APL Apollo Tubes Ltd
NSE:APLAPOLLO
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 333.6
1 717.95
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
APL Apollo Tubes Ltd
Earnings Call Analysis
Q2-2025 Analysis
APL Apollo Tubes Ltd
APL Apollo Tubes Limited's recent earnings call illuminated a quarter marked by significant challenges yet promising opportunities. The management described the current market conditions as reminiscent of the darkest hour before dawn. Recent price adjustments in the domestic steel market have affected profitability; however, this has also created a strategic advantage for APL Apollo. The gross margin has thinned due to a drastic fall in steel prices, resulting in an unprecedented low EBITDA spread. Despite these challenges, the company remains optimistic, targeting a sales volume of 3.2 million tonnes for the entire fiscal year 2025.
One critical insight shared was the narrowing price difference between APL's products and those of lower-grade sponge iron made steel pipes, which hovers around 5-6%. This development positions the company to potentially capture an additional 500,000 tonnes in the monthly market. The decreased costs of their materials now make their products comparatively more affordable against alternatives like wooden structures and aluminum profiles, thereby broadening their market reach. Management emphasized that stable steel pricing due to new capacities coming online augurs well for sustainable demand going forward.
The management remains committed to a 10% quarter-on-quarter growth strategy. Specifically, they aim to ramp up production to approximately 825,000 tonnes in Q3 and further to 900,000 tonnes in Q4. This growth is supported by low inventory levels among distribution partners and strong secondary sales volumes. Looking beyond the immediate future, they have set ambitious sales targets of 4 million tonnes for FY 2026 and 5 million tonnes by FY 2027.
APL Apollo intends to enhance its operational capacity from 4.3 million tonnes to 5 million tonnes by FY 2026. The necessary funding for this expansion, estimated between INR 3-3.5 billion, will come from internal cash flows. New plants in Siliguri, Gorakhpur, and Bangalore are set to further support their market penetration strategy, collectively expected to add around 1.5 million tonnes in volume per annum.
APL is continuously innovating, particularly in the structural steel space, launching specialized products for solar power applications. These innovations, including pre-coated thicker sheets and solutions for solar tracker systems, could position the company advantageously as demand for green energy increases. Moreover, APL's tubular designs are firmly establishing a foothold in substantial infrastructure projects across the country, thereby broadening its service offerings.
The company anticipates a normalization of margins, expecting EBITDA to expand back to INR 5,000 per tonne over the next two to three quarters. This would be sustained throughout FY 2026. The management expressed confidence in achieving these targets, especially as ongoing efficiency improvements translate to reduced costs with increasing sales volumes.
In conclusion, despite facing significant market challenges, APL Apollo Tubes Limited is positioning itself strategically through innovative products, expanding capacity, and targeted market strategies. For investors, the promising sales growth targets, combined with effective cost management and the ability to navigate fluctuations in steel prices, suggest a robust outlook for continued growth and profitability in the coming quarters.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to APL Apollo Tubes Limited Q2 FY '25 Earnings Conference Call hosted by YES Securities. [Operator Instructions] Please note that this conference call is being recorded.
I now hand the conference over to Mr. Udit Gajiwala from YES Securities. Thank you, and over to you, sir.
Yes. Thank you. Good evening, everyone. On behalf of YES Securities, we welcome you all to the Q2 FY '25 earnings conference call of APL Apollo Tubes. From the management side we have present, Mr. Sanjay Gupta, Chairman and Managing Director; Mr. Deepak Goyal, Director, Operations; Mr. Anubhav Gupta, Chief Strategy Officer; and Mr. Chetan Khandelwal, Chief Financial Officer.
I'll now hand over the call to the management for your opening remarks. Thank you, sir.
Thanks, Udit, and thanks to YES Securities for hosting us for our earnings call. Good evening, everyone. I welcome all of you to our quarter 2 FY '25 earnings call. I sympathize with my analyst friends who are covering building material sector, and are attending fifth investor call today.
What a mind blowing quarter we had, the Q2. Our Q2 performance reminds me of a famous phrase, the night is darkest just before the dawn. Why I say this because we have been waiting for this time when inflation in the domestic steel prices seems to be over, and the gap between our product and low-grade sponge iron made steel pipes has narrowed down considerably.
Of course, the correction in steel prices brought rock on our profitability and our EBITDA spreads collapsed to all-time low. However, we are not discouraged by this at all. And in fact, we are working harder to pounce upon the opportunity which has opened with the low base raw material costs. The gap between our product and sponge iron pipes is around 5% to 6% today, and we can target additional market of 5,00,000 tonnes on a monthly basis.
Our products have also become affordable against the wooden structures, aluminum profiles, rebars, the long steel products and steel angles and channels which is further expanding our universe. The existing pricing situation seems to be sustainable as there is not much room for steel prices to go down given the depressed profitability for the steel mills and at the same time, steel prices could not rise further because the new steel capacity is coming online quarter-on-quarter basis, which will keep the steel prices under check.
