APL Apollo Tubes Ltd
NSE:APLAPOLLO
Earnings Call Analysis
Q3-2024 Analysis
APL Apollo Tubes Ltd
The narrative of this company over the last nine months, particularly in Q3 FY '24, is one of significant growth shadowed by a series of delays and unfortunate timeliness that impacted performance. Regardless, the company has acknowledged a 20% year-over-year surge in sales volume, a 30% uplift in EBITDA, and net profit also rising by 30%. These growth figures come despite sales volume falling short of the initial 3 million tonne guidance due to delayed commissioning of both the Raipur and Dubai plants, steel price inflation, which did not soften until December, and weaknesses in the Indian retail construction market, exacerbated by high inflation and interest costs among other macroeconomic factors.
The third quarter was marred by stark challenges due to regional steel prices dropping and domestic prices remaining high, leading to a collapse in sales in November due to heavy destocking by channel partners. However, December showed promise with the commissioning of new steel mills and a consequent decline in domestic steel prices. The company witnessed a minor working capital increase of 9 days in the December quarter, attributed to lowered volumes and subsequent inventory accumulation, which is being normalized to return to mid single-digit working capital levels. Moreover, the debt increased slightly due to these elevated working capital levels.
A strategic product segmentation approach has proven to be fruitful for the company. Noteworthy is the successful ramp-up of the newly introduced heavy structural tubes, super light tubes, and roofing sheets in the Raipur plant, which have achieved impressive utilization rates of 50%, 30%, and 70% respectively in a short span of time. This is indicative of the strength of the company's market innovation and brand, which bolster confidence in achieving the 5 million tonne sales volume target by FY '26. The company currently sits at 4 million tonne capacity, with plans to expand by an additional 1 million tonnes within the year.
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Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call of APL Apollo Tubes Limited, hosted by Nuvama Wealth Management. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sneha Talreja from Nuvama Wealth Management Limited. Thank you, and over to you.
Thank you, Yashasvi. Welcome come to the 3Q FY '24 conference call for APL Apollo Tubes. From the management, we have Mr. Sanjay Gupta ji, who is the Chairman and MD; Mr. Deepak Goyal ji, Director, Operations and the CFO; and Mr. Anubhav Gupta, who is the Chief Strategy Officer. To start off, I will hand over the call to the management for opening remarks, post which we will have a detailed Q&A. Over to you, sir.
Thanks, Nuvama and Sneha for having us here. This is Anubhav here. And I thank all the participants who have joined on this call to listen to our quarter 3 FY '24 earnings call. So if we look at the performance in the last 9 months and specifically in the Q3 FY '24, a few observations, few highlights we'd like to make. Number one is that if we look at our 9 months sales volume, it's up by 20% Y-o-Y. The EBITDA is up 30% Y-o-Y, and net profit is also up 30% Y-o-Y. Now the sales volume of 1.94 million tonnes, if we annualize it, it comes out to be 2.6 million tonnes for the full year. which is, of course, lower than our initial guidance of 3 million tonnes when we had started the year, we had guided for 3 million tonnes. Now there are multiple reasons why the actual performance in the first 9 months is lower than the initial guidance. And that will also give you clarity on why our Q3 was so soft. So a few reasons I'd like to highlight are: number one, that our Raipur plant, which is our greenfield, highly innovative plant. We had thought that we will start the production of this plant in month of June, July at the -- in this calendar year. But ultimately, we ended up commissioning it fully in the month of December and last line just got commissioned in early Jan. So obviously, there is like 4, 5 months of delay in the commissioning of Raipur plant. Second, also, our Dubai plant, we had thought that we'll start the production in month of September. But ultimately, we started -- before we could the plant in December. Then the third reason is the steel price inflation in the domestic market, which persisted throughout the year, although we had thought with the commissioning of new steel mills by new players and the existing players increasing their capacity, the domestic steel price inflation will soften up, which will open up the market for our general segment, which gets competition from the scrap steel tubes. But there also the steel price inflation didn't come down until the month of December. So first 8 months were pretty tough.
And fourth factor I would say is because of weak retail sales in India in the construction industry. If you look at the commentary of other building material companies like tiles and electrical fittings and bar fittings, et cetera, there is this trend that the retail sales in second quarter, third quarter were pretty soft because of multiple reasons, high inflation, high interest cost and also we believe that demonetization, I would say, partial demonetization also led to weak retail sales, which impacted the money supply in the system.
