APL Apollo Tubes Ltd

NSE:APLAPOLLO

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to APL Apollo Tubes Limited Q4 FY '24 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ravi Sodah from Elara Securities Private Limited. Thank you, and over to you, sir.

[Ravi Sodah, analyst]

Yes. Good afternoon. Welcome to the Q4 and FY '24 Conference Call for APL Apollo Tubes. From management, we have Mr. Sanjay Gupta, Chairman and Managing Director; Mr. Deepak Goyal, Director, Operations and Group CFO; and Mr. Anubhav Gupta, Chief Strategy Officer.

To start off, I will hand over the call to the management for opening remarks. Post that, we can have a detailed Q&A. Over to you, sir.

[Anubhav Gupta, executive]

Thanks, Ravi, and thanks to Elara Capital for hosting Apollo Tubes for its Q4 FY '24 earnings call. I welcome all the participants on this call.

So FY '24 as it went by, it has been full of roller coaster rides. When we had started in April last year, we had come out of a very tough FY '23, which was highly disrupted because of the global commodity melt-down, which impacted all the industry. So FY '24, we thought that it will bring a lot of optimism to the business model after 1 year of disruption, and we thought that we would be able to do 3 million tonne of sales volume for the full year. And that's what we guided to our investors as well.

But after the 12 months, what we did is 2.6 million tonnes, which is almost like 13% shortfall of our own guidance or you can say around 350,000 tonnes of volume shortfall. So first, I'd like to highlight that what missed? Okay, why this shortfall in reaching the target? And how we plan to overcome that?

So FY '24, it started with India having its own problems like high interest rates, high inflation, the steel sector -- the steel sector getting transformed after almost 3, 4 years that the new capacity started to come online after new entrants like NMDC Steel and long steel producer, Jindal Steel & Power, they started flat steel production. So a lot of factors did impact [ DEB ] the momentum for the full year. So if I have to decode that 350,000 tonnes of volume loss, we would say that 100,000 tonnes got lost because of overall slowdown in the construction activity, particularly in the retail sector. 100,000 tonne volume got lost because of our late ramp-up of Raipur and Dubai plant, which we had thought that they will be operational within the mid-year, but ultimately, both plants started production towards end of the year.

And also because of there's a new steel, which was coming online in terms of upstream capacity, those 2 months in October and November, which impacted our Q3 FY '24 pretty badly, and our volumes declined to almost 604,000 tonnes versus a normalized run rate of 76,000 tonnes, 80,000 tonnes.

So these were the factors, which actually impacted our FY '24. But if we look at the overall performance with 15% volume growth, 15% EBITDA growth and 15% PAT growth, we believe that we have moved our way from a very like nonfavorable situation and now we are sitting on a highly, highly solid platform, which will drive our earnings for the next 2 to 3 years.

Other than that, what we have achieved is 2,400 of capacity expansion program, which has taken our capacity to almost 4 million tonnes right as at March 2024. And with just [indiscernible] of residual INR 600 crores, our capacity will be 5 million tonnes up and ready. We have closed our net cash balance sheet for the first time, right with a small cash of around INR 200 million, but it is highly appreciable that after doing CapEx of INR 2,400 crores in the last 4 years and our [ FY '20] balance sheet was with INR 800 crores of net debt. FY '24, we are almost closing with -- we are almost closing with a net cash balance sheet.

And with the low CapEx intensity now, one can imagine the kind of cash flows or the free cash flows which our company is going to generate.

Our OCF EBITDA, operating cashflow EBITDA has been upward of 90% throughout and you can see the net working capital days, which was just 1 as of March 2024. And again, when we have more cash and carry business model in FY '21, there are always apprehensions that whether this is sustainable, but now we are glad that 3 to 4 years of consistent working capital efficiencies, we have been able to achieve right and which is best in the construction materials sector.

And the ROCEs, which you see optically, at around 30% for the whole company, but this is after the fact that we have invested almost INR 1,400 crores, INR 1,500 crores in Raipur plant and INR 150 crores to INR 200 crores in Dubai plant. So these 2 investments will fire in the next 2 years and then ROCEs will go beyond 35% to 38%, which is our target.