Henceforth, the volume trend in H2 should remain strong as we are confident of 3.2 million tonnes sales target for full year of FY '25. Confidence also comes from the fact that our channel partners are still sitting on low inventory levels because their secondary sales are equally strong.
The reason for all-time low EBITDA spreads in Q2 were, number one, inventory loss of INR 2,000 per tonne which even we could not stop because of 7,500 tonne steep fall in the steel prices, and that was back to back. So we had to -- so the inventory which we were having on our books, we had to correct it.
And we also offered more discounts of INR 500 per tonne to our customers in the falling steel scenario to push sales. One positive highlight was the operating leverage benefit of INR 100 per tonne as our sales volume expanded on quarter-on-quarter basis.
Now APL Apollo is ready with 4.3 million tonne capacity, which we shall expand to 5 million tonne by FY '26. The residual CapEx is around INR 3 billion to INR 3.5 billion, which will be easily funded from the internal cash flows. Our strategy here is deeper penetration in the market with new greenfield plants, two plants are coming in Siliguri and Gorakhpur which is to cater to the whole of East India, including the Seven Sister States, and some opportunity in Nepal and Bhutan markets as well.
We are also adding up a new plant in Bangalore for our lighter section where we feel that the existing capacities are fully utilized. From these three plants, we expect an additional market of around 1.5 million tonnes on an annual basis. And we should be able to ramp up our volumes from these plants over the next 2 to 3 years.
Our platform innovation continues in structural steel space with launch of specialized structures for the solar power industry. One product is pre-coated thicker sheet, which shall replace existing galvanized sheets. And another product we added to our portfolio was to cater to the solar tracker systems.
We continue to make inroads in the heavy structural steel tube space as the usage of tubular designs in heavy construction keeps on rising. Our tubular designs are now being used in major infrastructure and real estate projects in the country.
For next year, we maintain our sales volume guidance of 4 million tonnes and 5 million tonnes by FY '27. The margin shall expand to a normalized level of INR 5,000 per tonne over the next 2 to 3 quarters, and this margin should remain sustainable throughout FY '26 on quarter-on-quarter basis.
With this, we are done with our opening remarks, and we are happy to take questions. Thank you.
[Operator Instructions] Our first question is from the line of Rahul Agarwal from Ikigai Asset Management.
Happy festive greetings to everybody at APL. Sanjay-ji, first question was on steel demand supply. Could you please share your thoughts on what's really happening with overall global and India steel demand and supply and your outlook on how should the prices actually behave? A bit more color on that will be helpful, please. That's my first question.
Good evening, Rahul. First of all, happy Diwali to everyone. Rahul, the demand of the steel, if you see the real facts, is not very good. But somehow, we are struggling from the last 2 years with the secondary and the primary steel prices is [Foreign Language] the huge gap between the primary and the secondary steel price, almost close to INR 12 to INR 15 kg. Now it's come down to -- reduced to INR 3 -- almost close to INR 2 to INR 3 kg.
[Foreign Language] if you see the all the other all the sectors, our growth rate is almost close to 5% to 10%. [Foreign Language] build up to the capacity, and we are very focused quarter-on-quarter [Foreign Language] 10% growth target [Foreign Language].
Globally, demand [Foreign Language] exactly like Middle East [Foreign Language] and the U.S. side [Foreign Language] demand slowdown [Foreign Language] like this month, we are going to do our October highest production. We achieved close to 16,000 tonnes this month. So these all the things are good for us.
So Sanjay-ji, [Foreign Language] for the HRC pricing in India, what do you foresee? I mean because Anubhav also mentioned that...
HRC price, Rahul, you have to understood. Yes, today, HRC price is close to INR 46,000, INR 47,000 tonne in the market. [Foreign Language] because there the margins are in pressure also, steel plants are in the pressure. But what my gut feeling is [Foreign Language].
The price should remain same, because the capacity in India [Foreign Language] 1.5 million tonne capacity [Foreign Language] like 2 lakh tonne per month from Tata Steel, 2 lakh tonne per month from NMDC Steel, 4 lakh tonne from JSW Steel and 4 lakh tonne from JSPL. [Foreign Language] 12 lakh tonne per month capacity [Foreign Language] hardly 2.5, 3 lakh tonne capacity [Foreign Language]. 9 lakh tonne capacity almost [Foreign Language] 4 to 5 months [Foreign Language] moving towards the primary steel.
Our next question is from the line of Amit Dixit from ICICI Securities.
A couple of questions from my end. The first one is that despite pushing volumes, the general structure segment, we found that the contribution was negative. So what explains that? Are we pushing volumes at the cost of margins and realization? In that case, it could be counterproductive as we ramp up our capacity. So that is the first question I have that how do we see this margin shaping up of this critical, I would say, bucket, which is like 45% of your overall sales volume.
