Apollo Pipes Ltd
NSE:APOLLOPIPE
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Apollo Pipes Ltd
Earnings Call Analysis
Summary
Q2-2024
Apollo Pipes kicked off FY '24 with record Q1 sales but faced a slowdown in Q2 due to volatile PVC and cPVC prices, leading to a decrease in channel stocking. Despite a challenging market, sales volumes were just below 20,000 tonnes, growing 28% year-over-year. The EBITDA margin held steady at 9.7%, mirroring Q1's performance despite aggressive sales strategies to gain market share and higher expenses. Working capital improved from 56 days in FY '23 to 49 days in H1 FY '24, with a goal to reduce it below 40 days within 2-3 quarters. The Return on Capital Employed (ROCE) is projected to increase from the current 15%. With the intention to double capacity to 286,000 metric tonnes over the next 3-4 years, the company is actively acquiring land and investing INR 135 crores in each new Greenfield plant. Apollo Pipes plans to reach a sales volume of 85,000 tonnes in FY '24, aiming for a 30% growth and expects to achieve a fixed Compounded Annual Growth Rate (CAGR) of 30% revenue growth over the next four years, with 25% to 30% of ROCE in spite of new investments.
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Ladies and gentlemen, good day and welcome to Apollo Pipes Limited Quarter Two Investor Conference Call, hosted by Systematix Institutional Equities. [Operator Instructions] Please note that, this conference is being recorded.I now hand the conference over to Mr. Ashish Poddar from Systematix Institutional Equities. Thank you, and over to you, sir.
Yes, thank you, Sagar. Thank you everyone for joining us today for Apollo Pipe's Q2 FY '24 Earnings Conference Call. From the management side, we have Mr. Sameer Gupta, the Chairman and Managing Director; Mr. Arun Agarwal, Joint Managing Director; Mr. Ajay Kumar Jain, the Chief Financial Officer; and Mr. Anubhav Gupta, the Chief Strategy Officer at APL Apollo.So I will pass the floor to Sameer sir for his opening remark, and then we'll get into the Q&A. Over to you, sir.
Thank you. Good afternoon, everyone. And thank you for joining us on our Q2 FY '24 earnings call to discuss the operating and financial performance. It seems FY '24 would be as much a rollercoaster ride as it was in FY '23. We started Q1 on a solid note with best ever sales volume of 21,000 metric tonnes. However, momentum slowed down slightly in Q2 due to volatility in PVC and cPVC prices, which led to channel destocking.Although, our sales volume increased 28% Y-o-Y. We were looking to grow our sales volume, Q-on-Q as well. Good news is that, that even in bad market, we were just at below 20,000 tonnes sales volumes. We reported EBITDA margin of 9.7%, which is in line with Q1 performance, affected from raw material volatility and the margin was also impacted due to aggressive sales strategy we adopted to gain market share and higher expense.Our working capital improved to 49 days in H1 FY '24 from 56 days in FY '23. We are on track to improve it under 40 days in 2 to 3 quarters. Our ROCE should expand from current 15% level. The fluctuation in raw material prices seems to be persisting as PVC prices dropped by 10% in October. So sales and margin pressure would remain. However, we target to achieve 85,000 tonnes of sales volume in FY '24, a growth of almost 30%.Now that, we are doubling our capacity to 286,000 metric tonnes in the next 3 to 4 years. We believe this aggression is much very much required. So we are aggressively pushing land acquisitions in Eastern UP and Maharashtra. These new Greenfield plants shall be of same size as of our flagship plant with an investment of INR 135 crores each. We shall be commissioning with new lands every quarter till we reach the capacity of INR 2.86 lakh tonnes by FY '27.The industry may go through short-term pain, but our long-term goals remain intact whereby we look forward to achieve revenue growth to 30% fixed CAGR for the next 4 years. We are also confident of hitting 25% to 30% of ROCE despite these proposed investments supported by working capital efficiencies. This is from my side.Now, we are glad to take questions. Thank you.
[Operator Instructions] The first question is from the line of Vikas Mistry from Moonshot Ventures.
I have a couple of questions. First question is on industry structure. As we see that in the cPVC industry, we are having 5 to 6 nice players and they have good market share. Everyone has cash on their balance sheet. So, could you foresee in the next 2 to 3 years, the price will start and everyone will start feeling margin pressure? What is your view on this industry structure of the cPVC industry?