Other than that, the construction boom cycle on which India right now is sitting whether it is in terms of the record retail order book with the real estate developers or it is with the recovery in the retail construction demand, which will come post elections and post reversal of interest rates and inflation and then the infrastructure spending, which is going to take place in terms of any kind of infra, which government or private sector are willing to bid.

We can see one slide in our presentation, Slide #28, where we have shown -- we showed where we have given the demonstration of what the commercial and infrastructure projects can provide the opportunity for the success we use that our share will be 4x higher for what our cement as our construction material gets used or 10x bigger than any other construction material product. So with the product range starting from 8 x 8-millimeter in dia in up to 1,000 millimeters x 1,000-millimeter dia, this allows Apollo Tubes to service the construction industry for any kind of structure, any kind of construction, whether it's a small shanty being developed in slum of Mumbai or it is 5 star hotel or $10 million condominium being built in Gurgaon. So anywhere our portfolio is there to service the consumption sector, the architects, EPC contractors, or developers.

As far as Q4 is concerned, there were like some adjustment in the market -- in the steel market, after the new capacity came in steel prices were correcting, so which is good that finally India market is seeing steel deflation, which is very good for us because ultimately, we compete against inefficient construction products like secondary steel, like rebars, like steel angles and channels, like aluminum profiles, wooden structures, short plates, [indiscernible] with our base raw material in the deflation mode, it opens a big market for a hollow products. And with the product SKU market with the distribution network with our business development teams working 24/7, this is going to -- this is going to help boost our volumes significantly in the next 2, 3 years.

But yes, because of steel prices coming down, it has a marginal impact on channel destocking, so we have to push our products aggressively to our clients for which we have to offer some discounts. So that's why there was like INR 200 to INR 250 erosion in the EBITDA per tonne versus last quarter. But again, we are not too much worried about it, as steel is making a base with almost 10% to 15% lower prices, what did -- what it was at the start of the year. It gives a very solid base for Apollo to push its products now.

The existing months, April, May have been going pretty okay, given we were afraid that election could give some disruptive environment, but April, May have been pretty good. And the momentum for FY '25 looks pretty solid. After elections are over, we expect all the private builders order book, which is related to the presale or infra projects where we are already working. You will see a lot of projects what we have given in our presentation how our designs, our products are getting approved, right? So yes, I mean, we will be back on a 20%, 25% growth trajectory in terms of volume, EBITDA impact for the next 2, 3 years, we are super confident about it.

In terms -- lastly, I would like to highlight on our ESG performance because this is one of the very important barometer for our management today. We did participate in DJSI or Dow Jones Sustainability Index for last year and our percentile increased to 86 versus 80. And where on the overall environment, social governance score, our score was 42 last year versus 29 in the previous year. So -- and just to send in the board, we got 2 new directors, Mr. Rajeev Jain and Mr. Dinesh Mittal, who come from the varied industry experience. Mr. Rajiv has been the Chairman and Managing Director of Goodyear the leading tyre and Mr. Dinesh Mittal comes with Indian administrative background, which will help us improve our compliances.

So that's it from our side. I mean what we believe is that FY '23, FY '24 were among the worst years, what we have seen in the recent past. But Apollo continues to do its work in terms of working capital management, generating cash flows, finishing its CapEx, innovating, building the market for new products and we just need the tailwind from the macro and you'll see Apollo getting back on 25% volume earnings CAGR.

Thank you so much. We are happy to take questions now.

[Operator]

[Operator Instructions] Ladies and gentlemen, we have our first question from the line of Aditya Welekar from Axis Securities.

[Aditya Welekar, analyst]

Sir, my question is in terms of EBITDA per tonne metrics. So if we see Q4 EBITDA per tonne and comparative Q3 and Q4, there is a drop in that, except for general products on a sequential basis. So what explains that? So that's my first question.