So Amit, the EBITDA per tonne spread was negative because of the inventory loss overall which the company took, right? If we removed the inventory loss, we -- it was pretty much profitable. And going forward, we don't expect further inventory losses, right? So the EBITDA per tonne in this particular category will recover to the previous levels which we have been showing, around INR 2,000 to INR 2,200 a tonne.
No, because I was asking what gives the confidence that the steel prices will not fall from here? Because what we have seen the Chinese stimulus, I mean, the measures and the impact has been fairly, I would say, muted at this point in time. Chinese exports have, I mean, swelled to 10 million tonnes odd. So -- and last quarter also we said that now things are -- the worst is behind us possibly. But although we said that Q2 might be a little bit here and there. But going back in Q3 also, the demand that we saw is like 4% to 5% more than Q2. So what gives us the confidence that we will go back to this EBITDA per tonne of INR 5,000 in 2 to 3 quarters?
Amit, no one will be more happy if steel prices go down further from here. The question is, can steel prices go down again INR 7,500 per tonne in single quarter? Answer seems to be no, right? Because, see, I mean, company, if you look at our performance for last 10 years, right, we have seen the cycle of fee volatility wherein in a single quarter, steel prices swing by INR 2,000, INR 3,000 a tonne very easily, right?
And we don't have inventory losses in every quarter. It is just in Q2 when there was such a sharp decline, right, INR 2,500, INR 2,000, INR 2,000, month-on-month, we saw the correction in the steel prices, which we have not witnessed in the last 10 years. Even an efficient inventory churning company like Apollo, right, which we always boast of, right, our inventory churn is like 25 days, 15x, 18x in a year.
When we are churning inventory so quickly, then INR 2,000, INR 3,000 per tonne fall or increase in steel prices in a quarter does not impact our profitability. But if steel prices were to fall off by INR 7,500 a tonne in a single quarter, then it does impact our profitability, right?
So if in quarter 3, we expect that steel prices could further go down by at the same pace, I mean at one side, we will be very happy because then I mean we will just eliminate the sponge iron patra pipes, okay? Because right now, the gap is INR 2,000 a tonne, and with steel prices, my base raw material goes down by like INR 6,000, INR 7,000 a tonne, you can imagine the situation where, I mean, I will be able to sell at such a low price.
Second point, we may not need to lower my selling price once steel prices go below patra coil price, okay? Because I have almost 5,00,000 tonnes of monthly incremental market, which I will take from sponge iron steel pipes, and even if my base raw material is lower, I may not decrease my selling price, right? So in fact, my margins will go up, okay, in a situation when steel prices crashed by INR 7,000 per tonne in Q3 or Q4, and sponge iron steel price figures are at similar levels.
So Amit, I also add to one point here. Today, the total structural tube market of India is almost close to 5 million tonnes with the primary steel and almost 6 million tonnes from the secondary steel. If the price go down with the secondary steel, nobody can supply the material to market other than Apollo.
In our segment, the second number player is just 1/10 of our capacity. So if market requires 5, 6 lakh tonne per month more material, Apollo also can give a maximum 1 lakh, 1.5 lakh tonne material per month to market. So then we don't need to crash our price, then our margin should increase.
Okay. Got it. The second question is on employee expenses. Last quarter, you indicated that maybe they have peaked off but this time we saw again employee expenses increasing. So what is the sustainable rate of employee expenses that we can see going ahead?
So Amit, the employee expenses for the Q2 is INR 870 million, right? Out of this, again, INR 70 million is for the notional ESOP expense, okay? So INR 800 million per quarter is what like we have opted to, right? And as the sales volume increases quarter-on-quarter, the per tonne costs will keep on going down.
But in absolute amount, we can expect that INR 800 million would be or there about should be our quarterly rate?
Definitely, yes.
Our next question is from the line of Lokesh Maru from Nippon India Mutual Fund.
I've two, three questions. One is, now assuming that steel prices are down already as regards to lower inventory, what kind of growth are you seeing right now? Or maybe what is your estimate for in the current situation, say, Q3, Q4? That is first.
Second is as prices were down already, were on a declining trend, that is down, of INR 500 per tonne that we had said, everyone in the call and in the PPT, when did you actually start giving this discount? And how long do you intend to stretch that? And what was the rationale is there to still push volumes in a declining -- destocking environment or gain share from maybe peers or anything like that?
And third, last question is on the while doing some channel sales, you also mentioned presence of or rather competitive intensity in the heavy structure by JSPL. So what is -- how do we counter that? What is our strategy around that piece?
So Lokesh, first question will be addressed by Sanjay-ji, rest two, I will take. Sanjay-ji, please.
