So can we expect this below 5,000 kind of EBITDA per tonne in second half?
So given the product range what Apollo has, given that a lot of investment from Raipur is yet to yield results because the large plant almost -- INR 1,200 crores [ worth ] of plant is under ramp-up stage. So we always give guidance of INR 4,500 crore to INR 5,500 per tonne at EBITDA for that level, right?
Now, you may say that there is a big [ variation ]. But if you look at from our perspective, that's hardly like 1% of our NSR, net selling realization. So this much leeway Apollo requires, the management of Apollo needs, right, because there are a lot of moving variables in the market. So what we -- or that target is the absolute EBITDA number, right?
We have been increasing our absolute EBITDA, if you see, quarter-on-quarter. Now that is achieved by selling 10% less volume at 10% higher EBITDA per tonne or 10% high volume at lower EBITDA per tonne. That's like end result, right? What we -- what matters to us is the absolute EBITDA number, which we want to keep growing, expanding quarter-on-quarter basis.
Good. And sir, lastly, based on the guidance that you have provided, so is it fair to assume that Q3 will fall short as compared to Q2?
We don't know yet, right? Like I said, we need just 10 days to bounce that sharply, right? If market is in favor, then who knows. Today is not the right time to give guidance for Q3. But FY '24, 2.8 million tonne is achievable, and we are confident.
The next question is from the line of Ankush Agrawal from Surge Capital.
Can you just confirm the volume numbers for Raipur for this quarter?
So just under 1 lakh tones, 100,000 tonnes.
Okay. But you did mention about 28% utilization for Q2, right, for Raipur?
Yes.
Okay. And you expect this to move to 40% coming quarter?
Yes. So there are two ways to look at it. So 100,000 tonne volume on -- so which is like 4 million tonne annual -- sorry, 400,000 tonne annual. And till Q2, the capacity was 1 million tonnes. Now it is hitting 1.2 million tonnes, right? So it was 40% on the available capacity, if you see, right? But if you take 1.2 million tonnes, then it was like 30%, 35%.
The next question is from the line of Vikash Singh from PhillipCapital.
Just a little bit clarification. Since you said that the domestic steel prices are much higher than the export prices, but we still get better margins in the exports. So just fail to understand where is the difference, basically? Because conversion costs, even for the foreign [indiscernible], shouldn't be that high.
So first is that not domestic export prices, import prices. So the regional steel prices are lower versus domestic steel prices, right? So if you are having factory in Dubai, you can get [indiscernible] cheaper, right? Almost 20% cheaper.
So that's what I invested. Basically, I'm talking about current exports. So can we assume that the current exports which we are making, is of a lower margin, and in future, we will substitute it with Dubai and gaining some margins?
Yes, that's right. Yes. So this is the reason that why we are investing in Dubai.
Understood. My second question pertains to, since we are investing heavily on the heavy section, super heavy section, where we need to develop the new market? Just wanted to understand what percentage of our targeted volumes of 5 million tonnes would be at risk if this market takes a little bit more time because you need to educate the user industries and it might take some time. So what percentage of our volume target would be at risk if they go slow on that?
If you look at our presentation, right, we have given the proposed capacity for heavy and super heavy products. So that's around 400,000 tonnes, 396,000 tonnes, to be precise. So now on 5 million tonnes, this forms 8% of the total capacity, right?
Now if you see that this 8% to 10%, out of this, we are already doing volume of 150,000 tonnes per year anyways. Because the first mill, what we put up in Raipur, was 300x300, right? And there, the market has already been created and the volume is ramping up.
So -- and there is no reason that why one should believe that this market will not be developed because replacing conventional concrete construction over steel construction makes sense. It has happened outside India. So in India, it should happen. It is happening, right?
And steel tubes are better compared to conventional long steel products. That also -- like there is no rocket science to know about it. It is just about the awareness, right, and the acceptability of the product.
So we are -- we have done a good amount of work with the influencers like architects, structure consultants and [ PMCs ] and government construction agencies and real estate developers and contractors. So eventually, this has to happen, right? But to answer your question, the risk factor is like 4%, 5% to the total capacity.
So it's pretty low, actually.
Yes, it is pretty low.
Yes. Just one last question, if I may ask. Has promoters have any more plan to sell stake or we are done, with most of our capital is in other businesses and no more selling in [indiscernible]?
No more selling.