So Vikas, welcome to our call. So, coming to the question of price war, right, see, I mean, if you look at this industry, which is like INR 40,000 crore in size, INR 35,000 crore to INR 40,000 crore, and given that all the buoyancy and bullishness we are seeing in the real estate and construction sector in India over the next 3-4 years, so we believe that the industry should grow at 10% to 12% on a consistent basis for the next 3-4 years. And if this industry adds INR 3,000 crores to INR 4,000 crores of incremental market every year, and given that still 60% of this industry is organized and 40% is still unorganized, so there is good scope of this transition from unorganized to organized.And within organized space also, yes, I mean, there are strong players with strong balance sheet. We are in the same segment. But then, there are a lot of weaker players, smaller players within organized space also who are struggling, right, because of working capital crunch, because of outdated machinery, because of not having brand to sell products in the housing segment, right? So there is enough scope for stronger brands, right, to continue to grow, right, at their desired growth level for Apollo, which is 25%, okay? And we can continue to grab market share from the unorganized space and weaker organized players.As far as the price war is concerned, I guess, if you see the margin trends, right, coming in the last 3-4 quarters, I believe we are coming back to the normal margin trends, which went upward in FY '21, FY '22, due to the increase in the raw material prices globally, what happened, right? But I guess, whatever number companies are now showing, they are towards the normalized level, okay? And it is not because of price war, but it is more of the normalization in the industry, which is taking place.
That's great to hear. My apprehension is starting from the fact that capital utilization of all organized players are too low. And as they start ramp up and they could not able to do the sales, they may start doing the price war. Putting that aside, that's great to hear. And kudos to the whole team of APL Apollo for doing exceptional execution.My second question is a bit on long-term, maybe 5 years after, would we see Apollo Pipes to be as a complete building materials play, having solvents and maybe paints and something else apart from pipes, although, we understand that for next 4-5 years our plates are full, but can we be thinking in that direction too?
So, Vikas, our goal #1 today is to build capacity of 286,000 tonnes in next 3 years, right, and utilizing it to 70%-75% levels with INR 15,000, INR 16,000 rupees per tonne of EBITDA, which should give us INR 300 crore to INR 400 crore of EBITDA levels. Currently, we are at INR 100 crore run rate at EBITDA level. So -- and this should give us 25%to 30% ROCE, okay. Right now, working capital optimization is also going on. So mission #1 for us is 30% ROCE with INR 350 crore, INR 400 crore EBITDA number, okay. Once we achieve that, right, then we will evaluate how we can grow vertically or horizontally. Does it make sense to add new products in our existing channel, or we keep on expanding in PVC pipes? Honestly, we haven't presented anything to Board yet. The only thing what is in our mind today is our 286,000 tonne capacity with 30% ROCE.
That's great to hear.
[Operator Instructions] The next question is from the line of Mihir Damania from Ambit Asset Management.
This is Bhargav Buddhadev. Congratulations.
Sorry to interrupt, Mr. Damania. Can you please use handset while asking the question? I believe you are using the speaker. So, your voice is ?
Yes. Am I audible? This is Bhargav Buddhadev here. Am I audible?
Yes, you are audible, sir now.
Yes. Okay. So, first of all, congratulations to the management team for a strong performance. I have 3 questions. One is, what is the share of channel financing as of now? Because if you look at networking capital days, we've seen improvement to about 49 days versus 56 days. So, just wanted to know what is the share of channel financing?
So Bhargav, no increase, that's very, very negligible. Okay, no increase what we gave the number on -- in April for Q4 results last year. So no increase. Because what we are doing is we are going for cash and carry model with our distributors. That's why the improvement in receivables, right? And also better credit terms with our suppliers. So that's not result of channel financing. That is yet to come in, right, that is yet to come in. You'll see the results in next 2, 3 quarters as the team is gearing up, right? Talking to the distributors, to the clients, how to go about it, right? We're talking to 3, 4 national banks, 2, 3 NBFCs, 1, 2 FinTech companies also, right? So whenever we get better rates, better services, right? So you will see that results from channel financing in next 3, 4quarters, not today.
Okay, okay. And ideally, you would want say 20%, 25% of your receivables to be financed through channel financing or can it be more?
So, I guess, I mean, we're not looking for any number, Bhargav, okay? What we are looking is to make the business easier, right? For our channel partners, right? We don't have any number in mind, whether we want to go for 10%, 20%, 30%, right? Right now, the first priority is to get the right partner, right, launch the product, and get in the ease of business, right? Ease of doing business, right. Then, we'll see how this ramps up, right, and what are the results, what are the benefits to our channel partners. We will evaluate accordingly.