[Anubhav Gupta, executive]

So if you look at the drop, right, so general product, what we have been able to do is that see, I mean the competition, which Apollo cases, it's normally in the general segment, right, which is the commoditized portfolio. And in the last 4, 5 years, the brand what we have built, right, for our products against the small competition, right, so that has started to play, okay, that our price premium versus the second tier, first tier, is now almost like 5% okay, which used to be like 3% 3, 4 years back. But our -- after our consistent investment into branding, right, we have come to a situation where even in the highly competitive space, our margins are -- our margins are lining -- our margins are lying solid, right?

And as far as the other value-added products, this is more a function of -- this is more a function of the discounts which we are giving, right or the support which we give to our clients in the scenario of falling steel prices.

[Aditya Welekar, analyst]

Understood. So the next question is on volume sales guidance. So we had a guidance of 4.6 million tonne to 5 million tonne sales for FY '26. And are we sticking with that kind of guidance for FY '26 and also in Q1, if you can indicate what kind of sales volume we can expect? Are we seeing improvement in demand atmosphere? And when we can expect these headwinds, which we are witnessing currently during this election season to go away? So something on demand front and sales volume guidance for '25, '26, if you can throw some color.

[Anubhav Gupta, executive]

So see, I mean, can we do 5 million tonnes in FY '26? Yes, we can do. We have the capacity. We have the distribution. We have the working capital available, right? We have the product basket. We have everything in place, right? But yes, I mean, given we do say 20%, 25% growth in FY '25, and then we're talking about 40% jump, right, to achieve 5 million tonnes next year. For that, we need macro support, right. And given the fact that India is now finally into steel deflation mode, right, this opens up almost a paddle industry, which we are going to attack very, very aggressively, right, which is can we feel substitute product. Right?

In last 5 years, because of the high inflation in steel prices, that market got -- it became almost parallel to our HR coil based steel markets. And we have been highly vocal about it that this trend has to reverse with the capacity, which India is going to see in the steel sector that deflation will come.

And we are now seeing the trends already, which is visible in our April, May number, right, despite the fact that India is going slow because of elections. So yes, I mean, if we get the market, we can hit 5 million tonnes next year, nothing stops us. But right now in our business model, we are projecting 20%, 25% volume CAGR for next 3 years.

[Aditya Welekar, analyst]

Understood, sir. And last question. So what's the current spread gap between the primary and secondary. So in last call, you said that the spread is coming down, the gap is coming down to INR 12 per kg from INR 15. So is this trend will continue because more and more patrols get commissioned. So that may be beneficial for you. So currently, are you witnessing that trend?

[Anubhav Gupta, executive]

Definitely, that's why I said despite elections, our April, May has been -- both months have been pretty okay, right? And as far as the spread is concerned, which was as high as INR 15,000 a tonne, today, it is around INR 6,000 to INR 7,000 a tonne.

[Operator]

[Operator Instructions] We have our next question from the line of Amit Dixit from ICICI Securities.

[Amit Dixit, analyst]

A couple of questions from my side. If I look in Q4, the rise in realization was lower than the realization -- than the rise in cost per tonne, and there was a significant gap over there. So did we -- and the prices -- steel prices, of course, they kept on falling through the quarter. So did we see some kind of, I would say, impact of inventory on the cost that has now got normalized? If so, is it possible to quantify the inventory impact of it in Q4?

[Anubhav Gupta, executive]

So Amit, I mean, there are 2, 3 factors to this, okay? If you look at my products in chart okay, which must be coming around INR 69,000, INR 70,000 a tonne, okay? Now I sell a product, which starts as low as INR 57,000 a tonne and goes up to INR 100,000 a tonne, right? That's my product basket, okay? Then I have elements like Zinc because of my coated products because of my Z Galv products because of my GI products, galvanized products. Then we have color as a raw material, right, which we are using for our roofing sheets, right, and other super value-added products. So in raw materials, it is -- now it is does not seem, okay, which is there. We are using much more products now and we are selling more hybrid steel as well. right?

So even that steel is higher by like 5% to 10%, right? So we are supplying 1 product for a solar project, where my raw material is INR 80,000 a tonne, the landed because it's a super hybrid raw material, right? So I guess as our volume mix keeps on improving towards all these high value-added products, they will be like [indiscernible] per tonne of like you will see -- you won't be able to totally kind of reconcile with that steel because steel as element of total raw material cost is going down. And this is one and second. Yes, I mean I wouldn't say there is an inventory write-down, right? What we do is we offer accounts to our clients, right, multiple incentive schemes which go, right, that is what depresses our spread. But as of now, like there's no inventory loss, right, which we took on our balance sheet.