The next question is from the line of Amruta Deherkar from Wealth Managers (India) Private Limited.
Hello? Am I audible?
Please, go ahead.
So my question is regarding the general structure. So right now, general structure contributes around 45% of the total revenues. And for the past 5 quarters, we have been reporting the utilization of greater than 100%. So I just wanted to know, to what extent of subcontracting is possible in the general structure? And do we have any subcontracting in any other products?
So even in general structure, we are hitting like 100% because we don't want to invest too much capital into a commoditized segment. All our CapEx in the last 2, 3 years has gone in Dubai and Raipur and other value-added products in the existing plants. And our overall 5 million tonnes scheme of things also, you will see that we shall increase from 1 million to 1.3 million only, right?
So right now, the volume is not from contract manufacturing. But yes, we have always explored and we still explore good contract manufacturers, who could manufacture for us. But then it requires a lot of things to fall into play, for example, the quality of the product, then the mill has to be near to our end market and raw material availability also because both inward, outward freight play important role.
So yes, I mean at some point, we may go ahead with this, but we have always been evaluating to find good contract manufactures.
So like, right now, whatever excess above 100% utilization that we have for general structure is in all in-house? or are we doing it right?
No, it is in-house. So that's what we say that our -- the capacity what we always give, it is not licensed, it's not plated capacity. It is enabled capacity. So we can always go beyond this number.
How beyond can we go, overall? Like we are targeting 5 million tonnes of capacity. So what you're saying is that 5 million tonnes of capacity is a favorable capacity, right?
Yes. So 5% to 10% is achievable.
And the max utilization so this is because 5 million tonne sellable capacity, so you're saying on that 5 million tonnes 100% utilization as possible?
I'm saying 100 is -- yes. 100, we are saying that we will do. We can go incremental 5% to 10% also.
Okay. Because in the general structure, like when I just [ chart ] out the numbers, I see the utilization, like for this quarter, around 120%, utilization in this particular quarter.
Yes. So in general -- yes, yes. So general and galv, you will see that utilization is like 100%. In general, it is even higher, yes. So general, because of less SKUs and less time in changeover of [ road set ], et cetera, we are able to keep that. So when I said 5% to 10%, that's on full 5 million tonnes. Product-by-product, it may vary.
So you have like the capacities of fungible from the variation of products, demand you can -- to kind of move the capacity from say, galv to Apollo Z, something like that?
Amruta, we have 75 mills, okay? So not all 75 mills are fungible. But some of these within 75 are fungible.
The next question is from the line of Shweta Dikshit from Systematix Group.
Congratulations on a good set of numbers. Could you repeat the residual CapEx for this year? You said INR 200 crores for both Raipur and Dubai, is that correct?
Yes, that is right.
Okay. So that's INR 400 crores CapEx that will come in the second half? And can you just elaborate on the incremental...
INR 200 crores total consolidated in second half.
Okay. Okay. And another question, can you elaborate on the incremental volume that we can see in the third quarter, especially from the Raipur plant because 27% to 40% utilization, that's like 13% additional volume despite it being a soft quarter and because construction activity, et cetera, is lower due to the festive season?
It doesn't impact Raipur because Raipur is innovative products, right? And the volume is pretty small. When we say that volumes are soft, that is on overall company basis, right? And mainly general segment because of destocking, et cetera. So Raipur, we should see utilization levels like on 1.2 what we are targeting is -- of 42% in Q3.
The next question is from the line of [ Bobby J. Raman ] from Falcon.
You've been marketing the Raipur products for quite some time, right? Can you talk a bit about some the pushback that you get from customers in terms of pricing or whether there's really a need for that product? Or are there other [ creditors ] available?
So there is no pushback as such. It is just the acceptability is always slow for new products in India. Acceptability is always slow for new technologies in India, right? But you can see that the ramp-up has been there for all the product segments. So pushback is never on the pricing front.
It is just the accessibility, the market awareness, the education. A lot of these factors need to fall into place, so -- which we are doing. And we are confident that the utilization levels for each and every product will improve quarter-on-quarter for Raipur.
The next question is from the line of Omkar [ Gurgure ] from Shree Investments.
As you have given in your presentation, the global EBITDA margin the companies are making is around 14% to 19%. So at what point of time we can at least expect a lower single-digit margin or a higher single-digit margin at APL Apollo?
