APL Apollo Tubes Ltd

NSE:APLAPOLLO

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the APL Apollo Tubes Limited Q4 FY '21 Results Conference Call, hosted by Equirus Securities. [Operators Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Aman Agarwal from Equirus Securities. Thank you, and over to you, sir.

[Unknown Executive]

Thanks, Davin. Good evening, everyone. On behalf of Equirus Securities, I welcome you to the 4Q FY '20 Earnings Conference Call of APL Apollo. From the management side, we have with us Mr Sanjay Gupta, Chairman and Managing Director; Mr. Deepak Goyal, who is the Chief Financial Officer; and Mr. Anubhav Gupta, who is the Chief Strategy Officer. Not taking much time. I would state, I would like to hand over the call to the management team for their opening remarks. Over to you, sir.

[Deepak Goyal, executive]

Thanks, Aman. Thanks for hosting us for our quarterly earnings call. Good evening, everyone. We welcome you all on our FY '23 earnings call. Sorry to start this a bit late this time, some of the directors had the travel plans. FY '23, we just closed, it was like a roller coster ride with steel prices falling from INR 65,000 per tonne to INR 55,000 per tonne and then eventually settling between INR 55,000 to INR 60,000 a tonne. This decline was figured after the global meltdown of commodity prices started in May 2022. It impacted the building material space and APL Apollo Tubes as well with channel destocking and some margin pressure due to a push sale strategy when our channel partners go for a destocking. But we are pretty glad to share that we ended FY '23 on a high note as our sales volume recovered very sharply with 30% growth after 2 continuous years of COVID led disruption, FY '21 and FY '22. And at the same time, the company's capacity increased to 3.6 million tonnes as we are talking right now from 2.6 million tonnes post commencement or for the new Raipur plant, which is our biggest ever plant.

Some of the highlights we'd like to share our -- for FY '23. The volume growth was 30% to almost 2.3 million tonnes out of there. So Raipur plant contributed around 6%. The total volume from the Raipur plant was 137,000 tonnes for full year, which was -- which now is ramping up pretty fast.

The EBITDA per tonne is lower for FY '23 versus last year because of channel destocking, which led to some push sales strategy. And of course, Raipur plant was being supplied but there were some costs we've got loaded upfront.

Despite lower EBITDA per tonne, the EBITDA growth was 8% to INR 10.2 billion. It was -- it was supported by a strong volume growth. The PAT growth was 4% to INR 6.4 billion. due to high depreciation as the new Raipur plant started in FY '23, all of the depreciation was accounted towards the second half of FY 2023.

The working capital days remain in single digit at 5 days despite the inventory days going up as we started the Raipur plant, but the data day is going further down, and we continue to sustain at a single-digit working capital cycle. Operating cash flows were pretty solid as well with

INR 9.7 billion of OCF in FY '23. It was almost 95% of our EBITDA. So the cash flow generation remains pretty strong. And because of the strong cash generation, the CapEx we did last year was INR 8.4 billion out of this 80% was for Raipur, and now Raipur CapEx for 1 million tonne is pretty much done. This led to a slight increase in our net debt to INR 2.4 billion versus 2.0 last year. But as the CapEx intensity is going down, this will be coming up over the next 2 to 3 quarters.

Encouraged by strong operating cash flows, we are glad to share that we both have approved dividend of INR 5 per share, right, which is a payout of 20% plus for a company. I suppose the best payout ratio was -- so we are glad that the solid cash flow generation is resulting in a shareholder reward at the same time.

The ROC was 29%. The ROE was 24%, and this was slightly lower Y-o-Y. But because of our heavy investments into our Raipur plant, which has just started, and this year, as we expect a good ramp-up and good profitability from Raipur, the ROE and ROC will hinge upward of 35%. And eventually, they will hit 40% once we have the full ramp-up from Raipur.

Coming to some of the other update. So one is the volume trends in Raipur. So you would see that we started ramping up plant from Q1 FY '23 onwards. And by the time of Q4, we did 73,000 tonnes in volume, which was -- if you annualize it, it was at 30% utilization. And the EBITDA per tonne trends are also encouraging upward of INR 4,000, INR 4,500 per tonne from Raipur. And the last 2, 3 months, we launched our 500 square diameter mill, and also the color coated products, mainly for roofing and wall cladding. So for these 2 complexes are not stabilizing and giving us incremental volume.

Because these are our 2 new products, the market creation efforts are ongoing in an aggressive manner, whether it is for high-dia tubes for steel building solutions. -- or it is for color-coated products for roofing the housing and industrial applications. There also, we are focusing aggressively on the market creation by pushing our products to influencers and our distributors.

Lastly, on some of the business decisions or what we take -- which we took early FY '23 was to invest some stake in our distributor, Shankara. So I'm glad to share that the volume contribution from that client has increased by 180% in FY '23 versus FY '22. So this led to -- and this led to very strong relationship between the 2 organizations with our supply to them and they going aggressively on the market share gains within the Southern India. So this relationship turned out to be very win-win kind of thing for each of us. And we are looking forward to for the [indiscernible] as we have aggressive plans over the next 2 to 3 years over that platform.