[Amit Dixit, analyst]

Okay. Understood. The second question is essentially, is it possible to quantify the capacity utilization at Raipur plant for Q4 and for the year and Dubai plant? And what do you expect the capacity utilization in FY '24 on an average at both these plants?

[Anubhav Gupta, executive]

Sure. So if you see our Raipur plant today is around 1 million tonnes, okay, for the full year. INR 90,000 -- 90,000 tonne a quarter -- a 90,000-tonne a month to 70,000 tonnes a quarter and 1 million tonne a year, right? My volume in Q4 from Raipur was around -- the utilization was around 55%, right, on Q4. If I annualize Q4, it was around -- it was around 55%, okay? And this year, we expect this ramp-up to go to around 70%, 75%.

And as far as Dubai plant is concerned, Dubai, we were to install 4 mills right. Right now, 3 mills are operational right? The volume which I did in Q4 based on 2 mills, my utilization was 45%. 2 mills will start in the next 1 or 2 months.

[Amit Dixit, analyst]

Okay. So what will the utilization in FY '25, considering the entire plant, I mean, 4 mills?

[Anubhav Gupta, executive]

Dubai, we are projecting around 150,000 tonnes, right, with a capacity of around 300, so it will be around 50% on all 4 mills running.

[Operator]

We have our next question from the line of Vikash Singh from Phillip Capital.

[Vikash Singh, analyst]

My first question [Technical Difficulty].

[Operator]

Mr. Vikash, you audio is breaking.

[Anupam Gupta, analyst]

Vikash, I get you, I get that question go on. Vikash go on.

[Operator]

Mr. Vikash, are you there?

[Vikash Singh, analyst]

Yes, I'm there.

[Operator]

Please go ahead with your question, Mr. Vikash. As Mr. Vikash was disconnected. We'll move onto the next participant. We have a next participant from the line of -- next question is from the line of Mr. Akshay from Canara Robeco.

[Akshay Chheda, analyst]

Yes, just 2 questions, sir. I mean, I understand that because the demand scenario was bad and you had to give around INR 2, INR 2.5 extra discount. But so then what explains the balance part of the EBITDA per tonne contraction? I mean -- on one side, if I see sequentially, at least in the commodity products, we have done good actually, which is either not the case in the normal scenario because that gets impacted. But there, actually, we have shown sequential improvement. But then in the other categories, where we have relatively better share. So there -- so why so much contraction? I mean, just in case of Apollo Z also sir, there was so much contraction that was there.

I mean, we had the benefit of leverage because in the previous quarter, we did 6 lakh tonnes, but now we are at 680. So even operating leverage was there. I mean, so why so much contraction? I mean beyond INR 250, I mean, what explains that, if you can help? Yes, that was the first question.

[Anubhav Gupta, executive]

Okay. So let me address that first. So Apollo Z, there are 2 types of products what we sell. One is deep finished tubes, right, which goes as a roofing structure. And second is just roofing sheets, right just galvanized. What has happened is in Q4, the mix of the roofing sheet is pretty high compared to what it used to be in the first 9 months, okay or in Q3. And in selling GTC, right, obviously, the margins are lower than what you generate by selling a finish -- completely finished tube, so that explains the deterioration in the EBITDA spread for Apollo Z in Q4, okay.

And secondly, see, I mean, last year, our last year also, if you look at FY '23, our EBITDA spread was INR 4,500 a tonne. And full year also FY '24, our EBITDA spread is like marginally up by INR 1,500 a tonne. So please understand that Apollo has started, it's like 2 [Technical Difficulty], right, the Raipur and Dubai, right? A lot of fixed costs are uploaded -- are loaded upfront as of now, okay? So unless we hit the threshold of like 60% to 70% utilization, the operating deleverage will come into the accounts, right? That's what is keeping our margin depressed, right? And when environment is not too conducive to get 15% growth, right, which we did, okay, in FY '24, then yes, I mean, the sales team has -- the sales team is sold, right, to give some expense to push volumes.