So I guess, some of our products you see, they are already at high-single-digit EBITDA per tonne, right, 1,000 per tonne. So for companies to happen, the share from general segment has to be pretty low, right, compared to what it is today.
And in the -- share from super heavy, right, the coated products, now we are very bullish on our Dubai plant, which is having high margins. We are very bullish on thicker color coated sheets, which would see commercial production from next month.
So we have a lot of products for high-single-digit INR 1,000 per tonne. For company also, I mean barring commodity, barring general, the idea is to take heavy product towards high-single-digit 1,000 per tonne.
So at a company level, is it possible then the Raipur plant hits full capacity? Or like it is too early to say that?
Yes. So what we believe is that per tonne -- initial EBITDA per tonne is achievable, it's possible with the Raipur full-fledged. And that's...
Sorry, I missed the number, what you said?
I do believe that 6,000 per tonne at company level is durable, is achievable.
At 100% capacity of Raipur plant, right?
Yes.
Okay. And this higher single-digit margin at the company level, is that something in your mind, when you are planning for, say, next 5 million tonne capacity, totaling 10 million tonne capacity? Is it something on your mind [ further ] about that?
Yes. So like I said, we are already sitting on our drawing board with a lot of options, a lot of applications, a lot of new industries within steel tube in geographies as well. So we'll be talking about it another 2 to 3 quarters. But right now, our focus is 100% to achieve existing 5 million tonne capacity with, of course, INR 5,000, INR 6,000 per tonne EBITDA.
So this is 5 million tonne capacity -- sellable capacity at FY '26 with INR 6,000 per tonne EBITDA, correct?
That's the target, yes.
Okay. Another thing is that you had mentioned in the last con call or last to last con call that the EBITDA can double in the next, say, 2, 3 years. So is the plan still on? Or is it achievable to do that?
Yes. I mean, given by the simple math you do, right, so you'll get the numbers.
Yes.
So anyways, our [indiscernible] says that we have been growing our earnings by 20%, 25% every year, so that means doubling our number every 3 years, right? So...
The next question is from the line of Bhavin Pande from Athena Investments?
I wanted to follow up on the capacity for exports. What [Technical Difficulty] happens?
You have to say it again, please, your voice cracked.
Yes, sorry. So I just wanted to follow up on the capacity for exports. So what would be the sales mix for exports when the ramp-up happens?
Sales mix as in general and value-add?
No, no, exports as a proportion of our total top line?
So the target is a 10% sales mix for international business in 4 years.
In 4 years. Okay, sir. 500,000 tonnes [indiscernible].
Yes. Can you get the last question, please?
The next question is from the line of Jatin Damania from Swan Investment Managers.
I believe this is the last question, Mr. Moderator? Yes, go ahead, Mr. Damania.
Just wanted to check the things, we're moving to 5 million tonne and we are seeing a ramping up of Raipur and Dubai will be kicking in. Any plan or any explanation in terms of where we are on the setting of the capacity in East India?
So yes, our 5 million tonne has 200,000 tonne of capacity from East India, right? Right now, we are exploring the land. We zeroed down on the locations already, right? And in next 2, 3 weeks, we [indiscernible] starting the process for land acquisitions.
So once land is there, infrastructure is built up, then it takes us only 6, 7 months to start the line. So 12 to 14 months from today, we should be able to at least start the production. It's not 200,000 tonnes. But in phases, we should start.
And what is the [ capital ] we will be spending for that?
So around INR 800 million.
Last question. Now since we have are moved into heavy and super heavy, which we are doing from the Raipur, and we see the increase in the volume, so just wanted to understand the opportunities from the railways [ for us ], how big is the opportunity and how are we placed?
So railways is one segment, which can contribute quite big because Indian government wants to redevelop around 1,500 railway stations over the next 5 to 10 years, right? And all these railway stations, 80% of them are coming on sea. And right now, we are talking to a lot of contractors and railway agencies for tubular construction.
So we have supplied our steel tubes for tubular design to 2 railway stations now, one is in South India, one is in North India. And and we have plans to close on more number of railway stations. So railways stands as a very good opportunity to sell our heavy structural tubes.
Ladies and gentlemen, we take this as a last question. And now I hand the conference over to the management for closing comments.
Yes. Thank you, IIFL, for hosting us. And thanks to all the participating who dropped by. Look forward to see you on third quarter earnings call. Thank you so much.
On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.