Coming on the guidance and future plans, our capacity expansion in Dubai in East India and new incremental capacity in Raipur plus some debottlenecking will take us to around 5 million tonnes by FY '25, which is part of our vision 2025 -- and for that, we need a CapEx of INR 5 billion to INR 6 billion, which will be funded from internal cash flows over the next 18 months. And by FY '26, we'll target to utilize this capacity.

And in next 2 years, we stick to our sales volume target of 3.8 million to 4 million tonnes by FY '25 with operational capacity of 5 million tonnes. So more or less, we are sticking to our guidelines -- our guidance which we have been communicating over the last 15 to 18 months. That's it from our side, Raman. We can now have the Q&A session.

[Operator]

[Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital.

[Rahul Agarwal, analyst]

Congratulations on consistently meeting the future targets and good to see a higher billion payout as well. First question, Sanjay jee was more on the competitive landscape. We hear from certain regional channel state that Tata Structura and JSW Steel both have kind of ramped up their capacity in structural tubes and JSW Steel has actually started manufacturing that. Few regional player also been here of picking up quite a decent number of volumes on a monthly bases. Just wanted to know your thoughts because what is happening is the [indiscernible] competition now building up for [indiscernible] , which was absent for many years, and we had a very clear runway of growth. Just your thoughts on is it really real. And what do you expect going into next 2, 3 years? That's my first question.

[Sanjay Gupta, executive]

Thank you, Rahul. Well, I also hear and read in the position of Tata Steel right now, they have a capacity of 1 million tonnes, and they are want to go to 4 million tonnes by 2030. But I have no plant capacity in this sector Tata is going to want to go for 4 million tonnes in the next 6, 7 years. If we go for 4 million tonne in the likely right now, in the structure to pipe 2 million tonnes. If we calculate, he has a capacity for [indiscernible] pipe 1 million ton 1.5 million tons which is not a big challenge for us.n As well as Tata being responsible player 5 in the market in never destroyable market. So we are not worry about the Tata Steel.

JSW just begin a plant called Bhushan Power in Odishah, we are rated with casualty of 2 also the rental plant.

Still we have such as information from the market. Were there planning in the commercial JSW, [ Foreign Language ]. They are healthy players. I'm not worried about our [ Foreign Language ]. They are not a market destroyer. Rather [indiscernible] but after we have my caution in control, my everything in control. I've a good valuation product with me. I have branding in the market. I have a good distribution network. [ Foreign Language ] But I'm not wornried at all.

Market is also growing very fastly in the 2 business what we are experiencing [indiscernible] maybe [indiscernible][ Foreign Language ] but time to time, the way there is a healthy commission regarding to imitate to time-to-time we save the corrective action and move forward. I don't see today any big threat.

[Rahul Agarwal, analyst]

Got it Sir. And second question was how is the April and May so far? How are the HRC prices behaving? And obviously, a target of 3 million, 3.2 million tonnes INR 5,000 EBITDA next year. Basically needs like INR 7 lakhs, INR 7.25 like quarterly run rate. So how are we placed on that? How is the market bearing? .

[Sanjay Gupta, executive]

As far as we make the business plan for 3 million tonnes for this year. In the first half, we are thinking we go for about 13.2 lakhs -- 13 lakhs, maybe 14 lakhs, maybe 12.5 lakhs to 14 lakhs anywhere between. And the second half, call just coming to the last point, we think in June with [ Foreign Language ] One complex, we had called HSE complex. Second complex, we have called vital complex. Third complex, we have called nano section complex. The nanocomplexor [indiscernible] complex actually compare to a and tablet totally new product [indiscernible] 500 square will be 700 square or INR 7,000, INR 8,000 [indiscernible] complex. [indiscernible] 15,000 to 20,000 tons ended [indiscernible] 3,000, 4,000, for the month, I say, June or July [indiscernible] only just a of 20,000, 30,000 tonnes step forward.

This is our whole market for the East.[ Foreign Language ] So we are thinking in the next half. We are going for 16 lakhs -- 15 to 16. Anywhere we cross the target, and [indiscernible] the steel prices. Again, from the month of April, steel prices are going down, but not like year. Last year, gap of from INR 75,000 to INR 55,000 or INR 50,000 tonnes. This year It's slightly slow down like 1,000, 2,000 this is not a big chapter, but no doubt weird chapter but, but not a big chapter. You can manage it.

[Operator]

The next question is from the line of and Ms. [indiscernible] Research.

[Unknown Analyst]

Am I audible?

[Operator]

Yes, audible, sir. Please go ahead. And go ahead with your question, sir.

[Unknown Shareholder]

My first question is on your volume targets. Like you mentioned, 30 lakh kind of volume in FY '24 targets. -- which is more than 30% growth right? So if we take your guided EBITDA per ton or INR 5,000, which gives us an EBITDA growth of approximately 15%. So can you elaborate on what are the projects in line for completion in FY '24, which makes you believe in this? I'm asking this because our run rate for January was -- I think it was 50,000, as we mentioned in the earlier call. But considering our overall quarter four volume, it seems that monthly volume declined in February and March despite being booked on to construction. So can you just put some color on that, sir?