Now coming to the third quarter in specific, the months of October and November were pretty bad because the regional steel prices were coming down sharply. But the Indian -- but the domestic steel prices remained high, which led to very heavy destocking by our channel partners and the sales kind of really collapsed in month of November. But the good part was that with the commissioning of new steel mills, the prices came down and it opened up the market, and we could recover a lot of ground in month of December and the trends are continuing in January as well, as we speak. The other highlight is a slight increase in our working capital to 9 days in December quarter. This is because of a loss of volume in the Q3. So there was some inventory pileup, which is now getting normalized. So we shall be going back to like mid single-digit working capital as we close our March quarter. And because we still did CapEx of around INR 500 crores for the 9 months, which was mainly funded from internal cash flows. The debt increased slightly because of elevated working capital of INR 400 crores versus INR 200 crores. Now looking at the outlook, right, looking at the outlook for the Q4 and next year, like I said, that the destocking has started, and we are very positive on the structural shift now which is going to take place in the upstream steel sector with the emergence of new mills getting commissioned and the increasing of capacity of the listing steel mills. So the unfair competition, which we get from low-grade to low-quality scrap steel tubes, that will slowly go away and it will open up the market for HR coil-based primary steel tubes in a big way. And given that the distribution network, the product portfolio we have, we are more than confident that we will maintain our market share of 55% as the HR coil-based steel tube market improves or takes market share from scrap steel-based tubes. Now one highlight I'd like to make here is that, see, I mean, in 9 months, our company has grown its volume by 20%, earnings by 30%. This is despite the fact that last year, we showed -- or we registered a very solid growth, right? Our last year volume was up by 30%. And this year, we are up by 20%. So yes, I mean, as a management, we take the responsibility that this is lower than the guidance, but as a business, it grew stronger, right, with back to back 30% and 20% Y-o-Y growth. So we expect the momentum to continue, and I'm glad to share that we maintained our 5 million tonnes of sales target -- sales volume target by FY '26, right?
We are sitting on 4 million tonne capacity right now. And in next 1 year, we'll be ready with 1 million tonnes incremental capacity. So we'll be ready with the 5 million tonne capacity, right? Everything is in line. It's just that to grow more than 20%, 25% as an organization, we also need some external factors to favor us, right, which could be this unfair steel price inflation, right? And some macro trends, some macro factors also, more conducive for the construction sector in India. Now coming to like some of the micro factors for our organization, like there are like 2 things which we have spoken about a lot in the last 2 years: one is our new product launches and the market solution for those products. And second is new -- and second is our export international sales, right, where we are pretty confident to ramp up the volume. So I'll give some data points, which will give you confidence that our new product launches have been pretty successful and the market adoption is also pretty encouraging. So for example, let's start with the Raipur plant, right, where there are like 4 segments in which Apollo kind of came as the first manufacturer in the country. So talking about the heavy structural tubes, right? If you look at the ramp-up when we started the mill in month of Feb, March, and until December, the utilization levels have reached 50%, okay, in the heavy structural segment. Now this was 1 segment which was where we needed a different channel we had to educate the market, right? And we have been pretty successful. That's why we could reach 50% utilization levels within first year of operations. Now the second segment in Raipur was super light tubes, right? That also we started like 2, 3 months ago, and now the mills are already running at 30% utilization levels. Now that's also pretty encouraging because we could launch products with thickness of up to 0.18 millimeters, right? And as narrow as 8 millimeters by 8 millimeters. So it's a very broad portfolio of super light tubes, which we launched and the results are pretty encouraging.
Then the third product where -- which we launched in Raipur was roofing sheets which is our adjacent product, right? They are also -- I'm glad to share that, that mill has reached utilization levels about 70% already. right? So this also shows the strength of APL Apollo brand that we could ramp up these volumes so quickly, pushing this product in our channel. And along with our tubes, the fabricators, the contractors, the end homeowner, everyone is seem to use Apollo products. Then thicker coated sheet, which is super innovation, first time in the world. That mill eventually got started in like late December and early Jan. So there also, we could produce 8,000 tonnes in the last quarter, which gives like 12% utilization levels. Now these utilization levels will go up pretty solid in the coming months. So all in all, the Raipur plant is now running at more than 50% utilization levels, right? So this gives answers to a lot of questions, which each one of you had in mind that whether Apollo will be able to make these products successful in the market. But I'm glad to share that the data points clearly give clarity that we are able to create markets for these products.
