- Sales volume at 4,86,000 t in Q3, up 1% y-o-y
- EBITDA at 4,780/t in Q3, up 43% y-o-y
- Net debt declines by 75% in Q3
Defying the Covid dampener, India’s largest structural steel tube manufacturer – APL Apollo Tubes Limited, has touched new highs in its financial results for the quarter ended December 31, 2020.
The major highlights of the investors call held on 25th Jan, 2020 are as follows:
1. Progress in net working capital cycle:The net working capital cycle further improved to 8 days in 9MFY21 compared to 25 days in FY20, the best in the building material industry. APL believes working capital cycle is a sustainable cycle.
2. Net debt declined by 75% in Q3:Net debt fell to INR 2 bn in 9M FY21 from INR 7.9 bn in FY20 (D/E at 0.1x now). Net debt declined 75% on solid free cash flow generation.
3.Continues to generate strong operational cash flows:Capex being funded from internal cash flows, reported INR 8.5 bn in 9M FY’21 compared to INR 5.1 bn in 9M FY’20. Going forward, the company expects cash flow to improve driven by pick up in the utilization levels at existing capacities, lower Capex requirement for FY21, expansion of profit margin driven by increasing contribution from value added products.
4.Sales volume up by 1% y-o-y in FY’21:The company has reported Sales Volume at 4,86,000 t in Q3, up 1% y-o-y compared to 4,80,000 t in the same period last year.
5. Inventory levels below 20 days:Inventory levels have been cut down to 15-17 days.In Q3,the inventory was around 1.5 lakh tonnes and there was no movement in absolute prices from 1st October to 31 st December. Therefore, technically the stock got valued at the base price.
6.Quarterly EBITDA Bridge:EBITDA at 4,780/t in Q3, up 43% y-o-y due to value addition, demand pull, cost control and branding premium in line with their branding strategy.EBITDA expanded to INR 1,200/t on a q-o-q basis despite the soaring high prices of raw material of INR 6,600 in Q3 while net selling realization improved by INR 7,800/t.
7. Witnessing a structural change in a sustainable manner:The company is currently operating at 75% capacity utilization levels in Q3. As the value addition portfolio is going up, APL is hopeful to generate 4,000-4,500/t EBITDA spread numbers in the next few quarters in comparison to 3,000-3,500/t EBITDA in the last 2-3 years.The company is actively targeting over 80%-85% capacity utilization levels on a sustainable basis.”We are striving to take it over to a better level by further improving the product mix and enabling a steady increase in the demand premium that APL Apollo commands in the market”,commented the Chairman, Sanjay Gupta.
8. Advantage over DFT and ILG technology: DFT is the latest technology in the steel industry which helps in manufacturing universal hollow steel pipes and allows the buyers to customize the designer steel pipes. Through DFT and ILG technology, Apollo is able to work on their orders in 3-4 hours and has sustained their 50% market share.
9. Targets to expand rural distribution:The company continues to focus on improving the serviceability of material, availability to the rural clients and widen its distribution network in rural areas.The company has opened two new warehouses in Delhi NCR region and Raipur regions to cater to the rural markets and is gearing up to open two more in West and South India soon.
10.New facilities coming up in Mumbai, Hyderabad and Raipur:Given strong rebound in Q2 and Q3 FY’21, Capex at new Raipur facility has been accelerated as the Capex is to be funded from internal cash flows. The company plans to keep Capex spends at 20%-25% of the EBITDA on annualized basis.
- The company plans to start a new cold rolling mill in Mumbai and two pre-galvanized mills in Raipur and one in Hyderabad. Its 500 square mill aims to produce colour coated pipes of narrow width to cut down the cost.
- The Raipur project plans to achieve 1 mn t capacity in next 2-3 years and the company’s vision is to attain 4 mn t of capacity by 2025.
11. Continuous focus on value addition / De-commoditizing of product portfolio:Apollo products achieved EBITDA at INR 4,780 t in Q3 FY21 compared to INR 3,515 t in Q2.The value-added products have contributed 60% of the total sales in Q3 with EBITDA to more than INR 4,000/t from 40% four years back.
12. Growth in Tricoat segment:Apollo Tricoat with its existing capacity of 3,50,000 t which ramped up from 2,50,000 t in a year’s time due to strong demand and realization levels, is expecting 20-25% growth in this niche segment in 2-3 years. On having access to the brand equity and distribution network, Tricoat has currently hit 80% realization. The highly innovative products like chaukat, plank and designer pipes are produced and marketed in India for the first time.
13. Addition of 16 new distributors in Tier 2 and Tier 3 towns:APL has appointed 16 new distributors in tier 2 and tier 3 towns to strengthen the supply chain and sustain the dominance in the market.
14. Signing MoU with the IIT Roorkee:To provide a platform for research and training facility, a Memorandum of Understanding (MoU) was signed between IIT Roorkee and APL Apollo, aiming to foster innovative designs and new product development initiatives as per the changing requirements of the future.
Medium term outlook:
From a longer-term perspective, increasing contribution from the higher margin value added branded products and better utilization will continue to positively impact the company’s profitability. As the demand environment and macros further improve, APL Apollo anticipates their sales momentum to remain healthy in the near future as the construction sector is likely to gain momentum. The company is focusing on being a total solution provider to cater to the industry’s demand.
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