[Unknown Executive]

So see, our products are sold through distribution channel, okay? We don't -- we are not going on a lumpy project B2B business, where we have a strong order book. If you look at our inventory, that is like almost 30 days, which is right from the sourcing of raw material to the processing and dispatching, right? So we never had order book visibility in our business plan. okay? So our job is to: number one, innovate a product; number two, create the market for that; number three, then to distribute it efficiently so that it is profitable for us and our channel partners at the same time.

So if you look at my FY '24 business plan, yes, we are targeting 30% volume growth, same like we did in FY '23, right? And if you look at my 5-year 10-year volume CAGR, so we are pretty much confident that the kind of run rate momentum is possible, right? We are fully confident about it. Last year, I mean, just to add to it, when steel prices crashed from INR 25,000 per tonne to INR 50,000 per ton, even in that -- I mean, that was, I would say, worst year for the steel industry. Even then we could manage 30% volume growth. And this year should be like more or less a stable scenario for global commodities. And this momentum is also backed by all our innovation work what we have done in Raipur plant, right?

So like we mentioned that there are 2 products which are already being established in the market, whether it is a high-dia tube,run rate of 7000 to 8000 tonnes monthly, whether it is rooting products, the coated products that also run rate at 15,000, 20,000 tonnes. And with our more thicker sheet, thicker color-coated sheets, which will start in 1, 2 months, right, so that is only going to add to the momentum.

And then the overall industry is also expanding right? It's not that only Apollo is growing, right? We are growing, but we are also getting good support from industry. And you will also see that it has never been the case that Q4 must have been the seasonally strong quarter for us. right. I mean we try to make our business plan. Yes, it is more towards second half, but then December quarter could be good. March quarter could be good for us.

[Unknown Analyst]

Understood, sir. And sir, mainly actually my question was from the EBITDA[indiscernible] like the price going 30%.

[Unknown Executive]

So yes, you heard us right. I mean in FY '23, our EBITDA per tonne was INR 4,500, right? So this was despite the fact that we weathered or we faced the raw material decline pressure, right, from INR 75,000 per tonne level to INR 50,000 per tonne level. Plus, we were stabilizing our Raipur plant. So these two factors depressed EBITDA spreads, right? This year, FY '24, if -- even if we are able to achieve a Q4 FY '23 EBITDA levels, yes, we are talking about good jump in EBITDA more than our volume growth. Your assessment is right, and we are confident of that.

[Unknown Analyst]

Understood, sir. What will be targeted value-added product percentage to your total volume in FY '24?

[Unknown Executive]

Right. So the FY '23, it was slightly lower, right, versus FY '22. But this will go back to 60% plus levels and eventually to 75%, right? When we have fully commissioned 5 million tonne capacity because all new incremental capacity, whether it was Raipur, which are commissioned or the new capacity which is coming, majority is value-added products. So FY '24, we would be improving our sales mix with value-added product contributing 60%-plus and eventually to 75% when we get our 5 million tonne capacity in 3 years.

[Unknown Analyst]

Actually, I was asking what was the reason for this down fall in the GAAP percentage because overall volumes were growing. So why is it value added percentage going down?

[Unknown Executive]

So if you look at last 2 years, FY '21 and FY '22, my general product category, it actually declined in absolute terms,; right, because the steel prices were high. So the affordability for my general products deteriorated. And that's why the -- there was some shift towards the scrap steel or inferior products, right, in our industry. But now that the prices went down, right, so the affordability improved and there was recovery in our general products. right? So that led to some deterioration in sales mix, but we are not too much bothered about it given the fact that Raipur is stabilizing well and Raipur is all of high value-added products.

[Unknown Analyst]

Understood, sir. And sir, one last question on the cash flow side. Actually, if you see our -- the results period and the presentation, I think the figures are slightly different for cash flow from operating activities.

[Unknown Executive]

Right. So what happens is that, I mean, there is a reclassification. So you're comparing FY '22 versus FY '23?

[Unknown Analyst]

No, no.It's not comparison. Actually, for FY '23, Your cash flow from operating activities that given in your presentation and what is that given in your previous result period. That is, I think, slightly different. In result period it is 690 Cr in the presentation, it is 946 Cr.

[Unknown Executive]

No, no. So that is just the -- and that is just some of the -- like in presentation, we try to give cash flow and how -- in the manner how investors like to analyze, right? And the results pdf is as per the accounting norms. But if you look at the lines, right, it is just that some lines we have taken up and some down. So there is no change in the numbers. It is just like -- it is just a reclassification of some lines.

[Unknown Analyst]

So what is your cash flow from operations for the entire year?

[Unknown Executive]

One moment please. Okay.

[Deepak Goyal, executive]

Yes, there is some difference because in the financial statements is the FDR fees more than 1 year, we have shown in the other financial assets. It's amounting to around INR 50 crores. And in the cash flow in the presentation, we've taken it as a bank balance. That's why you are focusing on this difference. That's why there is a difference.