Now the next big segment for us is the international market. If you look at the global steel tube industry, which is like 80 million, 90 million tonnes in size, now if we remove India and China, the U.S., the Canada, the African markets and the European markets and the Middle East market, they are dependent on imports, right, from low-cost manufacturers. So we -- what we have mapped is that this industry is around 30 million, 40 million tonnes of annual sales, which trade over the borders. Now if you look at Apollo's export international volume in FY '23, that was as low as like 50,000 tonnes. Now Apollo being the world's third largest steel tube producer and number one, if we remove the top 2 Chinese, our contribution to international trade market was very, very small, right? So we fixed that by starting a plant in Dubai and setting up a full-fledged team in Dubai. And again, like we started the plant in month of December and results are encouraging. Overall, if you look at Apollo, the export sales have grown by 60% on a Y-o-Y basis in the first 9 months, and with the Raipur plant commissioning -- sorry, the Dubai plant commissioning, this will improve further. Just to give you a perspective, the Raipur plant, the capacity is 300,000 tonnes. But in December, we started first 2 mills and 100,000 tonnes is what is ready in Dubai and the balance 200,000 tonnes will be ready in the next 2 quarters. So lastly, I would like to again reiterate that we are ready with our infrastructure to be able to produce and sell 5 million tonnes in next 2 years. The -- what we look forward is having some tailwinds from the sector, from the steel sector with increase in supply, which seems very, very visible. And the macro trends, hopefully, after elections this year, the things towards the construction, towards the infrastructure sector will be much more bright and we are ready to serve that growth in the construction sector with our 3,000 SKU base and 800 distributor network, with all the core competencies which Apollo has developed over the last 35 years of it's existence. And whatever growth comes, we will maintain our 55% market share in HR coil-based steel tube segment. That's all from our side, and we are happy to take questions now.
[Operator Instructions] We have a first question from the line of Bharat Shah from ASK Investment Managers.
Very clearly, the results of third quarter in terms of the volume growth, I'm sure they've been below expectations of everybody, including you. Good part to note is that we still are confident that where the journey ahead is lying. But a moot question I want to ask is, in this journey of reaching 5 million tonnes and more, how much of our destiny is dependent upon the fact that industry itself has to grow and rise? Secondly, how much of it is dependent upon our innovation success or ability to read the market well, our ability to introduce the right products and create market ahead of the competition and superior customer solution service? So that is the second factor. And the third, how much of the destiny will get is we are moving more and more into value added? How much of that will still be colored by the movement of the steel prices up and down? In short, while this particular quarter clearly has been in terms of the sales outlook below what everybody thought or you might have thought to. But if you have to focus on the long-term journey, how much of our own destiny is under our control? And how much of it will depend upon [Technical Difficulty]
One moment, sir. I'm sorry, sir, the line got disconnected. We'll take the next question from the line of Rahul Agarwal from InCred Equities.
And thanks for sharing the segment-wise capacity information in the presentation, that really helps us. Sir, 2 questions, Sanjay ji, firstly, on demand side and then on the supply side. On the demand, a bit more shorter term, how is the situation currently with the channel, like, let's say, the sales from the company to the distributor, which is primary, and then from a distributor to end customers? I just wanted to know that how -- what's your experience into Jan, Feb, March, what do you expect? Similarly, you can explain if -- what's the pricing difference between primary and secondary steel pricing today, which might play an impact on how fourth quarter will be? That's the first question.
Rahul -- first of all, good morning to everybody. Today the difference between the secondary and the primary almost close to INR 12 KG. [Foreign Language] The number two, how we are going like in Q4 -- in Q3, we were badly hit in the month of October and November due to the international prices also going down and India [Foreign Language] channel destocking [Foreign Language]. But in the month of December, we again came back pretty sharply. January also looking good. I don't think there is an issue for a normal growth, I can say, 7 lakhs tonnes in quarter Q4 is not a tough challenge for us. [Foreign Language] like we are thinking for this year, 3 million tonnes, and next year 4 million tonnes -- again in the '25-'26, we are targeting 5 million tonnes, [Foreign Language] no doubt, this type of growth, 40%, 50% of growth in the year, we need some tailwind also with us. Clearly, the positive point is the 2 new steel plants already started in India. One in [indiscernible] Steel and one is JSPL. And also, I listened the con call of Tata Steel also, they are coming with 1.5 million tonne cast this year and next year, 3 million to 4 million tonnes capacity. JSW is also going to start [indiscernible] in Bellary in the month of March. Our [indiscernible] market is also in the short-term side. So maybe for short term, this is a pain for us because there is in the channel, there is destocking and we have also to take care of our inventory losses. But for the future terms, this is the secondary or primary [Foreign Language], so this is very, very good for us.
Correct, sir. Sir, [Foreign Language]. What is your view on that?
Yes. Now we do a lot of work on our brand. Like you see [Foreign Language]. I'm glad to share you [Foreign Language] now we are getting good demand and good response from the market. [Foreign Language]
Got it, sir. Sir, secondly, on the supply side, just 1 question. What our understanding is that between the EBITDA of INR 2,000 to INR 5,000 a tonne supply has increased. We see a lot of listed companies talking about similar goals what APL Apollo had 5 years back. How is it changing the supply dynamics in the structural tube industry for India market, please?