Secondly, is it possible to highlight the volume growth across your agri and non-agri portfolio?
Sure. In terms of, so one figure I would like to gladly share on the forum is that our -- our share from the housing segment, right, in terms, in value terms, it touched 55%. Okay, so 55% was housing and 45% was agri. Okay, so this is -- this is as per our strategy, right, that we want to build our housing portfolio stronger and stronger, which is a better margin. And, this is all the new capacities, whether brownfield or greenfield, we are putting in. This also gives the confidence that the brand is now getting penetrated deeper in the market. And there is consumer acceptance for Apollo Pipes in the PVC segment as well.Coming to your question, I mean, in terms of volume growth, if you see the volume growth. For Q1, the housing growth was, just a sec, Bhargav. So the mix, like I said, in value 55%-45%, right? And in volume terms, it was 52%-48%, 52% volume from housing and 48% from agri. And growth, if I have to compare Q1-Q1, just one second. So Q-o-Q, agri was kind of negative 3%, right? And housing was up -- housing was up, QoQ, yes, so 18%, yes. So housing was like kind of flattish, and agri was down 4%, 5%.
Why Y-o-Y would it be fair to say plumbing has grown faster than agri?
Yes, so Y-o-Y, if we compare. Yes, so our overall volume growth was 28%, right? So, the -- so the housing, housing was higher than the agri. Although agri also did well on Y-o-Y basis, but housing did better.
Okay, okay. And lastly, is it fair to say that the volume growth is across the geography or is it still being led by the North India geography?
So all other markets are contributing, right? But of course, because of the sheer capacity in North India, 65%, 70% keeps on coming from North India. But this skewness will change, right? Happy to share that, we are very close to -- or very near to start putting up the plant in Eastern UP, right, which will cater to East India and UP market with deeper penetration. Then at the same time, we are aggressively looking at acquiring land in Maharashtra for the West region. So, as these 2 new plants shall start operations by FY '25, we will see that this skewness will shift more towards the rest of India.
And share of SDP will be about 10%, right?
Yeah, I mean 10%, 12%, 13%, not more than that. Yes.
The next question is from the line of Ritesh Shah from Investec.
In the initial remarks, you did indicate that we adopted aggressive marketing strategies to actually push volumes. Sir, I was just trying to understand this because working capital, we have done a fantastic job. EBITDA per kg is also pretty much okay on a sequential basis. Then what's the magic formula over here? Is it product mix or anything different that we are doing on the marketing side?
Ritesh, see the magic formula is -- or I would say magic recipe is a mix of multiple ingredients, right, which have now started to play. Which I will start with the brand Apollo, right, which is among the leading construction material brands in India today. Then our capacity and SQ range in North India, where we are one of the largest in terms of market share in the North Indian markets, right.Then third, the quality of our products, which matches with the top players in the industry, right Then our servicing to our channel partners. The fifth ingredient would be the loyalty, the relationship that we are carrying with our channel partners for all these years. Then the sixth ingredient will be our aggression, our strong balance sheet, which is helping us to go outside North India and expanding into other markets with large capacity announcements. And appointing new distributors, new channel partners. The next ingredient here would be our secondary sales support what we have started offering to our channel partners, right, where we try to generate leads for them. The next thing again would be the Plumber Influencer Program, what we are running, okay? To engage with Plumbers and make our brand stronger right in that segment.Then the other ingredient would be all the like the efficient brand campaign, what we have run so far, right, because of our limited and spend budget, which never exceeded 1.5%, right? So whatever best we could do BPL-APL signing Tiger Shroff, now Mr. Amitabh Bachchan, right? So, rationalization in the expense, right? And yes, the team what we have built, which is last but not least, the team which we have built over the last 2, 3 years to -- with the vision of becoming one of the top 3 PVC pipe brands in India.
Sure. This is helpful. My question was more towards bundling change in product mix. If you could please highlight over that, that would be quite useful.
Say it again, I didn't get, Ritesh.
My question was more towards any bundling strategies that we are adopting in the marketplace given housing as a segment has been a key focus area for us, so that was one? And secondly, as our product mix drastically change, if you could give -- earlier, we used to give a breakup of fittings, PVC, HDPE anything over that would be quite useful.
So bundling -- okay. So in bundling, Ritesh, I mean, of course, uPVCis what we started with, right in 2017, then we introduced uPVC fittings, then cPVC, when we got water tanks, then we got solvents. And now we are getting bathing fitting, plastic bath fittings, right? So these are the major product segments, which we are doing, right? So there's no strategy or no game plan to get into like non-PVC range, right, for sure, for the next 3, 4 years, still, like I said initially that 300,000 tonne capacity, 70% utilization, right? So until then, no plan to add any other cost.And second question was on, Ritesh was on, can please repeat?