[Unknown Executive]

Just to add to it. So if you look at our other financial current assets, out of that, INR 2.6 billion, 260 crores is in FD, which are auditors because it was more than 1 year, 365 days. So auditors suggested that it should be part of other current assets not in the cash balance, right? So we adjusted that INR 260 crore of FD for that.

[Deepak Goyal, executive]

And did the note mention in the presentation for --

[Operator]

[Operator Instructions]The next question comes from the line of Dhruv from AMBIT Capital.

[Dhruv Jain, analyst]

I have 2 questions. One was that if you look at the fourth quarter remediation in terms of the EBITDA split per section, so you will see a sharp jump in the general products EBITDA per tonne, which is if you look at it from a third quarter perspective, is also the highest, so I just wanted to understand what has changed, sir? And if you should consider this as the new model.

[Unknown Executive]

So Dhruv, see, I mean, this general product sales, right, and margins. They are very much sentiment driven, right? That's why they are -- I mean, you will see the EBITDA per tonne moving from INR 1,500 per tonne to INR 2,500 per tonne, right? In Q4, if you see, because overall affordability of these general products versus interior products, right? When the volume trends are good, we are able to -- w get better margins on that. So it's a function of that.

So we can say that INR 2,600 per tonne has been established for the general category. If this segment doesn't grow, right, then there will be some pressure on that. So if you look at the contribution of this, right, to my overall EBITDA, that's not that high, right? So we just let it be driven by the market sentiments. We go to month-on-month, not even quarter-by-quarter in this.

[Dhruv Jain, analyst]

I guess the second question was on your UAE expansion. So just wanted to understand that what is the kind of volume that you are expecting from there in terms of exports. And you have 4 million guidance that you have given, that's the contribution that you are expecting from there. And in general, whats if you could just talk about the market opportunity here, how large it can be .

[Unknown Executive]

So Dhruv , I see, I mean, if you look at our last 4, 5 years of growth, right, it has been heavily driven from the domestic market. right? But there was always the opportunity for us to grow aggressively in the international markets, right? Given the fact that today APL Apollo is among top 3 steel tube producers globally, right? So this is one segment which we have been ignoring, but now we decided that we have to cater to it, right? Given the fact we have excess capacities, right, given the fact we are able to hire the best talent in the industry, okay?

So we have good expansion, good volume maximization strategy from the export market. Now Dubai plays an important part because sitting in India and having access to expensive raw materials, you would understand it doesn't make us price-competitive when we are competing with Chinese or Turkish steel tube producers globally, okay?

So if we had to grow this segment by 2x, 3x, which we have in our business plan, we needed access to the cheap raw material. Now cheap raw materials, nearest to what we could find out was Dubai, right, in terms of the real estate land, what we are developing in terms of the talent, which is available and in terms of accessibility for my existing team, right?

So we are setting up a 300,000 tonne plant in Dubai, which will be starting by Q4 of FY '24, right? I mean if you look at my overall export sales, they were around 60,000 tonnes last year, out of like 2.2 million, out of 2.3 million tonnes sale volume. So this year, we target to take it up beyond 100,000 tonnes, okay? And with Dubai capacity coming online, we will be targeting 200,000 to 300,000 tonnes over the next 3, 4 years.

[Operator]

The next question is from the line of Akshay Chheda from Canara Robeco Mutual Fund.

[Akshay Chheda, analyst]

Two questions. So first is, sir, if you see the EBITDA per tonne for this quarter, that is around expansion of around INR 500. But if we see that the product mix had deteriorated sequentially and even raw material was also largely stable. So how do you -- what do you attribute these INR 400 INR 500 expansion to? Is it better pricing? Or how do we see this sir?

[Unknown Executive]

The 2 reasons. One is my incremental volume coming from Raipur, right? In 9 months. Raipur EBITDA per tonne was a bit low in Q4. As we did 73,000 tonne volume, my EBITDA per tonne improved in Raipur and that contributed to my overall EBITDA at company level 1.

Second because the channel destocking stopped, right, after the raw material prices stabilized, right, so that also led us to improve our margins, right? When there is natural pull in the industry, we take out the discounts, which we normally offer to our clients. So that led to improvement in the margin. So given the fact that steel prices are not going to go down again, INR 25,000 per tonne, which we did in FY '23, we should be able to maintain these spreads for FY '24.

[Akshay Chheda, analyst]

So what would you guide for FY '24 on the back the product mix will improve? So what would you guide? Would you continue with 5,000 in FY '25? Would you revise your guidance?

[Unknown Executive]

Right. So for FY '24, we are confident of 5,000 per tonnes, plus/minus INR 100 , INR 200 per tonne, okay? And eventually, with my 5 million tonne of business plan, we should be around INR 5,500 to INR 6,500 per tonne. I mean, that's the broad range.

[Operator]

The next question is from the line of PoJan Shah from Congruent Advisors.