So just like, see, I mean, INR 150 a tonne, right? That's what we're talking about, right? On 700,000 tonne volume, that's like INR 100 a tonne is like INR 7 crores, right, for the full quarter on an EBITDA of INR 300 crores. So it doesn't impact too much, right, to my overall profitability. What guidance right now, I mean, until March '24, the sales team was that go aggressive on sales, right? Because we knew that market is going to become conducive after steel capacity coming online, okay?

So let's go and hit for like 70%, 80% market share, okay, in HR coil-based tubes, right? I would urge you to please check with the large steel pipe traders in the country to please understand that what is the kind of market share, which APL Apollo is right now having in the HR coil-based market. And none of the dealers will tell you below 75%. So yes, I mean giving INR 5 crore, INR 10 crores here and there, but we are able to get market share. And when the prices stabilize, then we know that how to get the premiums on the market. And anyway, we have established a premium of 4% to 5% versus my competitor.

So just allow us like time till Q1, right, because Indian steel sector has gone through a very disruptive year, right? After 5 years -- after a gap of 5 years, new capacity came in. So we're just trying to play around that way -- to move forward, which we have done pretty well. And you'll see that the momentum from like after the elections or end of Q1, Q2, you will see that all whatever got lost, we will cover out.

[Operator]

We have our next question from the line of Sneha Talreja from Nuvama.

[Sneha Talreja, analyst]

Just couple of questions from my end. For FY '24, where was your total exports? And what is the target for FY '25 and '26? That's my first question.

[Anubhav Gupta, executive]

Say it again, Sneha?

[Sneha Talreja, analyst]

Anubhav, what was your exports in FY '24? And what is your target for '25 and '26?

[Anubhav Gupta, executive]

So Sneha, see, I mean, export sales for FY '24 were around 100,000 to 110,000 tonnes, okay? And obviously, now for FY '25, right, now we are projecting almost 150,000 tonnes from Dubai plant, right? So that will be incremental. So overall, my international business will be around 200,000 to 250,000 tonnes. There will be some, obviously, cannibalization from Dubai plant, which we will not buy from India. But overall, we expect it to grow to 200,000 to 250,000 tonnes.

[Sneha Talreja, analyst]

Understood. And what would be your total volumes which will be sold to Shankara this year, FY '24 versus FY '23?

[Anubhav Gupta, executive]

Shankara is like in single digit my contribution right, 7%, 8%.

[Sneha Talreja, analyst]

7%, 8% of the total volumes?

[Anubhav Gupta, executive]

Yes.

[Operator]

We have our next question from the line of Vikash Singh from Phillip Capital.

[Vikash Singh, analyst]

Yes, yes. So just first question, while we are targeting this [Technical Difficulty] we have a solid target of 40% chances of growth. So are we beating the EBITDA per tonne guidance of INR 5,500 plus because we have to be very aggressive and can't have both EBITDA per tonne improvement as well as that kind of volume?

[Sanjay Gupta, executive]

[Technical Difficulty] Vikash when we crossed 5 million tonnes, I have no doubt that my margin is more than INR 5,500 per tonne.

[Vikash Singh, analyst]

So we will be able to target both the expansion in the margins as well as that kind of volume as well?

[Sanjay Gupta, executive]

Yes. So because what my thinking [Foreign Language] in the quarter, we are not sounding so loud. But Q2 onwards, I don't think it last year, we -- what we are facing that between the secondary and the primary [Foreign Language] low-quality material [Foreign Language] the Indians culture has not understood [Foreign Language] like the NMDC and JSP [Foreign Language] and the JW Steel [Foreign Language] also started in month of June or July. [Foreign Language] Right now, we have a capacity of almost close to 4 million tonnes [Foreign Language].

[Vikash Singh, analyst]

Yes, I understand. So given this spread has already come down to 7,000. So can we expect 2Q onwards, our margins going back to at least the 5,000 levels? Or that thing will take more or less?

[Sanjay Gupta, executive]

[Foreign Language].