Rahul, right now, if you really -- secondary [Foreign Language], some company are aggressive and some company are doing some work in the secondary market. But in the primary steel, I don't think [Foreign Language] around the India, like we go to the Bangalore, Kerala, the Salem in Tamil Nadu, Pune, Ahmedabad, [Foreign Language]. And I'm finding my market is almost close to 80% is the structured tubing. [Foreign Language] 6 lakh tonnes from primary, and 5 lakh tones from secondary. And 6 lakh tonnes [Foreign Language] 2.2, 2.3 lakh tonnes per month [Foreign Language] Apollo [Foreign Language]. The second [indiscernible] in the water lines [Foreign Language] like [indiscernible] Steel is almost close to 50,000 tonnes per month; Jindal Hisar is close to 40,000 tonnes per month. And number three, the [ Surya ] Steel is close to 60,000 tonnes per month. [Foreign Language] I put -- and then 1 company in Eastern India, [indiscernible] is close to 40,000 tonnes per month [Foreign Language] [indiscernible]. So in structural, it will -- no, no, no. I told the pipe and tubing and waterline, transportation and structural [Foreign Language] 2.2 is Apollo -- 2.3 lakh tonnes is Apollo -- 2.3 lakh tonnes and 4.1 lakh tonnes. How much is the total? 6 lakh tonnes. 2.3 lakh tonnes [Foreign Language] Apollo [Foreign Language]; 0.6 lakh tonnes is [indiscernible]. And 0.4 lakh tonnes is Jindal Hisar, 0.4 lakh tonnes is [Foreign Language] [indiscernible]; 0.6 lakh tonnes is Surya; and one company -- no, no, Tata Steel is 5.6 lakh tonnes [indiscernible] 5 lakhs tonnes [Foreign Language] [indiscernible] [Foreign Language]. Total [Foreign Language] Sambhav Steel type [Foreign Language] Hari Om Steel, [indiscernible], these types of lot of companies in the secondary steel. Maybe in the sort of primary [indiscernible] [Foreign Language] almost close to 3 lakhs tonnes in water transportation, 3 lakhs tonnes in structural tube. [Foreign Language] both combined primary and secondary [Foreign Language]. Out of 3 lakhs tonnes, my share is 2.3 lakhs tonnes; 2.3 into 100 divided 3 lakhs, almost close to 75%. [Foreign Language] now steel plants have reduced price by INR 2,500 per tonnes in December and INR 1,500 per tonne in January, almost close to INR 4,000 [Foreign Language] price gap [Foreign Language]. In future, if this is also in the short-term side. [Foreign Language], this is totally in the [indiscernible] system. [Foreign Language] This is impossible to run this type of gap in the industry. [Foreign Language]. Then the capital tailwind will come with Apollo. [Foreign Language] already we are sitting on the 4 million tonnes capacity [Foreign Language] within 2, 3 months [Foreign Language] up to April. And December [Foreign Language] I don't think [Foreign Language].
Anubhav, if you just give a small answer, ABPL EBITDA for the third quarter and 9 months, that will be helpful?
So ABPL, if you see the volume was around 115,000 tonnes, and we did INR 4,500 per tonne EBITDA in this.
I missed the volume. What did you say?
115,000 tonnes.
115,000 tonnes of our Q3 volume in ABPL and EBITDA is INR 4,500 per tonne.
And just for the participants, what Sanjay ji highlighted about the breakup for structural steel tubes between primary and secondary, there is a Slide #12 on our earnings presentation. which clearly depicts this industry scenario.
We have a next question from the line of Bharat Shah from ASK Investment Managers.
I raised the question earlier, and I'm not sure whether that was heard or it got lost.
Bharat bhai, [Foreign Language], you want to ask us, [Foreign Language] 5 million tonne [Foreign Language] capacity, we want to reach by 2026, [Foreign Language]? Am I right?
[Foreign Language] innovation, market creation and success there in customer centricity and service and solution providing. [Foreign Language] favorable external environment, which is supporting demand for the structural steel tube. And third factor, which is affecting profitability and in some sense, demand also has been volatility in the steel prices with the much tighter inventory control and others, we still have managed to deal with it much better, but it remains a factor, like this third quarter is also showing. If you take into account all of these, [Foreign Language] journey [Foreign Language] 5 million [Foreign Language], how much of it is dependent on our own innate strength and capability and our ability to anticipate and build that business? And how much of it is the journey is likely to depend upon tailwind or favorable factors?