[Unknown Analyst]

One question would be, as you have shown in this presentation on competitive sheet and in that we are seeing that the [indiscernible] making a EBITDA margin of 9% with having 80% of building material infrastructure sale. I'm not able to understand that the chart that we've been presented because in that thing, SSAs also been making 60%, but the EBITDA margin is 40%. Can you explain that? Because even the manufacturing capacity, we have been the highest Revenue, we have been the almost highest, second highest. So how does this evolve like why we are being low EBITDA margin? Are they having a value-added product like the contribution of value-added products will be more like something like that?

[Unknown Executive]

So there are 2 reasons that why we put this up, right? So one is to show to our investors that this is the aspiration, right? This is possible in steel tube industry, which normally is looked as we commoditized or just the steel processing industry, right? Globally, when we look at players in Japan, in U.S., in Europe, right? So they are making these fancy mid-teens EBITDA margin, okay? So one purpose is that.

Second is to tell our investors that we are highly focused towards the building material and infrastructure space, right, which is related to construction. And all our innovation, all our product SKU range is a focus towards this segment. right? So the fact of the matter is that why the margins are like almost 2x more than what they are in India. And in India, in the steel tubes, our rates are the highest, right?

So what we find out what we could analyze is that in the construction sector, these companies are selling high dia, high thickness tubes for many years, right? And they have almost 40%, 50%, 60% of their volume coming from high dia, high thickness right? Apollo started its journey into high dia, high thickness in 2018. When we put up our first 300 square diameter. It took us a good 3, 4 years to create the market for that, right? Now we are selling like more than 100,000 tonnes a year, right?

So what then the next leg work to get into 500 square diameter because we wanted to give the complete range to the contractors, to the designers, to the structural engineers to design the structures using tubes. Now after 500 square it is ramping up, the next product line, what we are adding this year is 1,000 by 1,000 mm, right, 1,000 square mm diameter. So that will give us further expansion of SKU range, right?

So what we believe is that after this SKU profile, right, the volume uptick in big sections in super big section will be much more great versus what it has been over the last 3, 4 years. So once we reach at those levels, even you will see that our margins will start inching up towards double-digit and the hence forth.

[Sanjay Gupta, executive]

So what I see in the -- my last 2 years just before the COVID, the [indiscernible] industry in Chicago, I meet three [indiscernibl] industry , there the product percentage of the selling is almost 75% in the bigger sections and a net and circular tubes almost be 10% would be less than we have 10%. This economy of European companies, I don't idealize European companies but I idealize Japanese companies but I have seen the [indiscernible] very nearly [ Foreign Language ]

First we take 12 DFT machines, one [indiscernible] 200 square 3 lines, 1, 2, 3 -- yes, 3 line of 200 square, then 300 square, then 500 square. [ Foreign Language ] I just came in the afternoon from a marriage, [indiscernible]. So we talk to the [indiscernible] there is already there with [indiscernible] courtesy of [indiscernible] PV designs.

[ Foreign Language ] It takes time. Although the Indian market, which we [indiscernible] many [indiscernible] even better margin [indiscernible]. So I also can't understood why should be in India. The margins can [indiscernible] no reason something there, not that secondary because there is a full scope in it.

[ Foreign Language ] But I can't say right now. But I am also working on this very deeply. I am also worried about at this point.[ Foreign Language ] But right now,[ Foreign Language ] I've no answer.

[Unknown Analyst]

Okay. Okay. sir, that was very elaborative answer. Just one that the Dubai total ton, how many would be ton in Q4 FY '24, just that ton is specific?

[Unknown Executive]

That is about 10,000 tonnes.

[Unknown Analyst]

10,000 tons. Okay.

[Unknown Executive]

10,000 per month. Quarterly 30,000 tons .

[Operator]

The next question is from the line of Aditya Vellecar from Axis Securities.

[Unknown Analyst]

Sir, can you just elaborate on your sales volume guidance for FY '24, '25, and if possible for '26? And if you can quantify the split wise between individual plants, but how much is from existing, how much from Raipur, Dubai and Kolkata?

[Unknown Executive]

Right. So see, I mean, our Vision 2025 is 5 million tonnes, okay? So this means by FY '26, we plan to exhaust this capacity and convert this into sales volume, actual sales volume. So that's a 3-year sales volume target.

Now coming to FY '24, we are seeing 2.8 million to 3 million tonnes, right? FY '25, 3.8 million to 4 million tonnes. And then FY '26 of 4.5 million to 5 million tonnes, right? So that's why we try to break it up. Here, Dubai plant is 300,000 tonnes. New plant in East India will be 200,000 tonnes. Then there will be incremental capacity in Raipur over 1 million tonnes of around 300,000 tonnes, right? And then there will be some capacity expansion [indiscernible] expansion within the existing plants at Raipur. That will give us additional capacity of 300,000, 400,000 tonnes right? So that's the broader maths for 5 million tons.

[Unknown Analyst]

So that's useful. And the next one is just if you can once again, reiterate the CapEx guidance for '24, '25?

