India: APL Apollo Tubes Limited bullish on strong business continuity plan

India’s leading branded structural steel tube manufacturer – APL Apollo Tubes Limited, announced its financial results for the quarter and half year ended September 30, 2020 today.

Performance Review for Q2 FY21 vs. Q2 FY20:

•  Sales Volume up by 32% to 481k tons
•  EBITDA up by 135% to INR 1,691mn  and EBITDA per ton was INR 3,514 (+78% YoY)
•  Interest Cost declined by 41% to INR 159mn
• Net Profit up by 72% to INR 1,026mn
• Net debt declined to INR 3 bn in 1HFY21 from INR 7.9 bn in 31 Mar’20

The major highlights of the investor’s call held on 28th Oct 2020 are as follows:

• Key strategies adopted during the pandemic: During the pandemic, APL worked on four agendas and succeeded to convert the crisis into an opportunity:
  ~Lighter balance sheet – lower receivables, low inventory and zero debt
  ~Lower fixed cost – salary and interest cost
  ~Volume ramp-up on reopening of the market
  ~Returning to the normalizing possibility after the pandemic

• Increase in the production capacity from 2.5 Mn T to 2.6 Mn T: Structural steel capacity has increased from 2.5 Mn T to 2.6 Mn T per annum as on Q2 FY21. APL Apollo has added 1 lac ton production capacity to manufacture Apollo Tri Coat and foresees the Tri Coat market to grow by 40 % CAGR.

• Expansion in market share in Q2FY21: Market share has expanded from 47% in Q1 FY21 to 53% in Q2 FY21 on the back of aggressive rural sales which increased to 55% in Q2 FY21 from 40% in Q2 FY20.

• Reduction in net debt in Q2FY21: The Net debt reduced by 63% to INR 3 bn in 1HFY21 from INR 7.9 bn in 31 Mar’20 on free cash flow generation. Debt to Equity ratio improved to 0.2x in H1 FY21 vs 0.6x in FY20

• Switched to cash and carry model: The company adopted cash-carry model and is on the verge of becoming debt free on the back of strong operating cash flow. The debtor days has been reduced to 6 days from 25 days (6 months ago).

• Bring down working capital: APL has a net working capital of 7 days and gross working capital of 40 days in Q2 FY 21. The company’s management is looking to bring down the gross working capital to 30 days in coming three to four quarters

• Lower fixed costs: Employee cost down to INR 695/ton in Q2FY21 from INR 871/ton in FY20 and the interest cost down to INR 169/ton in Q2FY21 from INR 657/ton in FY20.

• CapEx to be funded from cash flow only: CapEx is at INR 908 million which is being funded from cash flows. The company’s strategy is not to approach any bank to borrow money, hence going forward, CapEx will be funded by cash flow only.

• Double digit growth in value added products: The company is expecting a single digit growth in the conventional products and 40%-50% CAGR growth in value added products.

• Shifting the APL Apollo Hyderabad plant: APL Apollo plans to shift their Hyderabad plant to Hosur and Raipur, in equal proportion in order to bring down costs and thereby improve margins.

Commenting on the Company’s performance for Q2 FY21, Mr. Sanjay Gupta, Chairman, APL Apollo, said, The Q2FY21 performance was significantly better than Q1FY21, which was partially impacted due to disruption from COVID-19. We have seen strong demand revival across all segments during the quarter. The company has fully resumed its operations with strict health and safety protocols.