Yes. My other question was on -- you indicated to Bhargav's question. I think 65%, 70% of the volume is not. Can you highlight how much of the state-level exposure? I understand UP is a big market for us and we do heavily on multi-tasks. How should we look at -- is there any concentration of risk over here to the state-level schemes that we have, any numbers that you can share that would be useful?
I wouldn't think so, because from our UP plant, right, existing plant, we are not only catering in UP, but we are catering to Punjab, to J&K, to Rajasthan, to Haryana, right? So, not just Uttar Pradesh, being the size of the population in UP, it will carry the bulk of revenue, but it is spread as the map of India.
The next question is from the line of Dhananjai Bagrodia from ASK.
Just to understand, our utilization is only down to 6%, while PVC pipes were around 12%-13%. Maybe I missed this earlier. Is this all product change, or have we been able to increase prices and not be comparatively similar to competitors?
No, no. Your voice is not clear. Can you be a bit more clear, please?
Yes. Can you hear me now?
Yes, better.
Okay. I was saying, compared to our utilization is only down 6% year-on-year, compared to PVC pipes prices being down 13% year-on-year. Maybe I missed this earlier. Is it because we've taken price increases and now we're similar to competitors, or has it been some product change?
Yes, yes. No, no. This is a product mix, Dhananjai, Okay? Because when you look at the industry trend, that's only for PVC, right? But we use other component also, right? Like cPVC, et cetera. So that does not fluctuate as the PVC does, right? So it is because of the product mix and improving share of value-added products in our portfolio. That also helps us improve our NSR, despite the decline in the PVC prices.
So how much of our products would be now cPVC?
So cPVC is around like 15% to 20%.
And what would have been a year ago?
12% to 15% range.
Okay, so that's been improved. And B, would you say the industry has also grown similar volumes, or are we getting from one of the larger players having internal problems, and they are losing market share?
No, so I guess we are big believer of strong growth in this industry, Dhananjai, okay? Even at this size, we believe that this industry should grow at 10% to 12% year-on-year, right? And yes, market share gains like we always highlight from the weaker organized players and unorganized players, right? Wherever we see the opportunity, wherever we see the gap, we just become aggressive and try to get the market share there.
Okay, and so what would be CapEx for this year next year?
So CapEx, if you see in first half, we have spent around INR 45 crores, okay? You would see INR 16 crores in our cash flow, but then INR 28 crores is the capital advances, which is reflected in the other non-current assets. So the total CapEx is around INR 44 crores, okay? And for second half, we have very aggressive CapEx plan because we want to start investing into the Eastern UP plant, and then the ongoing expansion in Dadri area. So we may end up spending INR 80 crores for the second half, okay? And the funds, we already got equity from the promoters, right? And the cash flow is pretty okay. So yes, we should be able to fund this easily by March.
So let's say INR 120 crores this year, and would you say next year also would be similar range?
Yes, so till we spend last dollar to get to INR 500 crore CapEx plan, we'll keep on spending.
The next question is from the line of Udit Gajiwala from Yes Securities.
Congratulations on great set of numbers. So this is one question. What was the advertisement spend for the quarter in H1, and what is budgeted for '24?
In Udit, I mean, it's around 1.5% only, okay, of the total top line, and this was a number last year also, 1.5%. You can calculate the absolute numbers. Now, third quarter onwards, now this should increase to maybe 2%, not much, right? And then maybe 2.5% once we go for complete 360-degree live campaign, all right? We got Amitabh Bachchan as our brand ambassador. We completed the shoot, the ad shoot recently, and now our branding team is working on the complete plan. But like I said, the ad spend will not go above 2.25% of the top line in any quarter.
Understood. And just lastly, when you say value-added product mix, so what is, I mean, including cPVC, there are other fittings part also. So cPVC, you mentioned, is 15% to 20% of fittings, and all together, total value-added products for the quarter versus last quarter?
Yes, yes, so I mean, starting with uPVC fittings, cPVC pipes, cPVC fittings, PPR pipes, right, solvents, water tanks, and bath fittings. So these are the value-added products for us.
In water tanks, what will be the mix of these products for this quarter in Q2?
So all these products go into housing, right? So like I said, housing segment contributed 55% to our top line in Q2.