[Unknown Executive]

So right now, we are at 3.6 million tonnes capacity, right? And to reach 5 million tonnes, we will not require more than INR 500 crores to INR 600 crores, right? This, we should be spending over the next 12 to 18 months, and this will be 100% funded from the internal cash flows.

[Unknown Analyst]

Okay. Perfect. Sir, one last question. So now recently, there were reports of fall in steel prices model in China. So are we seeing any signs of destocking from traders in anticipation of further falling steel prices? Or is the smart demand robust enough and we are confident that the demand will stay strong and the kind of volatility we are seeing in FY '23, that kind of stocking, destocking cycles, may not get in FY 2024?

[Unknown Executive]

See, if you look at our trend over the last 5 to 10 years, okay, steel is a very volatile commodity, right? And we are managing this quite efficiently, right, over the years. So the point here is that INR 1,000, INR 2,000, INR 3,000 per tonne decline or increase. It's a very normal industry practice, right? Apollo, Apollo scheme, Apollo's plant, Apollo's system. And similarly, our distributors, retailers and further channel partners, right? So they are equipped to manage this INR 2,000, INR 3,000 per tonne kind of volatility, right?

It does impact, right, for a few days in terms of destocking because if one understands that yes, there could be some decline in the prices. So they do hold on to their purchases, right? But then there are 2 factors what play into. One is that the secondary demand should be strong given the fact that construction is doing well in India right now. So the secondary sales will remain good, but demand from the end consumer, whether it is a household owner or a contractor or a developer, right? So if both trends are good, the materials keeps on flowing, right?

And second is that normally, for distributors, they work with 25, 30 days of inventory. When they want to destock, they may reduce it by 4, 5 days. right? So this is the general industry practice, which may hit the volume for a few days or weeks but not beyond that. So to answer to the question, yes, right now, trends are bit on low side. So it will -- it is impacting some volume, but not to the extent that we have to change our business plan or something.

[Operator]

The next question is from the line of Aman Agarwal from Equirus Securities.

[Unknown Analyst]

So first, I just wanted a clarification on recently we saw an open offer made for [indiscernible] .

So just wanted to get management strategy. Is there any intention to raise the take center or what we know from a compliance perspective?

[Unknown Executive]

So it was just from the compliance perspective because it being NBFC is guided by the[indiscernible] and the RBI approval came late, right? So it is just for the compliance purpose, nothing else. That company is well funded by the investors, right? And there is no plan of changing shareholding structure as of now.

[Unknown Analyst]

Got it. So no other investment to make in that company . Got it. And secondly, on the new products. So I just wanted a comparison on first, with respect to the high diameter tubes, and secondly color coded tubes, so which product category do you see getting better traction or faster traction for APL Apollo?

[Unknown Executive]

I mean we are equally bullish on all the segments, right, because whatever CapEx of INR 1,000 crores plus, we have put in Raipur, that is with the vision that all 3 products will fire products, right at the same pace, right? So today, right now, the coated products are giving us the maximum volume, right? The higher dia, high thickness tubes, we had very strong visibility from our potential clients, right? Its just that the conversion takes a bit of time. But right now, the pipeline is very strong, where some projects we are talking about more than 30,000, 40,000 tonnes of consumption of our products in single project, right?

So it may take like 1 or 2 quarters to reflect into P&L, right? But given the pipeline, we are very bullish that this product, which is high diameter, high thickness will do really well. And thirdly, the thicker color-coated products, right, there -- we have already developed the market last year, right? But now we are doing further processing, right, that will complete in the next 2 months. And once it hits the production, like even that volume ramp-up will be very quick because we have already done very hard work last year to develop market for that. So I would say that all products should be fire for us over the next 3 to 4 months, right, and -- and right now, the focus is on 500 square right because this is first of its kind mill in India. Globally, this would be only third, fourth mill, right?

So our technical team has done a really wonderful job to make this happen given the fact there was like restrictions from traveling from Europe/China. So the line is stabilized, market is there. We should be ramping up pretty quickly. And from June, July onwards, the thicker coated sheet will fire at the same time.

[Unknown Analyst]

Sir, so from what we understand by an existing market for the color-coated products, could you then throw some light on that, what's the total existing market size? And who are the key players that are operating here?

[Unknown Executive]

Right so I think the coated products, which you see in my sales volume, is an adjacent product for me, okay? Because in housing or in industrial, Apollo's tubes are already being used, okay, for roofing structure. Now what I'm providing is the sheet -- what we are now supplying is the sheet, right, which goes over our structure, right?

So being an adjacent product, it's the same distributor, whom I am selling to. It's my same retailer, who my distributor will sell to; and then the fabricator is going to install it; and the same end construction site.

[Deepak Goyal, executive]

But ultimately, we are putting a new type of concept. Do I think we come out with the month of October, third quarter. So [indiscernible] And we have wider by the [indiscernible] [Foreign Language]

[Unknown Analyst]

Understood, sir. And sir, lastly, on a broader level, from -- what do you think can be an inflection point in terms of profitability or maybe the industry size [indiscernible] industry size, where the large steel manufacturers can start to look more aggressively towards making a meaningful entry into this segment? I understand there is an already meaningful entry, but we do not see much of capacity addition from there end in the last few years.