Lokesh, now we are targeting quarter-on-quarter 10% growth. Like this quarter, we have done 7.5 lakh tonne near about, now in Q3, we are targeting 8.25 lakh tonne. And Q4, we are targeting 9 lakh tonne. And Q1, we are targeting 10 lakh tonne and Q2, I'm targeting 11 lakh tonne, in Q2, up to 12 lakh tonne, I think in this type of market scenario, we are not going to stop.
We are going to quarter-on-quarter 10% growth, because I have the capacity, I have the market, I have the -- all the things I have. Now nothing is to -- for me an excuse. For Apollo, now no excuse. We are very confident already the secondary market is in the loss. So [Foreign Language] and we are still in the comfort position.
So I don't think [Foreign Language] I think now the ball is in our court, now we are going with external support also. So we are [Foreign Language]. So we are very hopeful. If we can't do it, so we have to rethink where is our structural problem, how can we remove and how can we go ahead. But right now, I can say -- I can give you an assurance [Foreign Language]. We have no excuse. Thank you.
Sir, just one counter to that, sorry. Sir, [Foreign Language] steel has fallen right now, if our gap with [indiscernible] is narrow. So why not front load that volume which we are forecasting later on [Foreign Language] growth accelerate [Foreign Language] later, we don't know, right [Foreign Language], that is an unknown scenario, right? So any thoughts around that, if growth could be accelerated today rather than maybe Q4 or Q1? Please pardon my ignorance.
[Foreign Language] important thing [Foreign Language] we are going to first time do this type of volume. Now we know about the market nudge. What type of it, we have a full basket. [Foreign Language] but right from September month, we are [Foreign Language]. How do we increase the volume?
[Foreign Language] we are still confused [Foreign Language] we can't do anything. Now we read the market. The problem we are going to face, I'm not worried about [Foreign Language] like I can say [Foreign Language]. This month we are going to close the volume at 45,000 per tonne. [Foreign Language] so we can make the basket of things.
Number two, as a margin point of view, [Foreign Language] this month, we are going to close to 16,000 tonnes. [Foreign Language] so we are very hopeful [Foreign Language] quarter-on-quarter 10% growth. And first phase [Foreign Language] EBITDA, INR 4,000 to INR 5,000. Second phase [Foreign Language] INR 5,000 to INR 6,000 [Foreign Language].
And to add to this, our East plant, which we are setting up, two plants, Siliguri and Gorakhpur, so that will also give us incremental market of around 1 million tonne a year. And that will also boost our volumes, which will contribute to the quarterly run rate, which Sanjay-ji just highlighted.
Now on your second question about the discounting in the second quarter for our customers. See, I mean, in the falling price scenario, the sentiment for the distributors, our channel partners also go to like pretty low level. And we have to compensate by -- compensate with some additional discounts, right, to push the volumes. And it would be like first time in our own history that in a quarter when steel prices crashed by INR 7,500 per tonne and our sales volume increased in that quarter versus the previous quarter.
So the momentum what we were seeing, we wanted to continue with that and we thought, okay, if we bleed further by INR 500 per tonne, but that will keep the momentum going with our channel partner, we should go for it. So that was the conscious decision and pricing strategy which we adopted and we went for it. And we knew that once -- and we also had a fair idea that prices will stabilize in September, okay? So from October, we shall withdraw such discounts, and there will be no need to continue with the pricing.
So we have already rolled back the discount and this 500 should flow through into our EBITDA?
That is right. And on your third question, competition on the structural steel heavy space, our philosophy here is the more the merrier because we are the only ones who are promoting the tubular construction in the heavy construction. If more strong players or strong brands have come and pitched the same theme to the developers, to the contractors, to the structural engineers, to the architects, to the government, it will only expand the market in a bigger way. So everyone shall reap the benefits in long term.
Our next question is from the line of Dhananjai Bagrodia from ASK Investments.
Happy Diwali, sir, and very good numbers in a tough economic environment. I just wanted to understand, roughly we are expecting around INR 170 crores was the inventory loss for the quarter.
It was INR 2,000 per tonne. So if you calculate, you shall come around INR 1.5 billion.
So that's INR 2,000 into 250 because only one month inventory we keep, right?
Right. So normally, the stock is around 2,80,000 to 3,00,000 tonnes. On that, the loss we would have booked around INR 5,000 a tonne.
Loss would have been INR 2,000 a tonne.
Yes.
So effectively now what OP per tonne would we be targeting in terms of like...
Sorry to interrupt, Mr. Dhananjai, if you can please repeat your question. Your voice was not audible.
Effectively, for the second half, what OP per tonne would we be targeting, assuming there are no more losses?
So we shall be going from INR 4,000 to INR 5,000 a tonne for the second half.
Okay. So that's effectively that INR 5,000. And volume guidance is -- would it be increased because our numbers have come higher in the first half?