The next question is from the line of Dhruv Bhatia from Bank of India Investment Managers.
Sir, the first question is, you talked about by FY '27, you are looking at INR 400 crores of EBITDA at 75% utilization, INR 15, INR 16 rupees a kg of EBITDA. But when I do that math, it actually works out to some, and it comes out to somewhere about INR 320 crores, INR 330 crores of EBITDA versus INR 400 crores that you are aspiring for, for to achieve INR 400 crores, you probably need to do almost about INR 20 rupees a kg of EBITDA. So could you just, help us understand really how this math is working?
So I said, I said INR 300 crores to INR 400 crores, right? That was a broad range. So INR 350 crores, the number which you calculated will be INR 350 crores, right? On 300,000 tonne capacity, 210,000 tonne volume with INR 15,000 rupees per tonne EBITDA, right? So this number will be like INR 330 crores, INR 350 crores. So that's the visual number.
Okay. Secondly, just on -- as you just mentioned in the previous answer is that the ad spends are not materially going to increase, but I'm just trying to understand that when you say that the aggression, because of which, because of the capacities coming up, where is that aggression? Is it in the realization that you're offering it at cheaper rate than the others? What is it that the aggression, because it doesn't seem to be reflecting in ad spend. So which line item is it that, this aggression in terms of is, 5% cheaper than competition, 10% cheaper, or is it just distribution margin is higher?
So, Dhruv, see, I mean, last year, my top line was INR 900 crores, right? And if I spend 1.25% on advertisement, right, that number would be INR 10 crores, INR 11 crores, right, for full year. Now, this year, our target is INR 1,200 crores, right? And if I spend 2.25%, right, my number will be INR 25 crores. Okay, so, so INR 10 crore going to INR 25 crores, this is enough ad spend, right, for a brand of our size to amplify, right? We don't need the INR 50 cores, INR 60 cores, INR 70 crores of ad spend, right, to be aggressive, right? That's the strength of APL brand, okay, which we have.So secondly, I mean, aggression, like I said, all the ingredients, which I highlighted, okay, and we're not selling 10% cheaper than our peer brands, because if that were the case, I mean, we wouldn't be showing 10%, 11% beta margins, okay? So, the discount what we offer versus our peers is not more than 3%, 4%, 5%, right, depending on the market. In North, we don't have to offer any discount, where I have the leading market share, right? So the discount which we offer is for the new territories where we are going, we are trying to penetrate deeper.So, aggression, I mean, that's what we learned from our sister company, T Tubes, right? It's not just like spending money on television and media and newspapers, which will result in sales push. There are a lot of other factors to have the plant at right location, to have the right channel partners, to have the right servicing for your channel partners, to offer financing services, right, other add-ons, right, to your channel partners. So all these mixtures will have -- all this has helped us to be industry leader growth, right, for last 4 years, and we are confident that this will continue for the next 4 years as well.
And just on the EBITDA per tonne of INR 15,000 rupees aspiration, do you think, when should we expect this to play out, right? I mean, we're seeing, you're still at somewhere about INR 12 odd rupees. Is it something that you're expecting from FY '25 onwards, or do we see something on, improvement in profitability in FY '24 also?
No, I guess I would say FY '26, okay, because next 18 months, we are going to be spending heavily on our new plants expansion, right? So it will always have some front cost, which will be uploaded, right, which will depress my EBITDA per tonne. What you should look forward is our gross profit per tonne, right, so that should slowly gradually improve, right, because of our improving product mix. But at EBITDA level, if you have to see good jump, you should see that in FY '26.
And just last question is on the new facilities that you intend to put, one is in Eastern UP and the other in Maharashtra. For Eastern UP, is the land already, have you already purchased the land, are you in final stages, and as and when that happens, which -- which quarter should we see in FY '25 that the plant will get commissioned? And same for Maharashtra as well?
So for Eastern UP, the land acquisition is in advanced stages, and we should be able to complete the land acquisition by end of next month, before the end of next month. And first commercial production, we have planned to start by August '24.
Okay, and so for Maharashtra?
Maharashtra, it is still going on, so we'll be able to give you some updates once we have zeroed down on some particular land. As far as Eastern UP is concerned, we have zeroed down, and it is under process, actually. So in the next 2 to 3 weeks, the land acquisition will be completed.
The next question is from the line of Keshav Lahoti from HDFC Securities.
Congrats on a great set of numbers. So you said the last question, the land acquisition for UP will be done by November, and the facility will start by August. So you are implying 10 months is enough to start the plant, right?