[Unknown Executive]

Boss you have to understand one point, I just earlier telling -- our expertise 2 points. On the secondary market, one is there is no market in India, is the biggest factor in the big [indiscernible]. We are working at bothn ways Secondly, market 3, 4 [indiscernible] just in the plant in Angul with [ Ramin ]. HCA as a [indiscernible] plant I think overall one with a cap of 5 million tonnes. [ Foreign Language ]

Right now, Riple is 3 million ton. Primary steel market in the 1 million tons. Secondly, almost close to 4 million tons, which market [indiscernible] quarter[indiscernible] . I've done INR -- $7 million good vision for the second we feel. So the whole market was developed [indiscernible] I don't think nobody can supply the material in the primary steel other than Apollo. [ Foreign Language ] I'm not worried.

Because I have a reason, reason is for 1 quarter, 2 quarter, 1 year. I will begin for 2, 3, 5 years. I'm looking forward to the beginning of my $3 million to $10 million for the [indiscernible] steel for the 130 million in terms of the 300 million ton in terms [indiscernible] India.

[indiscernible] India. [Foreign Language]

And time to time, taking the correct decision to reach the goal. Number two, the biggest section the market [ Foreign Language ].

I'm looking [ Foreign Language ],already happening in USA and China [ Foreign Language ] we have to also provide some numbers [ Foreign Language ]

Who is going to be beneficiary of all this capacity. No doubt Apollo is the beneficiary of all this capacity. I'm not worried about [indiscernible] I am waiting just waiting for the right time. Thank you.

[Operator]

The next question is from the line of Amrita from Wealth Managers India Private Limited.

[Unknown Analyst]

Sir, my question is now the current capacity, 3.6 million metric tons, right . So if you could give us some breakup of like the capacity for the application wise, that will be helpful.

[Unknown Executive]

Right. So Amrita, If you look at like my sales volume, right, for FY '23, right, it is around 50% housing right and 25% commercial and 25% infrastructure, right? So that's the broader application mix, right, for our products. And the 3.6 million tonne capacity versus 2.3 million tonne volume, in this, the housing and commercial segment will be a bit higher because of introduction of our coated products that's more used in residential and light fabrication jobs.

So more or less, we'll stick to like 55% housing, right, 25% commercial and 20% infrastructure.

[Unknown Analyst]

And like what could be the set of capacity between the structure as in heavy , super heavy, light, general Apollo [indiscernible] and Apollo [indiscernible].

[Unknown Executive]

Right. So we can share this data review right over like one-to-one interaction. I don't have it handy right now.

[Unknown Analyst]

Second question is regarding the debt position. Right now, the debt is INR 2.5 billion. So like we are going to do a CapEx of increasing the capacity to 5 million tons. From like what could be then, can you tell me to expect the company to become net cash positive?

[Unknown Executive]

Right. So the focus I mean, this year, FY '23, we did 10 billion of EBITDA right, and almost 9.5 billion operating cash flow, okay? So this operating cash flow of INR 9.5 billion was FY '23. And given that we have -- and given that, I mean, we have strong growth plans both in profitability and volume, right, so this operating cash flow should improve, right, assuming the fact that our working capital days will remain where it is, right?

So having like incremental operating cash flows in FY '24. And my residual CapEx to reach to 5 million tonnes is less than INR 6 billion today, INR 600 crores, okay? So this could be funded from like operating cash flow is what we going to generate over 4 to 6 months because that's a time line when we will complete this expansion to 5 million tonnes. So eventually, we should be debt-free, right, by FY '24 end or early FY '25. Hope this is clear, Amrita.

[Unknown Analyst]

Yes.

[Operator]

Yes. The last question will be from the line of Shashank Agrawal from Ocwen. As there is no response, we'll take the next question from the line of Mitul Shah from Reliance Securities.

[Unknown Analyst]

I have 2 questions. One is on the railway side, railway modernization-related which we discussed in past one or two con call was at a primary stage at that time. So any further update or are we getting any sizable orders on that side?

[Unknown Executive]

Right. So Mitul, I'm very glad to share with you that one railway station in South India, got approved -- our tubular design got approved, right, last week. And the level [indiscernible] right. So the contractor will release the order right within this month, okay? And at the same time, today, we are in touch with at least 20 contractors, okay, who have won the orders already right? A single contractor is working on at least 4, 5 railway stations. So the railway stations, which I'm talking about the 1 which we closed already, right, the same contractor is working on one more station in South India, right?

We are working with one contractor who has won 5 stations in North and West India, right? So this is like a trend where the contractors have understood that if they go on tubular design, they are saving a lot of money, right? So with this South India station, the construction getting started over the next 1, 2 months. This is going to open massive doors for us. Apart from that, there are like 3 negotiations which Sanjayji spoke about, in Bombay, Ahmedabad and Dehli.