Yes. I mean if you sum up the guidance which Sanjay-ji just gave, right, quarterly volume, I'm sure you will see that the guidance seems to be a bit better.
[Technical Difficulty] would be above 3.2, 3.3, right?
That's right. I think the main impact we will see for the FY '26, right? Because there the 6 months have already gone. But yes, we should be surpassing 3.2 million tonne guidance if we do second half as we are saying.
Our next question is from the line of Kunal Ochiramani from Kitara Capital.
My question has been answered.
Our next question is from the line of Anupam Gupta from IIFL Securities.
[Technical Difficulty].
Sorry to interrupt, Mr. Anupam, your voice is not audible.
Can you hear me now?
Yes. If you can switch to the handset mode, that would be better, sir.
Yes. So can you hear me now? Is this better?
Yes, sir, it's much better now.
Yes. Okay, okay. So the question was on the EBITDA per tonne number which you have put in the PPT of INR 5,000 for FY '27 targeted. But just doing the math from your current number and assuming there are no inventory losses and you have this INR 500 discount rolled back, plus there will be operating leverage which will come through, ideally you should be INR 5,000 per tonne in the next 2 quarters itself, in fourth quarter itself, in fact, assuming there are no further this thing.
So are you assuming an adverse mix incrementally because, let's say, you'll push out more of general structures given that the competition there is much lesser. Or how are you looking at that number specifically?
So Anupam, if you heard Sanjay-ji, right, he said in first phase, our target is INR 4,000 to INR 5,000 a tonne EBITDA and in second phase INR 5,000 to INR 6,000 per tonne EBITDA, right? I mean right now, the EBITDA per tonne has been so low for the last 2, 3 quarters, right, if we mentioned INR 6,000 per tonne on presentation, we just thought let's be a bit conservative in highlighting the numbers. But yes, you are right that the business has the ability to produce INR 6,000 per tonne EBITDA which Sanjay-ji also highlighted.
Understand. Okay. And the second question is on the utilization of the Raipur facility at this point of time. Last quarter, you mentioned it was close to about 60%. What is the number for second quarter?
Yes.
Our next question is from the line of Pallav Agarwal from Antique Stockbroking.
Yes, I hope my line is clear.
So just to answer to Anupam's last question. See, in Raipur, there has been expansion in the capacity as well, right? So earlier, it was 61%, but now on the expanded capacity, it is 53%.
Pallav sir, you can please go ahead with your question.
Yes. So I had a question on the new plant at Bangalore. I think on the last call, you had mentioned that there was a plan -- the location was supposed to in Ahmedabad. So has there been any change in our strategy in terms of geography?
So Pallav, we did decide to go for Ahmedabad initially, right? And then we evaluated the raw material availability, right, the market dynamics and existing plants which are already feeding the Gujarat market, right? So we thought that existing plants can keep on feeding. And in fact, there is a need for a plant in southern market. So we changed that strategy. Anyways, we did not invest any money on land acquisition, et cetera. So it was withdrawable and we did withdraw that. Sanjay, do you want to add?
Yes. Pallav, the main thing is that [Foreign Language] now we've stabilized the EBITDA and our lapping capacity. And this plant, our main market is at Gujarat. Right now -- and in South region, now we have a shortage of like structural tube due to the patra market. [Foreign Language].
It's better [Foreign Language]. Second phase when we are going from 5 million to 10 million tonne target, then we are -- the second phase [Foreign Language] so we dropped the Ahmedabad plant. Right now, we don't want to disturb the Raipur facility [Foreign Language] Raipur facility [Foreign Language].
Also, sir, so the reason for us turning into -- I mean, from net cash to debt again, is it because of the lower EBITDA this quarter or again there is some inventory build up that has happened in working capital?
So Pallav, here there are two reasons. Of course, the profitability was low. So operating cash flow was very, very low compared to the earlier quarters. And secondly, we also went ahead with INR 4 billion of CapEx in the first half. So as you know, that the capacities have increased from 3.6 million tonne to 4.3 million tonne, so some residual CapEx also, we had to incur, which we did. So that's why there is a slight buildup in the debt. But as the operating cash flows will normalize in the second half, it shall come down sharply.
So we still probably have a target of being net cash by the end of FY '25. Is that a possibility?
Definitely, yes.
Sir, just lastly, so given the difference between domestic and import prices, now -- so do we import HRC in the last quarter because the INR 6,000 to INR 7,000 of decline in prices seems to be on a point-to-point basis because on average, the price is probably lower about INR 3,000 to INR 3,500 as per what spot prices we track. So were there any imports of HRC that happened either in Q1 or Q2?
Pallav, just one second.
Pallav, the import price earlier, likely we get -- there are two type of imports. One is Japanese, Korean and Vietnam material, [Foreign Language] duty-free [Foreign Language] and one is Chinese material [Foreign Language]. So the Japanese and Korean materials [Foreign Language] starting of the quarter.