I said first commercial production will start by August '24. The project may take another 2, 3 months to get fully completed.
So it's like there are multiple lines, right? It's not just one line, there are multiple lines. So we always try to advance the commercial production by stabilizing line number one. And meanwhile, the work continues for the other lines, right? So yes, the plant will be fully operational by end of '24, but first commercial production should start from first line in August.
Okay. Understood. In an earlier question, you mentioned that the pipes volume for agri-degree by 3% to 5% quarter-on-quarter, and housing was flattish. But if I see your overall number, your pipes volume is down by 7%. Am I missing something? Because that numbers are not adding up.
Yes, yes, so just one correction that the agri pipe volume was down 10% Q-on-Q.
Understood, understood. We have seen a sharp correction in PVC and cPVC prices. So just wanted to get a sense, how was the channel inventory at September end and right now? And what is your sense on the raising prices going forward on both sides, PVC and cPVC?
Yes, the channel inventories at the end of September, it was totally, you can say, bottomed out. They were running on very low inventories. The channel partners, the bulk of that drop that was already anticipated in the market. So they were not carrying any big inventories. But right now, as after the drop in October, the prices have increased in the last week by INR 1 rupee. So that has again tried to gain the momentum back to the channel inventories are again coming back to the normal level. Again, the Diwali festival is for 2 to 3 weeks. So a lot of uncertainties are there.Since the prices are on the upper trend for now. So channels are right now filling up and they are trying to come to the normal level. Still, they are not going for any overstocks. But right now, the positive movement of the price they have right now, you can say, covered up some of the, you can say, channel inventories to the policy level.
Understood, understood. And is it a correct perception that cPVC raising prices has also bottomed out? We shouldn't see any more correction.
It has actually bottomed out because the prices that is right now running in the market, it is below the at par prices that prices should be. So you can see whatever prices right now it is -- it is bottom prices only because these prices don't have anything, you can say, for the manufacturers -- cPVC manufacturers in hand. So they are trying for the prices to go up. So we may see sharp corrections in the near future in cPVC also.
Okay, understood. One last question from my side. Last year, your normalized EBITDA per kg was 16.5%. Now, we are talking, looking at some number like 12% in this quarter and 15% after 3 to 4 years. So, why is there such a big mismatch when you are doing more value added production, your EBITDA per kg should reduce in next 3 to 4 years like or was last year was not 16.5%?
So last year was of course 16.5%, which was audited by like auditor, right? So, but this reduction is on account of 4 factors. Factor #1 is putting up new capacity, right? Doubling the capacity in 3 years, the new plants take time to stabilize, right? To start commercial production and ramp up the capacity levels, utilization levels to 60%, 70%. So initially, you will not get desired EBITDA per tonne, right, from the new plants. And 3 years, we are going to be in the continuous expansion phase. So that's why we want to guide to the investor and analyst community that factoring that, we should be in that range 12,000, 13,000 per tonne at EBITDA level.Second factor will be the expense, right? From 1.25%, which we were for last so many years. Now, we want to take it up to 2%, 2.5% because now we are going aggressive in the North, in the rest of India, outside our North market, which has been our home ground, where we have reached the levels of INR 1,100 crore to INR 1,200 crore revenue.The third factor will be, of course, right now our focus is on aggressive volume growth, aggressive market share gain, right? In 2017, when we got serious into this business, our market share was less than 1% at Pan India level. Today, as we are talking in 5 years, our market share is 2.5%, 3%. Now the aspiration, what we have for INR 3,000 crore revenue, right, our market share should be 4%, 4.5%. So we need to remain aggressive, right? And if we have to let go some margin, compromise on some margin, as management team, we have taken that decision.And reason #4, this value addition, our product mix eventually will go to 75%, 25%. 75% housing, 25% agri. It will happen gradually, right? Because all the new capacity, what we are building, is more towards housing and the results would be seen only by FY '26, FY '27. So that's why we just want to keep nominal expectations for our investors and analysts. And obviously, we are aggressive on volume and a little conservative on the margin front by guiding to the investors. But you should look for positive surprises for sure.
The next question is from the line of Nikhil Agrawal from VT Capital.
Just wanted to understand, like you said, there was standard de-stocking in September. So was that mostly restricted to the agri side, or was it on the plumbing side as well?
So Nikhil, de-stocking happens for every segment. It is never restricted for one category, right? The decline in agri volume in Q2 is because of the seasonality. Q1 is always stronger for agri sector and Q2, because of monsoon and rains and floods at many parts of India, agri will always be slower. So de-stocking, because of decline in raw material prices that is across segment, always.