[Vikash Singh, analyst]

Understood. And sir, sorry, second question is basically, my line got dropped. So I don't know whether it is asked or not. Are we still getting that INR 250, INR 300 discount, which we were giving last month or we have actually pulled back that discount? And why APL Apollo that EBITDA per tonne decline was very sharp versus the other segment?

[Sanjay Gupta, executive]

You can say like that not INR 250 and INR 300 discount, maybe this discount is more, but not in whole market. So average is close to INR 250 to INR 300. [Foreign Language] We are aggressive in the marketing right now. My first aim is to cover the 5 million tonne capacity. [Foreign Language] My single agenda, how I reach 5 million tonnes and how I improve my ROCE, because if you see, where we crossed 5 million tonnes and we have EBITDA margin of maybe INR 2,500 crores or INR 3,000 crores, just you see the ROCE number. And number two, my aim is right now, first time after a long time, we have net cash position.

This year, my target is at least we crossed 4 figures with the net cash portion to INR 1,000 crores plus, [Foreign Language] after that, then we decide to net cash [Foreign Language] or we go for some alternate [indiscernible].

[Vikash Singh, analyst]

Understood, sir. And sir, the gap for Apollo Z because my line got dropped, so I couldn't hear that answer.

[Anubhav Gupta, executive]

That was because of Vikash, the product mix within Apollo Z, we sell a finished tubes and we sell roofing sheets, right? So this quarter, roofing sheet volume was higher, right, which carries a lower margin than our finished sheets.

[Vikash Singh, analyst]

Understood. But our annual mix should not change. And what kind of value-added the ending sales mix which we are expecting for FY '25?

[Anubhav Gupta, executive]

So we closed at 60% in FY '24, right? The idea is to take it to 70%, 75% when we hit 5 million tonne volume, Vikash.

[Operator]

We have our next question from the line of [indiscernible] Capital.

[Unknown Analyst]

My first question is on the [Technical Difficulty].

[Operator]

Mr. Ritesh, can you please be a little louder?

[Ritesh Shah, analyst]

Sure. Is this better?

[Anubhav Gupta, executive]

Yes.

[Ritesh Shah, analyst]

My first question is on the shift between primary and secondary, right? Two parts to it. One, in your estimation over the last 2, 3 years because of this increased delta, how much incremental share of the secondary segment has taken from the primary? That is one. And second, sir, you have mentioned in previous calls, right, that the secondary market is basically dying. I want to understand the intrinsic factors behind it because some industry participants also believe that the markets will coexist as they have for past 2 decades, and there is a certain segment, price-sensitive segment, which would still opt for secondary. So just from your perspective on if any is changing in terms of customer preference, et cetera, that particular segment needs.

[Sanjay Gupta, executive]

You have to just understood in the last 4, 5 years [Foreign Language] 1 or 2 years is a bad phase of our industry for primary steel. [Foreign Language] So always the cost of the primary steel is less than the secondary steel [Foreign Language] spread between the second and primary [Foreign Language] And the import market -- the export market is also not good. [Foreign Language]

[Ritesh Shah, analyst]

Understood. So that's really helpful. One more question from my side. So if you look at the 5 players, right, status there including you, everyone is expanding capacity, estimating good demand growth. So basically, every player is increasing their capacity by 2x to 3x over the next 3, 4, 5 years, but the demand is expected to grow in 8% to 10% or at last, say, low teens. So do you believe that this can create an overcapacity situation in the industry over the next 3, 4 years? Or do you think the demand will be sufficient to absorb the new capacities that are coming up?

[Sanjay Gupta, executive]

[Foreign Language] I'm not seeing frankly in the ground reality. I am seeing only in the announcement. Only one I see is Tata is quoting -- he is going to increase his capacity into 3x. I'm not bothered others [Foreign Language]. Number two, when we are talking with the steel plants and the government, we are talking the India mid steel consumption [Foreign Language] if we are going to consume 300 million tonnes steel in next 5, 6, 7 years, [Foreign Language] you can see better [Foreign Language] I don't think -- time will be saved, how it's done. But we are very sure, our first landmark is going to 5 million tonnes, then the maybe 1 year before or 1 year after, and the second market is for 10 million tonnes. We are very sure.

