APARINDS - Apar Industries Ltd Share Price

In the recent earnings call, APAR Industries management provided an optimistic outlook while acknowledging certain challenges. Consolidated revenue for Q3 FY '26 amounted to INR 5,480 crores, a 16.2% increase year-on-year, driven by a 30% growth in domestic revenues. However, exports fell by 11.2%, now comprising 25.6% of total revenue due to the U.S. tariff situation affecting order bookings.

Key forward-looking points include:

1. Strong Order Book: The total order book stands at INR 7,396 crores, with exports contributing about 32%. Approximately INR 500 crores in new orders were secured in Q3, primarily in the U.S.

2. Profitability Metrics: EBITDA rose by 20.4% to INR 483 crores, with margins stable at 8.8%. The profit after tax improved to INR 209 crores, reflecting a year-on-year increase of 19.4%.

3. Segment Performance:

   • The Conductor division reported revenue growth of 25.1%, despite a decline in volume due to delayed clearances. The premium product mix remains strong at 44.2%.
   • The Oil business grew revenues by 18.4%, boosted by a 21% volume increase.
   • The Cable business performance was muted, with only a 7.6% revenue rise, primarily affected by a significant 44.3% drop in exports.

4. Future Expectations:

   • Management expects a rebound in U.S. business in Q4, with hopes of returning to double-digit volume growth in FY '27.
   • The company anticipates strong domestic demand from renewable energy projects and railways, projecting continued growth despite external challenges.

5. Capex Plans: Capital expenditures amounting to INR 1,400 crores are on track, with plans for further premium product development and capacity expansion.

Overall, APAR Industries' management remains confident in maintaining growth trajectories across its segments while navigating current geopolitical and market challenges.

Questions and Answers from Q&A Section:

1. Question: "Sir, first question on the kind of positive surprise on the EBITDA per ton of INR44,000 and I can see on a 9-month basis, we have done roughly about INR42,000. Just wanted to understand you have highlighted better product mix."

Answer: "The improved EBITDA per ton is largely due to an increase in the premium product mix, which is now at 44%. This premiumization has significantly boosted our margins. Although the U.S. market faced challenges, enhancements in our portfolio and a push towards premium products have been pivotal. For volume growth in Q4, we project an increase of about 8% to 9%, which aligns with the trends we've observed so far."

2. Question: "So is it fair to assume that since premium is doing fairly well and contributing largely from the domestic market, are you revising your guidance of INR30,000-plus for sustainable EBITDA per ton?"

Answer: "For now, we maintain our previous guidance of INR30,000-plus for sustainable EBITDA per ton. While the premium mix offers some tailwinds, various macroeconomic challenges could affect this. Therefore, we prefer to stick to earlier estimates until we see stable conditions."

3. Question: "In terms of commodity impact, how should we interpret it? Is the high commodity price causing customers to delay projects?"

Answer: "Yes, some clients are indeed postponing projects due to high commodity prices. Our model allows for pass-through costs, so we aim to reduce risks. However, if prices escalate further, we could see more delays in orders. Despite this, we expect Q4 will basically meet our original targets unless there's a significant spike."

4. Question: "What is the status now, assuming that the 50% tariff continues? Can we expect normalized business in Q4 or Q1?"

Answer: "Despite the 54% tariff, we've received INR500 crores in orders this quarter. We've had to adjust our prices to facilitate this order flow. U.S. market access remains critical for us, and while adjusting our pricing affects margins, it enables us to maintain relationships and potentially recover margins in the long run."

5. Question: "You mentioned that the U.S. business in H1 was INR1,600 crores, and for the full year, we're looking at equal or greater. Is it correct to assume zero U.S. revenue for H2?"

Answer: "That's not accurate; for Q4, we expect close to INR500 crores in revenue, with significant parts of the current order book to be executed then. We anticipate that H2 will rebound with further discussions for additional business, so it will exceed H1 figures from the last year."

6. Question: "Regarding the FTA between India and EU, how significant is the EU market for conductors and cables?"

Answer: "The EU market is significant, accounting for about 5% of our revenue. As for competition, while it remains a challenge due to preferences for local products, the new trade deal may provide opportunities. We need to thoroughly assess how the specific trade codes impact our products."

7. Question: "Going into FY '27, considering past delays, how do you project volume growth for conductors?"

Answer: "Given the backlog due to transformer delivery delays, we expect improvement thanks to government concessions on import regulations for bushings. Q4 should show demand recovery, and we aim for double-digit growth as these issues are resolved."

8. Question: "What has been the demand trajectory for cables in the domestic market and what factors are driving it?"

Answer: "We've seen robust demand driven by renewable energy, railways, and data centers. We are the main supplier for several large projects, securing growth across segments. Renewables, in particular, are a strong growth driver for our cables business."

9. Question: "Can you describe the ordering environment for cables going into Q4 and FY '27?"

Answer: "Ordering has improved consistently in Q4, and the domestic side remains strong with projects in renewables and infrastructure. Clients are leveraging earlier delays and we anticipate increased activity in FY '27 due to resolution of past issues, positioning us for growth."

10. Question: "What about your new line of business with the INR156 crores order? What does this signify for APAR?"

Answer: "This project involves enhancing safety in railway lines through signaling systems. It's an important step for us as it taps into a larger opportunity within the railway's safety upgrades, as the overall investment in this sector is significant, indicating substantial future potential for our business."

These questions and their respective answers summarize key insights and projections discussed during the earnings call, showcasing management's outlook amidst market challenges.