Okay. Got it. And sir, what about across the different categories, PVC, cPVC, HDPE, all these categories, so like channel de-stocking and quantity de-stocking?
HDPE is infrastructure-related product, right? So there is no stocking. The contractors, they buy as and when they require the pipe. So there is never de-stocking or restocking.
Okay. So basically PVC and cPVC, both of them, the 2 reasons they saw channel de-stocking in September.
That is right.
The next question is from the line of Pranay Shah from Systematix.
First of all, congratulations for the good set of numbers. My question would be that we have a very huge CapEx plan going ahead in different regions. While I understand that for pan-India expansion, the transportation would be difficult because we have to build up capacities in different regions, but with respect to the existing capacities, we are operating at the –
Sorry, Pranay, there's a lot of echo in the background.
Am I audible now?
Now better.
Yes. So with respect to the existing capacities, my question was that the utilization levels currently are a bit lower, a tad bit lower. So what initiatives we are taking on that aspect to raise up the utilization level? As I understand that going beyond 80% utilization levels is not possible under the industry, but we are operating well below those levels. So, is there any initiative on that aspect? Like how do we plan to go about on the same?
So Pranay, if you see that our capacity today is 136,000 tonnes, okay? Although, by March 2024, there will be a slight increase in the capacity by 5,000, 6,000 tonnes, but the current capacity, which we had till second quarter, till September 30, 2023, the available capacity was INR 136,000 tonnes. And this year, at the current run rate, we should be doing 85,000 tonnes of sales volume. So right now, we are at 63% utilization levels, right?Now, if you look at Apollo Pipes or all the larger PVC pipe players, the utilization levels across the industry never goes beyond 70% because of the seasonality factors of the product. So one is that agri is Q1 heavy, construction is always Q4 heavy, right? So there are like Q2 and Q3 will always be kind of leaner quarters for this industry. So, because of the seasonality and ever expansion of SQ range, right, for the fittings, for the pipe diameter, right? So the utilization levels will always be in the range of 65% to 72%. Industry operates at these levels.So we are also kind of near 63%, 64%. From existing capacity, 136,000 tonnes, we can do 90,000 tonnes, 95,000 tonnes easily, which you will see the numbers coming in Q1, FY '24 -- Q1 FY '25 onwards, right? So till Q4, we should be doing 20,000 tonnes, 22,000 tonnes per quarter. And Q1, FY '25 onward, you will see this number going to 24,000 tonnes, 25,000 tonnes on the existing capacity.
Okay, okay, all right. And my other question would be that we are going on a vessel CapEx mode right now. So the capacity which we are planning to come, it will be coming in phases. So could you like give a brief idea on how much capacity we plan on adding for the next 3 years, like for each year, how much capacity would be added since it's being added in phases?
Yes, so broad-based, I'll tell you, FY '23, last year we were 136,000 tonnes. This year, FY '24, we want to close with 142,000 tonnes. Then next year, 200,000 tonnes FY '25, FY '26 225,000 tonnes, FY '27, 286,000 tonnes.
I have a few questions, so I'll pitch in now, yes. So related to, again, the quarterly results, on the employee cost, quarter-on-quarter, we are seeing the line items having increasing trend. Even in this quarter, we saw it increasing 8% on a quarter-quarter basis, 23% Y-o-Y. So in the coming quarters, will we see more higher numbers, or it will stay here, any color?
So, Ashish, now if you see my employee cost per tonne, okay, if you see my employee cost per tonne, it has come down on Y-o-Y basis, employee cost per tonne, okay? If you look at Q-o-Q, it has increased because of 2 factors. One is that Q1, I mean, Q2 had the factor of increments, right, for the employees. So Q-o-Q is not the right criteria to evaluate, but on Y-o-Y basis, my employee cost per tonne has come down, right? And the second, now that we are in aggressive hiring mode, both at the plant level and at the sales level, so employee cost should remain at like 8,000 per tonne plus.
Okay. And a similar trend on the other expenses. So while you alluded to aggression on A&P and other activities to boost your sales, but what is the normalized number you are seeing on the other expenses side? Because the general understanding is that when you are going very fast, the general understanding is that when you are going very fast, because of operating leverage, that should reflect in your EBITDA. But in our case, you are still guiding a very low number of around INR 12 rupees EBITDA, despite going at 25%, 30%. So if you can better color on that.