[Operator]

We have our next question from the line of Anupam Gupta from IIFL Securities.

[Anupam Gupta, analyst]

My question is on the capacity expansion, which is you highlighted in the presentation. So versus a 9-month presentation, the capacity expansion now is more in heavy and that plant in light and general structure is lower now. So where is the shift -- where is this change happening? And what is the thought process behind this?

[Anubhav Gupta, executive]

Right Anupam, so this is what we kind of -- when we had -- when we had laid down the vision for 5 million tonne capacity, right? So we were seeing that what all segments we should focus, right? But the success what we saw in big and super big section in the last 8, 9 months, so this made us to believe that we need to install more such mills, right? Because the demand which we project is going to come, right, and also stay ahead of the competition. Because see, I mean, we installed 300 x 300, mill in 2017, right? And now everyone is talking about installing such mill, right after 4, 5 years. And now they are cutting us, they see that our 500 x 500 square mill is gaining momentum.

So by the time they think in next 3, 4 years, they will want to install such, we'll be ready with 1,000 x 1,000, 600 x 600, right? So it is just to give a statement in the industry and to our clients that the demand, which is going to come up right, we are ready to cater that demand. So just like minor seeking in our capacity expansion program, which got more skewed towards heavy and super heavy sections.

[Anupam Gupta, analyst]

Okay. Okay. And understand that. And in terms of the CapEx and the capital allocation. So obviously, your cash flows are very strong as is visible. So it's the next couple of years, cash flows would obviously be significantly positive. So what is the plan in terms of allocating that between CapEx incrementally over the next 2, 3 years? What is, let's say, if you can outline that a bit? And also, any plans of any sort of a buyback, which can happen over the next -- over the medium term?

[Sanjay Gupta, executive]

Right now, if you see further moving to 5 million tonnes, we have zero outflow for CapEx because we are going to make CapEx of almost INR 400 crores, INR 500 crores, above INR 500 crores [Foreign Language] Our next for 5 million tonnes, we don't require a lot of money because we have a lot of infrastructure already. [Foreign Language], whatever the best for the shareholder and the stakeholders, we go for that.

[Operator]

We have our next question from the line of Pallav Agarwal from Antique Stock Broking.

[Pallav Agarwal, analyst]

I think in the opening remarks, Anubhav mentioned solar new site. So just wanted a little more -- a little more details on this. So is this basically solar top tubes that we are manufacturing or this is more of the mounting structure of the solar tubes because I remember a few years back, we had a JV with tracking company and that I think do not go through. So some more details on the solar thing would help.

[Anubhav Gupta, executive]

Sure, Pallav. So what I meant with Solar was the -- our steel tubes being used for the solar structure, okay? So what has happened is that now if you see any solar installation, which has taken place, whether on ground or rooftop, it is -- it has happened with the breakup sections, right, H beam and I beam. But what you see is that the steel tubes, right? They offer a better -- steel tubes offer better design in terms of tonnage optimization. So this is where we are pushing the designers of solar. We are pushing the designers of solar structures to go for tubes. That is one.

Second, the big shift which is happening is that whatever on ground solar installation has taken place, it is stand still. Now the world is moving towards tracking solar systems, right? Tracking solar system needs to be built only on tubular structure. It can cannot -- tracker cannot move on conventional buildup section. So this is where the market opportunity lies, and we are working with all the large solar power producers, right, to develop our trackers to develop their tracking structures, which help of our tubes. So this is where the opportunity lies.

So it is for the structure. We are not getting into solar panel manufacturing or something. It is just using our tubes to make the solar structure more efficient, so that the solar power producer can increase its efficiency from solar.

[Pallav Agarwal, analyst]

Yes. So I got that part. So I'm talking about solar top tubes using the tracking system. So right -- are we also manufacturing that? Or are we empaneled with some of the vendors who supply that or this is...

[Anubhav Gupta, executive]

No, no. Yes, yes. So I will not like to name our clients. But yes, we are working with the solar power producers directly.