And now [Foreign Language] $500 [Foreign Language], now this material stabilized to $520, $525 per tonne. So if you see the $80 decrease into INR 84, it is almost close to INR 7,000 per tonne. India [Foreign Language] INR 7,500 tonne decline [Foreign Language] so both very equivalent. Indian market is going with the international market.
Our next question is from the line of Devvrat Mohta from Capital Group.
My question really was [Foreign Language] towards taking away more market share from patra, does that become adverse for margin going forward? And really, when you say margins are INR 4,000 to INR 5,000 in first phase and INR 5,000 to INR 6,000 in second phase, really, I mean, what time period are we talking about Phase 1, Phase 2?
Yes. [Foreign Language] Why should I go to remove the market? [Foreign Language] maybe it's come down to INR 1,000 per tonne. [Foreign Language] 4.5 million tonnes or I am promising 3 million tonnes. [Foreign Language] But right now from September onwards [Foreign Language] I can't increase my market share. So I don't want to lose the premium there [Foreign Language] So I can lose -- in the market, I can lose my margins and I can capture the market share. [Foreign Language]
Got it. Basically [Foreign Language] focus is on absolute EBITDA rather than EBITDA per tonne. So how should we think about EBITDA going forward -- absolute EBITDA going forward? [Foreign Language] FY '25, FY '26?
[Foreign Language]
Our next question is from the line of Sneha Talreja from Nuvama.
I have just 2 confusions here. One is you said that you have discontinued the discounts you have given, which was around INR 500 a tonne, which has been done in October, starting. Is that correct?
So Sneha, this was on the overall portfolio, right? But if you go in the market, you may still see that we have discounts on the products which are directly competing with sponge iron/steel pipes, okay? But overall portfolio, the discount which came out to be INR 500 because of destocking, because of sales force, that we have rolled over, but on our general products, the discounts continued in the month of October.
And that is not the reason of your EBITDA per tonne for this particular quarter? Or how do we see EBITDA per tonne impact because of that?
INR 50, INR 100 a tonne.
Sorry, how much?
INR 50 to INR 100 a tonne, that's all.
Understood. Secondly, one of the impact, what I wanted to understand is last quarter, you had mentioned the gap between Patra and your primary steel prices were about INR 2 to INR 3-odd. This particular quarter, you said is INR 5 to INR 6-odd plus there was a INR 500 discount, which will gave it on an overall basis. Despite these gaps increasing, what is the confidence that you have on 10% Q-on-Q growth is what I wanted to understand?
Sneha, one correction. I said 5% gap. I didn't say INR 5,000 per tonne gap. I said INR 5,000. So INR 5,000 on 5%, 5% on INR 52,000 per tonne selling price. Absolute comes out to be INR 2,500 a tonne, INR 3,000 a tonne.
Okay. My bad. Understood. Next thing I wanted to understand is how quickly can you actually ramp up your capacity once you achieve 5 million tonnes sort of a number in terms of capacity? Because earlier, what I understand is you were trying to ramp up your Raipur capacity itself, later you decided to get into various other markets. So I think that particular would help in understanding?
[Foreign Language] We have some capacity left on the bigger sectors and bigger [Foreign Language] After that 4.5 million tonnes, we had a plant in Siliguri for 2 lakh tonne, [Foreign Language] 1 lakh tonne market for Gorakhpur and 2 lakh tonne market for Bangalore [Foreign Language].
Our next question is from the line of Aditya Welekar from Axis Securities.
Anubhav, just a few points which I've missed. So you said 53% capacity utilization on Raipur plant on expanded capacity. So what is that expanded capacity now? And residual CapEx guidance for '25 and for '26?
Right. So last quarter, the rated capacity was 1.1 million tonnes, now it is 1.2 million tonnes. Okay. So there has been addition by 110,000 tonnes to be precise in the capacity. And if you calculate the volume, it was kind of unchanged on a Q-o-Q basis.
Okay. And on CapEx guidance for '25 and '26?
So CapEx, we have around INR 3.0 billion to INR 3.5 billion of residual cash which we shall spend over the next 6 to 7 months, and we shall reach 5.0 million tonne capacity.
Understood. And one question on this value-added product share, means it is 55% and that percentage is almost flat year-over-year. So what is the function of that value-added product share in our EBITDA per tonne increase. Means, do we see any cash where we can -- we have flexibility to increase the value-added product share and reduce our general product share? Because in this quarter, we have incurred losses on EBITDA per tonne basis on general product. So in that scenario, is that the market is developed? Or is there a sufficient market for pushing volumes for value-added products?