Bharat bhai [Foreign Language] without any favorable condition, we are very comfort [Foreign Language] innovations and branding [Foreign Language] distribution [Foreign Language], 20% to 25% growth is not a big challenge for us. This is -- we can do easily. But when I'm talking, like you know [Foreign Language] I'm an aggressive person, I'm not surprised like this year -- we did not do 3 million tonne [Foreign Language] clear visibility [Foreign Language]. So we are very dissatisfied on the organization level. We are not satisfied with our numbers. But 40% or 50% type [Foreign Language], we need the tailwind factors. 25% [Foreign Language], for us this is a cakewalk. But like my vision is 3 million tonnes for 2024 and next year, 4 million tonnes , and then the next year, 5 million tonnes. This is -- no doubt, we need some external factor [Foreign Language], we can do it.
And that 25% growth would definitely imply, most of it would come from the superior products and super solutions, therefore, relatively better margin. Therefore, in this journey, whether the growth will be 25% or higher, but our margin trajectory should maintain a sustained improvement over a period of time. Is that a correct...
Margins [Foreign Language] no doubt, Bharat bhai, [Foreign Language] increase [Foreign Language] Now this gap is INR 3,000 per tonne. [Foreign Language] I'm talking about the retail sale price [Foreign Language] And we have successfully done in the last 2 months. December and January [Foreign Language] we are able to sell our materials. Maybe this is the reason of our services. This is the reason of our quality, of branding, I don't know. But this is acceptable in the market. [Foreign Language] So Bharat bhai, this is a big game changer for our company.
Okay. And Sanjay ji, on export, Anubhav was narrating a large opportunity. What are really given the size of opportunity in international market, which is hardly exploded by APL Apollo yet? Whatever competitive strength in that market? And what are the impediments and challenges in attaining our growth in that market?
Bharat bhai, like in this January month, our export is high by almost 50%. And from Dubai plant, we are doing 8,000 tonnes this month, in the month of January. February, we are targeting to take to 8,000 to 10,000 tonnes in spite of the 3 days less in the month. And March target is about 12,000 tonnes. So [Foreign Language] Dubai plant, we are targeting for this quarter, 30,000 tonnes. And it's 2 lines, 2 more lines are coming in the Dubai plant in the month of March. One is 150 square and the second one is 300 square. This -- all the 4 lines put together, the capacity of Dubai plant is close to about 25,000 tonnes per month, which we are clearly seeing [Foreign Language] we achieved this volume growth in the month of June. June [Foreign Language]. First, when we reached the 25,000 tonnes in Dubai plant in the month of June, then we have next year's plan in Dubai also for another capacity 0.2 million tonnes. Then our Dubai plant is close to 0.5 million tonnes. [Foreign Language] Europe and the U.S.A. and Melbourne, [Foreign Language], one in Liverpool, one in [indiscernible], one in Houston and one in Melbourne. In the 4 cities, we are going to create our own warehouses. [Foreign Language] next 1 or 2 years [Foreign Language] and in a 30 million tonnes of market, we are just 0.4 million or 0.3 million tonnes capacity [Foreign Language] 1 million tonne [Foreign Language].
[Foreign Language]
In the next 2 years.
Next 2 years, [Foreign Language]
[Foreign Language]
And Sanjay ji, [Foreign Language], which are issues, which will -- global competitors?
[Foreign Language] -- yes, by the nature of costing, [Foreign Language] all over the world [Foreign Language] less price cost [Foreign Language]. Number two, [indiscernible] basket in the structural tubing [Foreign Language]. And number three, our capacity of purchase of raw material is also excellent against the global markets like [Foreign Language] what their local players buying today HR coil at $620 or $625 per tonne, we are selling the material at Dubai plant about $590 to $600. 2% to 3% [Foreign Language]; 2%, 3% [Foreign Language] purchase cost is less [Foreign Language] no doubt [Foreign Language]. Bharat bhai [Foreign Language].
So these advantages we would say prevents compared to any competitor, including the ones which are larger than us?
Yes. Because this is an advantage due to the India X factor. [Foreign Language] all the other suppliers [Foreign Language]
Just to add to this, Bharat, the Dubai plant, which we put a small capacity, 300,000 tonnes annual, right? But if you look at our SKU range, we are going to produce starting 15 millimeters by 15 millimeters, 300-millimeter by 300-millimeter. Now that's the SKU, which we are able to offer even in the is like 25,000 tonnes of monthly capacity, right? So the factors which made us win in India, the same factors, the same competitive strength will help us win in the international markets also.
And any major challenges do we believe that can [indiscernible] this?