[Pallav Agarwal, analyst]

Okay. And so as of now, I mean, this may not be a very significant portion, but any going ahead this can form...

[Anubhav Gupta, executive]

Opportunity, so just for the reference point, 1 megawatt of solar tracker requires 25 tonnes of torque tubes.

[Pallav Agarwal, analyst]

Okay. And this would be sort of an empanelment process. So like an auto OEM approval process, would that be the right way to look at this opportunity.

[Anubhav Gupta, executive]

I don't think so because we got -- we bought one of the year's largest solar power producer, okay, 8 months back. They told us that can you develop this product of a pentagonal shape tube, okay? Within 8 months, we were ready with the innovative design and the supply has also started within 8 months.

[Pallav Agarwal, analyst]

Sure. And lastly, I think a special grade of steel is used. So I think maybe recently, 1 or 2 of Indian companies have start manufacturing it. But otherwise, I think it was more of an imported thing. So is that why the prices you mentioned were very high for a particular grade of steel?

[Sanjay Gupta, executive]

Now, yes, all the Indian steel manufacturers are working on the graded steel and they improved a lot of it.

[Operator]

We have our next question from the line of Bharat Shah from ASK Investment Managers.

[Bharat Shah, analyst]

[Foreign Language] I just wanted to make a point. [Foreign Language] It is to the credit of APL Apollo that very, very difficult period of downward and very volatile prices of the steel, we have been able to deal with without surrendering or succumbing. [Foreign Language] now we have capacity of acquiring , we are fully prepared with our assets, the opportunity externally significant, even new opportunity of exports is something that we have opened up. We have one of the highest innovation ratio in SKUs compared to any other player, domestic or the global even people like [indiscernible] lower level of innovation than we have.

And with the kind of figures and energy, which we pursue every cost line, whether it is logistics, whether it is free energy costs [indiscernible] and with the premiumization value-added portfolio, [Foreign Language] but to perform remarkably higher, the way APL Apollo always has been known for and has been doing. [Foreign Language] But now we have all the things ready, [Foreign Language] and for not just '24, '25, but for years ahead, [Foreign Language].

So I wanted to hear from you, what do you think of that?

[Sanjay Gupta, executive]

[Foreign Language] due to not a completion of timely CapEx of Raipur and the Dubai plant, [Foreign Language] we have to also sell the material on the [Foreign Language] raw material activity is very good. [Foreign Language] I can say only one, you can believe on us [Foreign Language] but unfortunately, the timing [Foreign Language].

[Bharat Shah, analyst]

[Foreign Language].

[Sanjay Gupta, executive]

[Foreign Language] My target is [Foreign Language].

[Bharat Shah, analyst]

[Foreign Language].

[Sanjay Gupta, executive]

[Foreign Language] today my premium is almost close to INR 3,000 tonne [Foreign Language] just give me some time to branding, innovation, distribution costing [Foreign Language] there is no leakage [Foreign Language]

[Bharat Shah, analyst]

This is typically the statement, which can be certified is the statement of Mr. Sanjay Gupta.

[Sanjay Gupta, executive]

[Foreign Language] This is a statement to study the channel either Pune [Foreign Language].

[Bharat Shah, analyst]

[Foreign Language].

[Sanjay Gupta, executive]

[Foreign Language].

[Bharat Shah, analyst]

All the very best wishes and it is really remarkable with the kind of volatility in the steel prices in this '23-'24 as well as in 2022-'23, it's not easy to handle. And in a short period to deal with it without any sufferance, that's phenomenal achievement. [Foreign Language] We have plants and capacity in the value-added segment. And we have a huge amount of focus and try to make it happen.

[Sanjay Gupta, executive]

[Foreign Language]

[Operator]

Ladies and gentlemen, due to time constraints, that would be our last question for today. And I now hand the conference over to management for closing comments.

[Anubhav Gupta, executive]

Thanks, Manav. Thanks to all the participants for dropping by. Hope to see you soon for our next quarter earnings call. And thanks again to Elara for having us here. Thank you so much.

[Sanjay Gupta, executive]

Thank you, everyone.

[Operator]

Thank you. On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.