Right, so operating leverage gains, see, I mean, now if you look at an existing capacity, you shall see operating leverage gains, right? But because, see, I mean, why my Q2 EBITDA per tonne was lower when my gross margin expanded, right? So all the expansion, the ground field expansion, what we are doing in Dadri, right? There are a lot of resources, what utilize, right? Power cost, employee cost, then other expenses, right? My expense improved slightly, right? So all these factors lead to depression in the EBITDA spreads.Now, this trend will continue for next 2, 3 years. Like, from every quarter, you will see one line adding in Apollo Pipes. Now, all the year-wise capacity targets which I gave, like 141,000 tonne this year, then 200,000 tonne next year, then 225,000 tonne following year, and then eventually 286,000 tonne. So every quarter, you will see a few lines getting added in Apollo Pipes. They will not be giving the yield to what my existing plant is offering or giving, right? So taking that into consideration, we are a bit conservative, but like I said, there shall be positive surprises in the margins.
Okay, got it. And in this quarter, the last quarter, any inventory gain, loss, which we looked?
So PVC prices, if you see, like June versus September average, right? Quarterly average, there was slight improvement in PVC prices, right? So that could have led to some, like very paltry gains, right? Not to be even mentioned. Now, how the third quarter pans out, we'll see. Right now, the prices are down, right? And if at all there is rebound, then we may end up being flattish in terms of any inventory write-down. But at these levels, there could be again some paltry nominal write-downs if PVC prices remain at this level.
So, but one of your peer group company, he stated that because of a sharp reduction towards the end of the quarter, sharp reduction in PVC prices towards the end of the quarter, they could see some kind of loss. But we are saying that for us, it was a small gain.
Yes, Ashishji, actually what happened that PVC increased in the quarter 2. If you see the absolute figures, they were increased, but actually the increase was not cashed out. If the, whatever the increase was, we cannot fetch those increase on the market because of the best market. That and eventually the drop happened in the month of October. So, if you go by the numbers, that the drop was not there in quarter 2, the drop was there in quarter 3, which will happen right now. This is which we are going through right now. So, there is no such impact on the prices. You can say it is of no part, but we cannot, you can say fetch the gains of those prices. That whatever the increase was, we cannot fetch from the market because of that depressed market conditions.
Okay, understood. Management, you can give any closing remarks if you have.
I think there is one more question. You can go for that or we should –
Yes, yes, let's go Rahul.
Sure, sure.
So, the next question is from the line of Rahul Agarwal from Incred Capital.
Just one question. I think the CapEx you mentioned is INR 45 cores, INR 44 crores in first half, INR 80 crores in second half. That basically means it's excluding land acquisition, right?
No, no, everything, Rahul.
So, my sense was, I think this year it was including land. I think it was like INR 250 crores. Isn't that correct?
INR 250 crores?
Yes.
No, no, no. See, I mean, we're going to spend INR 500 crores, Rahul, in 3 years. So, average comes out to be INR 150 crore, INR 160 crore every year.
Okay. But it includes land as well, right?
Yes, that's right. INR 500 crore number for take [Technical Difficulty]
Ladies and gentlemen, please stay connected, the line for the management dropped. Participants, please stay connected while we rejoin the management back to the call. We have the lines connected now.
Right. So, I don't know if Rahul is still there or not, but just to –
Yes, I'm there.
Okay, Rahul. Yes. So, to clarify on your point that, see, when we are saying that taking capacity to INR 286,000 tonnes from 136,000 tonnes, this will require CapEx of INR 500 crores. Now, this INR 500 crores is inclusive of everything, land, machinery, everything.
Okay, perfect. So, I think last call we discussed INR 150 crores to INR 300 crores, depending on when we buy the land. So, hence, I was just trying to reconcile that. So, that's fine. I understand.
So, what we had said was that we are ready with INR 500 crores. If I find 3 plant locations, and if I have to invest the INR 500 crores in 1 year, I'm ready with the money.
Okay, get it.
But it won't happen, right? Good things take time, Rahul, right?
Sure, sure. And just one more clarification, which is related to what you just said, that the money's ready. Balance sheet says, it's about INR 54 crores of net cash, right, as of September?
That is right. With INR 200 crores of equity to be infused by promoters and employees.
Right, but that's due, so that can be called for any time, is it?
Yes, that, when the company needs it, that will be done next day. Jain saab, closing remarks, please.
So as there are no further questions from participants, I now hand the conference over to the management for the closing comments.
Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarification, or would like to know more about the company, please feel free to contact our team. Thank you once again for taking the time to join us on this call. Have a great day.
Thank you. On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.