We are coming from the challenge that in India, we were buying expensive steel, and we were not able to offer a competitive price for our product. Now with having access to cheap steel, we have overcome that challenge by putting up Dubai plant. Now we see mainly opportunities, Bharat bhai, not challenges.
[Operator Instructions] We'll take the next question from the line of Abhishek from DSP.
Sanjay ji, [Foreign Language], when you do that 5 million tonnes of overall volume, which is the aspiration, new product contribution [Foreign Language] in that?
So Abhishek, just to answer this question. See, I mean, last year, if you look at FY '23, right, our volume was 2.3 million tonnes. Out of 2.3 million tonnes, the general segment was 1 million tonnes and value-added super value adds, which is like -- which also includes our new products, right, that was 1.3 million tonnes. Now when we are talking about 5 million tonne sales volume, Abhishek, our general segment will not be more than 1.5 million tonnes and 3.5 million tonnes will be value-add, super value-add. So my value-add, super value-add is going to increase by almost 3x, from 1.3 million tonnes to 3.5 million tonnes, right, by 2026. So mainly these products like Raipur, 1 million tonnes, mainly is like all innovative products...
[Foreign Language] So I think, 0.6 million, 0.7 million tonne is totally new.
So 10% every year, the new products contribute our volume, 10%.
Okay. So in that 5 million tonnes, almost 65%, 70% will be new product from that perspective?
No, value-added products.
Value-add and super value-add.
Value-add Product target is close to 70%.
70%.
New product is, I think, [Foreign Language]
Okay, okay. Got that. [Foreign Language], in terms of export, Raipur will be your key contributor of volume growth from here on, [Foreign Language]
[Foreign Language] I'm very, very hopeful, this quarter [Foreign Language] maybe it's increased to INR 2,500 to INR 3,000 per tonne. [Foreign Language], but it's too early to say something. [Foreign Language] INR 3,000 [Foreign Language]. I'm very, very glad to say [Foreign Language], we are able to maintain our volume. This is very, very hopeful [Foreign Language]
Great. Got that. Sir, just [Foreign Language] because of a lot of infra activities, [Foreign Language] demand sectors [Foreign Language] railways, warehouses, solar [Foreign Language] which can also help you and [Foreign Language] of higher diameter, [Foreign Language] 5 million tonnes [Foreign Language]?
Solar, we have done a lot of new innovative products. Solar [Foreign Language]. Railways [Foreign Language]. Railway, airports and solar, [Foreign Language] growth rate is very, very high.
We have our next question from the line of Aman Agarwal from Equirus Securities.
So just a clarification upfront, basis the 3Q volume that we have seen for multiple ERW steel tube companies. We have seen a case where a few of the companies have grown a bit better than APL Apollo. Is there any chance a case where those companies are benefiting at the expense of APL? Any kind of market share shift that we have seen? Or is this mainly because of demand shift from primary market to secondary market?
Yes. Aman, very good question. I earlier also tell, there is 2 types of markets: one is secondary and one is primary. If you see that today the primary gap in the Q3 is almost close to INR 150 KG [Foreign Language] but the most important thing [Foreign Language] INR 15 [Foreign Language] we have survived. We maintained [Foreign Language] but we maintained our market share. Like [Foreign Language] now everybody wants good quality material products. So I'm not worried about the secondary market. [Foreign Language]. So almost they are close to INR 50 KG. So they are running their plant on no-margin basis. [Foreign Language] EBITDA margins of Tata Steel and other companies is quite high. So they are no doubt market [Foreign Language] they can adjust their price [Foreign Language] This is very, very [Foreign Language]. I'm not bullish on the secondary market. [Foreign Language]. This is not a good quality material. And I'm not thinking this is a longer vision for growth. [Foreign Language] This is totally depend on the HR coil prices. [Foreign Language] there is level to play. [Foreign Language] I'm not thinking [Foreign Language]. I'm not worried. [Foreign Language] but we are not thinking, we are not even discussing in our internal meetings. I'm not worried about the secondary market. This is a matter of time, maybe 2 months, maybe 1 month, maybe 1 year.
Understood, Sanjay ji. Another question, while I understand that general products -- while I understand the dip in the volume of general products, any particular reason why light structure volumes have shown such kind of degrowth in 3Q?
Aman, this is due to the retail sales. Number one, [Foreign Language] around 1.6 thickness to 2.5 thickness [Foreign Language] and due to retail sales down [Foreign Language] But now we have been very aggressive mode [indiscernible] like we have been launching a lot of schemes in the market, which is very funny to say, but yesterday, we had launched a scheme in [ NAFTA ] market [Foreign Language] with the sale of 200 tonnes metal in 2 months, we offer a foreign tour. [Foreign Language].
We'll take our next question from the line of Madhav from Fidelity.