Aditya, please understand that the EBITDA loss in general category is not because of our prices, but because of INR 2,000 per tonne inventory loss, which we booked for the whole company, right? So if I remove inventory loss, it was pretty much profitable product, right? And there is no strategy to lower the volume from general products because the opportunity which has come in front of us with the decline in the sponge iron/steel pipes, we have almost 500,000 tonnes of new incremental monthly market, right, which we can target and very, very aggressively. We have the capacities, right? We have the distribution network, right? It's one of the most fast-moving products. So here, the inventory churns are even higher, right? In this segment, inventory churn touches almost 20x in a year, right?
So on EBITDA per tonne basis, you may see it being dilutive, but on ROCE basis, this is like super, super accretive, right? And we are not going to leave any stone unturned to grab the market from sponge steel pipes, which got opened up over the last 3, 4 months. Because it is not ROCE dilutive, it is highly, highly ROCE-accretive.
Our next question is from the line of Bhavin Pande from Athena Investments. .
Yes. Sure. So I just wanted to draw your attention to Slide 23 on the opportunity in solar, so if you could just quantify the size of the opportunity? And second, you could touch upon if products in this particular offering fungible, it could be used across segments?
See, I mean, the products are not fungible, right? The target if you look at the opportunity, right, in the area of residential rooftop, right, there our lighter structural will be used, right? Now for ground mounted, one is still. So there our roofing sheet and thicker color-coated sheet will get used, right? And for tracker, again, we have specialized fields, which can only be used in solar trackers, right? So these capacities are not fungible. So we have introduced the products specifically for this area.
Okay. And Anubhav, what would be the mix of exports and domestic revenue?
So if you look at our Dubai sales, right, that is our international sales.
Our next question is from the line of Bharat Shah from ASK Investment Managers.
I just wanted to ask one question. What is the -- out of the other expenses, which are booked per tonne, so which was about INR 4,400 odd in the first quarter, a little over INR 4,000 in the second quarter. How much conceptually is likely to be fixed cost? And how much is kind of variable linked to the output? In other words, as we ramp up the sales, what kind of operating leverage I can expect to see on a roughly 1 million-tonne -- sorry, [indiscernible] extra kind of tonne per quarter ramp-up that we are talking about, just to get a bit more clarity on that?
So Bharat, see, in fixed costs, our primary is employee cost, right, which right now is INR 1,050 a tonne, okay? I'm excluding the...
[Technical Difficulty] about INR 1,100 a tonne -- INR 1,000 to INR 1,100. I'm talking about other expenses.
Bharat, your voice is cracking.
I'm saying the manpower cost is about INR 1,000 to INR 1,100 per tonne in each of these 2 quarters that I've seen. I'm saying the other expense, which rose up INR 4,400 a tonne in the first quarter and roughly INR 4,000 in the second quarter. So what kind of operating leverage one can hope to see? In other words, how much normatively is the fixed element of the cost broadly? I mean, it need not be very precise and how much is likely to be the variable part?
So Bharat, like I was saying, see, I mean, in fixed costs, there are 3 main components, right? One is employee cost, salary. Second is the head office expenses, and third is the branding expenses. Now in the variable cost, which are, #1 power; #2 consumable; #3 steel wastage and #4 the freight cost, right. And if you look at the operating leverage, which we can get, right, from the employee cost, from the head office expenses and branding expenses, almost INR 500 to INR 600 per tonne operating leverage we can get if we keep on producing 300,000 tonne of steel pipes every month.
Okay. And on the variable part also, we were programmed to save the cost in each of the areas. So roughly what kind of improvement in the next 1 and 2 years, we expect to see on the variable part of the cost?
Variable, the power cost has some potential to go down because we are investing in renewable energy, right? So that helps us reduce the cost. And secondly, on freight cost also, every day, we keep on improving efficiencies from the plant dispatch to the end market so that we can optimize the freight cost. And after opening or commencement of Siliguri and Gorakhpur plants, definitely, the freight cost to Eastern markets will come down. Sanjay, do you want to add?
Yes. Bharat, one thing is very clear. Right now, we are sitting with the expenses of close to 4.5 million tonnes. [Foreign Language] One part is when we run the mills [Foreign Language] but all the charges we have to pay for [Foreign Language]
[Operator Instructions] Our next question is from the line of Sailesh Raja from B&K Securities.
How is the current CapEx trend seen in the government infra projects like metro, railway station, airports, then water infrastructure project like steel water tanks, which you were roughly in 2, 3 quarters back. So today, what is our total volumes from these sectors and what is the total overall contribution coming from government infra projects?
So Sailesh, around 25% of our sales come from the infrastructure projects, right? I mean, last [indiscernible] pretty slow, right, because of elections and new government formation and delayed budgets and then monsoons, right. Now in the month of October, we have seen the pickup, right? But we have been working on these projects for the last 1.5 years in terms of the approvals and our tubular design, right? So we are seeing -- we have started to see good traction from October onwards, and this momentum should continue throughout FY '25 and FY '26.