So Delhi and Ahmedabad station, where the bidders were [indiscernible] so their businesds were higher the government budgets, right? So they are also -- so government is again working through kind of lower the scope of these redevelopments, so that it comes under the government budget. But Mumbai is going as per the plan, right? And we are already and we are already talking to the contractors, where we are submitting the tubular design, right? So given the fact that there are going to be 1,500 new railway stations under redevelopment in India over the 5 years. right, I mean this opportunity is mammoth in size.

[Unknown Analyst]

Sir, in terms of any value or tonnage or anything per railway station you can share? And what duration will these contracts would be over?

[Unknown Executive]

Right. So I'm sure like you know this data point. We have told you that in a highrise building, the steel tube consumption is 5 to 6 kgs per square foot. But in railway stations, where the dead load is high and there is vibration metrics which we need to take control, right, the tonnage is above 10kg per square foot for our railway station design.

[Unknown Analyst]

So per station, how much income will you earn roughly?

[Unknown Executive]

No. So it will vary from the size of the railway station. When we talk about 1,500 stations, there could be like a very small station in a small district of Uttar Pradesh, and we talk about New Delhi railway station right, with the INR 7,000 crores budget. There the tube consumption will be minimum 40,000 tonnes, right, versus a small district where the minimum tonnage will be 500, 600 tonnes. Minimum will be 500 tonnes and maximum, we would go to 40,000 tonnes.

[Unknown Analyst]

Sir, and second question on your EBITDA per tonne for FY '24, where in going forward as new Raipur is ramping up most of this product category in the range of INR 6,000 to 8,000, INR 9,000 per tonne kind of products are increasing in terms of contribution even in terms of volume, whatever we have done in this quarter, if you annualize, we are guiding even higher for the next full year. So there is already operating leverage you are indicating.

So this INR 5,000 per tonne kind of indication plus or minus INR 100, INR 200 seems to be too low. So what is restricting us from guiding better margins may be INR 5,500, INR 6,000 kind of number? Based on logic, it seems would be quite high. But is there anything we are missing out on that for FY '24 and '25?

[Unknown Executive]

So there are 2 things. I mean, even Raipur, if we do 500,000, 600,000 tonnes, right, in Raipur, the utilization will be 50%, 60%. And given the fact the incremental 300,000 tonnes is coming, so the capacity by end of FY '24 in Raipur will be 1.3 million tonnes.

And on that, we are doing 500,000, 600,000 tonnes. So we are still like below 50% right? So the real Raipur, you will see in FY '25 or maybe Q4 of FY '24, right, when you see the real Raipur EBITDA being visible, right? And second, the fact is that -- I mean, the INR 5,000 per tonne, again, it is -- as per our business plan, this number is quite impressive because at the same time, we need to ramp up our volume, right? From 2.3 million tonnes, we are targeting 3.0 million tonnes, right? So there could be like a few months where there could be like some volatility in the steel prices and there might be some channel destocking. So we have to be ready for that, right?

So that's why, I mean, with whatever caution you may say, like, we are guiding for INR 5,000 per tonne. But yes, if sentiments are good, if macro tailwinds are there, there could be a higher number. So let's hope for the best. And maybe we could have some joker in the pack when we talk after 12 months. Thanks, everyone, for joining the call. Sanjayjee, do you want to?

[Sanjay Gupta, executive]

Yes, I want to us say my views with my charter partners or my investors, stakeholders in the company. First of all, I thank you all of you to believe on us. Maybe we are late by 1 or 2 quarters. And for the applicable [indiscernible] this is a -- personally, I'm very, very thankful [ Foreign Language ]. Never let you down.

But I want to share my vision with you. First of all, we are now in the process of making organization so some people are low or some people I don't know. In the 1st of April we totally revert on the run actions. And we boost up a lot of junior people in our milestone on [indiscernible] post, right now [indiscernible] CEO.

[indiscernible] process and what a careful actually we are going into the process of making [indiscernible] we have to very careful [indiscernible] group, we go. So that's what [indiscernible] careful so well.

Number two, are the reason for India 3 trillion to 10 trillion, 3 to 10. Let us[indiscernible] all the steel makers or all the [indiscernible] are paying was 200 million at 300 million. [ Foreign Language ] Indian market is close to 8 million tonnes.

Right now, we have a total capacity of 8 million tonnes. It's the high 1 million tons in actual I'm not worried because I was working with Tata Steel. We do very closely and very -- [indiscernible] the hope we can increase the market. This is best for all of us. [indiscernible] gave a margin of 3,000, 5,000 of margin. [indiscernible] steel market in India, the [indiscernible] market making or steel-making [indiscernible] 15,000, 20,000 ton [indiscernible].[ Foreign Language ]

How to get Apollo to 10 million tonnes for 2030. I'm working on this.[ Foreign Language ]. How can I get 10 million tonnes in 2030 without [indiscernible] without that [indiscernible] high. Without a balance sheetn being heavy. 10 million how I have the market for Indian still 30 million capacity to the market as an [indiscernible] working on this. [ Foreign Language ] I am working on this.

So I'm very hopeful maybe [ Foreign Language ] This I can assure you.[ Foreign Language ]

[Operator]

Thank you very much. Thank you. On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect lines.