Yes. My question basically was that in the export market, basically, if I understand right, of the 5 million tonnes, which we are guiding for, for FY '26, 1 million tonnes comes from the export market, which is basically outside India. So the domestic business ramp-up is we need to go from 2.8 million tonnes to 4 million tonnes. So to that extent, the expansion that in the domestic market is not very high, like we don't need to go from 2.8 million tonnes to 5 million tonnes. We need to go from 2.8 million tonnes to 4 million tonnes. Is that the right understanding to have for the company?
Yes. Yes, Madhav. So 1 million tonne international market, Dubai should be like 300,000 tonnes, fully named up. And incremental also, we are pulling up new capacities. Plus from Indian mills, we will -- we are increasing export sales, international sales. So yes, if not like fully 4 million, maybe 4.1 million, 4.2 million should be coming from India. And right now also, like export markets is like 0.2 million, already, right? So that also you deduct for the current volume.
Got it. And in the export market, how is the product mix? Is it like a good product mix and our EBITDA per tonne, is it at the current company level? Or is it higher or lower versus current company average?
So right now, it's higher than the industry -- than the company blended EBITDA per tonne, Madhav.
Okay. Okay. And just lastly, any specific countries which you are targeting to start off it because it's a very large market countries where we want to focus on?
Madhav, it's across -- mainly in Europe, Canada, U.S. and Australia.
U.S., Canada, Australia. Got it.
We have a next question from the line of Anupam Gupta from IIFL Securities.
Just a couple of bookkeeping questions. What is the CapEx which is outlined for FY -- total of -- FY '25-'26?
So right now, we have not exact data, but I think close to INR 300 crores to INR 350 crores.
Right. So just to add to that, Anupam, for clarity that the residual CapEx at the start of the year was around INR 600 crores, right, to go from 3.5 million to 5 million tonnes. So far, we have spent like INR 500 crores in the first 9 months, another INR 100 crores, INR 150 crores should be in quarter 4. And then next year, whatever the residual CapEx plus the -- any CapEx, what we do. So it shouldn't be more than like INR 200 crores, INR 300 crores.
Maximum totally -- from month of January for 5 million tonnes, I think is not more than INR 350 crores, outflow.
Yes. So just continuing there, you said that you want to expand Dubai by another 0.2 million tonnes. So what incremental CapEx you're looking at for because that was not planned...
For 0.2 million tonnes, hardly CapEx of INR 50 crores, INR 60 crores because we have already made the [indiscernible].
Okay. And 1 question on what was the inventory loss which you took in third quarter because obviously, steel prices went down and...
No, no, no. We never encountered inventory loss. We just now -- changed our policies, whatever we buy and whatever we sell, we just see the gap.
Okay. So no major number there.
No, no, no. There is no major number.
We have our next question from the line of Mahek Talati from YellowJersey Investment Advisors.
So we have been mentioning that we want to focus more on the value-added portfolio and not on the commodity. But if we see the new capacity additions, we are adding our capacity in the general segment, too. So can you please explain the rationale behind that?
So this is a natural growth for the industry, right. 10%, we are assuming the industry should grow. So to cater to that, we are ramping up the capacity because one of our core USP is to be able to supply all the SKUs to our customers, right? So to maintain -- to maintain the SKU range, we have to increase the capacity as per the industry natural growth.
[Foreign Language]
Okay. And my next question was, so we are saying that the new capacities of HR mills are coming, which will help us for further supply. So are we currently facing any problems in terms of raw material sourcing or it's going smoothly?
No, this is totally smoothly, no problem at all.
Okay. And next question was given many players in the industry who're increasing the capacity and adding new products, what gives us the confidence that we will continue to grow at a 20% to 25% range given the industry itself is expected to grow at 12% to 13%?
So there are 2 factors: one is that our new products from Raipur, right, they are completely like first time ever launched products in the country. So those products are ramping up, right? So that's new product, new market creation, new applications. And secondly is new geographies, like in export market and East India, where the sales were very, very low for Apollo. And now we are focusing on each of those geographies very, very aggressively. So those will give the volume. And third, there will be shift from inferior scrap steel tube market to the HR-coil tube market, and given our market share, we will maintain those levels.
Okay. And last question, you mentioned that you are getting good orders from the railway station redevelopment. So how many orders are there? And any order pipeline for the railway station redevelopment program?
So any railway station will require steel tubes, right? So far, the Indian Railways has awarded 50 railway stations to the EPC contractors, right? So every railway station will require stadium. We have supplied to 4, 5 railway stations already. At the same time, we are also trying to increase the steel tube consumption in those railway station designs, right, so where our steel consumption could be more than 50% of the total steel versus 15%, 20%, which comes anyway for us.