Is it back to pre-election period?
Not yet, not yet, because now North India, again, we'll see construction slowdown because of the pollution -- elevated pollution level, right? So we believe that Jan, Feb, March last quarter, we shall see the preelection levels momentum.
Our next question is from the line of Vikash Singh from PhillipCapital.
Sir, just wanted to understand one thing that the competition is also getting into the segments, which previously was dominated by you only. Basically, you were the only player. At the same time, you are actually selling more of low-grade products. So in this context and given the -- a lot of capacity coming to competition would also get some benefits of being bulk buying. How do we expect that our blended EBITDA would still be growing to INR 5,000 to INR 6,000 level given our value added will also come under pressure?
Vikash, what is consistent of green, we don't bother. Because we have our own branding, we have our own distribution network, we have our own expertise on the caustic part. Number 3, market is also expanding. [Foreign Language] But we don't think there is any serious competition in our segment. [Foreign Language] we are creator, [Foreign Language] and we are doing a lot of small, small things. [Foreign Language] you can see volume of the market, we can't describe on the [Foreign Language] we don't bother. [Foreign Language]
Understood, sir. Sir, just one small clarification. I know the inventory loss point have been said so much. But we had a similar situation in Q2 FY '23 when the export duty led to almost INR 10,000 price correction. Even then we have managed the EBITDA per tonne reduction of only INR 700 while this time goes almost INR 2,400. So are we sitting up some extra inventory at our people this time? Or I'm reading the situation differently?
So that time, I don't remember, but I think at that time, we compromised with the volume. [Foreign Language]
The volume of [Foreign Language] versus previous quarter, 422, so volume was also good, I believe?
[Foreign Language] without seeing the facts, I don't want to comment anything. .
Next is a follow-up question from the line of Bharat Shah from ASK Investment Managers.
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language] there is an effective scope for savings plus part of the variable costs like power, where there is some level of semi variability of that [Foreign Language]
Yes, yes, sir. [Foreign Language] almost INR 45 crores per month cash fixed cost [Foreign Language]
[Foreign Language]
Yes .[Foreign Language]
So Sanjay, will it be fair to say we finally are at a point where all that we needed or all that we have desired in market conditions is what we have got today. In other words, on the value-added component, realization steadily should improve. On the raw material side, we now have stable conditions and favorable one where we can lower and expand the volumes.
On the fixed asset -- fixed cost side, we'll have operating leverage benefit to save -- to gain. And on the variable, our efficiency and cost-saving programs will result in some reduction. And all of that combined with opportunity in the global arena where overall, I would say that there should not be any reason now going ahead for APL Apollo not to be right at the top end shining. Otherwise, it will require a lot of introspection within as to why withhold the -- all the favorable factors, I would say, there is now no scope for any analytics, it is only the numbers.
Bharat, [Foreign Language] everything is in our favor. [Foreign Language] which is a worry point for us, and we have to rethink about the older system and the older structure [Foreign Language] to be frank, [Foreign Language] Right now, I can say boldly and loudly, see I did not choose to deliver the number. [Foreign Language] and we are working [Foreign Language] today, I can say boldly and loudly, again, [Foreign Language]
No, no. I do know that, and I do understand. Sanjay [Foreign Language] to you Diwali to you and the entire APL Apollo team including the 3 other members on the call. Diwali wishes to all of you.
Thank you, Bharat. Same to you. Happy Diwali.
Our next question is from the line of Omkar [indiscernible] from Shree Investments.
You mentioned that because of the price differential in the sponge steel market, you will be able to garner the additional market. So what exactly -- what exact steps are you taking in order to garner that market, which has been vacated?
Which market are you talking about?
The sponge steel market, just now you mentioned. You said that you will be capturing volumes from that market, right, because of the price differential?
Correct.
So what exact steps are you taking in order to garner that market share?
See, I mean, it has become a pool market, right? If we have the product right and if we are able to service our distributors well, the sales will go up automatically, right? Because the end users, whether the fabricator or contractor or a house owner, if he's getting HR coil quality steel pipe at the same price or maybe at a price gap of 5%, so he's going to ask for APL Apollo steel pipe, right? And my product has got to be available at my distributor counter so that he can service his retailers, his fabricators efficiently and sales will go up on their own.
Okay. Just a small question is that how has been the month of October as we are already at the end of October?
We are right on target.
So whatever you mentioned right now that you will be gaining momentum in each of the segments and -- I mean, the revenue, the volume and EBITDA, everything, do you think you are on target?
I don't know about the EBITDA right now. Right now, I know about the volume. [Foreign Language]
Okay. So you are right on the track for whatever you have guided so far?
Yes.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Thanks, YES Bank for hosting us, and thanks to all the participants. And I wish everyone happy Diwali on behalf of APL Apollo Tubes. Thank you so much.
On behalf of YES Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.