We have our next question from the line of Anish Jobalia from Girik Capital.
So my question is in our next phase of expansion from 3.6 million to 5 million tonnes, if you see, there are 2 big...
I'm sorry, sir, you're sounding muffled. Sir, are you able to understand this question?
No.
Can you hear me now?
A little bit, yes.
Yes. So my question would add in our next phase of expansion from 3.6 million tonnes to 5 million tonnes. So if you see there is places where we are looking at big expansion of the capacity. One is on the light structures. And then the second is on the galvanized tubes, right? So if you see the history of the galvanized tubes, typically, we have been doing around 100,000-odd tonnes -- 900,000 tonnes, 100,000 tonnes. But we are looking to go for a significant growth on this side. So just want to understand how we be able to sell these big volumes in the next phase of expansion, if you could just help to understand that? And in the light structures also, how are you seeing the volume ramp-up happening because 600,000 tonnes being added in the next phase, and today, we are at a run rate of around 100,000 tonnes, right? So how do you see the growth in these 2 sites?
So first clarification is that this is not next phase. This is ongoing phase of CapEx, right? 5 million tonnes is part of ongoing phase, not the next phase. Now coming to the light section. Light section, why the capacity is increasingly because of introduction of super light tubes from Raipur plant, right? So that's part of super light, and that's forming the bulk of incremental capacity, which you see in the sheet, right? Then the second on pre-galv, right, that's also part of color-coated tubes, which are getting added in Raipur. So that's where the new capacity is coming in, right? So it's -- the existing product is organic, 10%, 15% capacity expansion, and rest is coming from new products, super light in light, and color coated in pre-galv.
So I mean, we are pretty confident that we'll be able sell these products, and you are saying that it will be largely led by new products, right? So it will be a demand, kind of a new market?
The super light segment from Raipur plant, we are already at 33% utilization level as of December 2023.
We have our next question from the line of Vikash Singh from Phillip Capital.
Sir, as you said that there would be a margin compression in such as galvanized. And similarly, many of the competitors are coming in the -- even in the value-added segment, like [indiscernible]. So just wanted to understand the that while you -- on one hand, you're talking about a margin expansion in the heavy structural, your largest share would see an onslaught from the competitor. So just your thought process, whether in this mix, you would maintain the margin? Or you expect in a longer run, it should come down?
Vikash, like if you see our pre-galvanized product. Pre-galvanized products, we take in the country, almost 15 years back. In 2007, 2008, we introduced the pre-galvanized technology. Now no doubt there is some other players that are coming. But the strength of our branding, we are -- we have no problem to maintain our normal margin. The extraordinary margin, which is close to 85,000 tonnes, now we are unable to maintain. But -- almost close to 6 KG margin is not a big task to maintain because our quality and costing, a lot of things. And we are doing a lot of new work also, innovation for pre-galv tube. Now we are introducing our [indiscernible] plant. We are now we're going to slowly and slowly convert it to pre-galvalume tube. [Foreign Language] I think with this, once we came up with this product in maybe month of June [Foreign Language]. This is a ladder and [Foreign Language]. So we are doing a lot of new type of work in [Foreign Language]. We are happy to glad with our shareholders, but [Foreign Language] But we are doing a lot of new works to [Foreign Language]. In the next 1 year, Apollo [indiscernible] a lot of new products [Foreign Language]
[Foreign Language]. Sir, [Foreign Language] last question. On the cash flow uses, like you said, okay, next year, INR 300 crores, let's say, INR 400 crores [Foreign Language] working capital [Foreign Language]. But the cash inflow is much higher. And even in future, for keeping a 25% growth rate or maintenance of that, we don't need like 50%, 60% or 100% of our EBITDA to that. So [Foreign Language] 50% or more EBITDA every year would be free [Foreign Language]?
This is a bit tough Question to answer. [Foreign Language] if you see our balance sheet this quarter, INR 1,600 crores [Foreign Language] liabilities [Foreign Language] INR 400 crores [Foreign Language] debit [Foreign Language] INR 2,000 crores [Foreign Language]. I am targeting -- FY '25 [Foreign Language] liability-free [Foreign Language] debt-free balance sheet [Foreign Language]. First, my aim is for FY '25 March, you see the balance sheet of 0 debt and 0 liabilities. Then we talk about our shareholders and we thinking in-house [Foreign Language] now how we consume the cash?
Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand over the call to the management for closing comments. Over to you, sir.
Thank you, everyone, for joining us today. And thanks again to Nuvama and Sneha for having us for this call. Have a nice day everyone. Thank you. Bye.
On behalf of Nuvama Wealth Management, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. .