APLAPOLLO - APL Apollo Tubes Limited Share Price

In the Q4 FY'25 earnings conference call, management provided an optimistic outlook for APL Apollo Tubes Limited. They reported crossing 3.1 million tons in sales volume for the year, positioning the company as the world's largest downstream steel player outside China. The company ended the period with net cash exceeding Rs. 300 crores and an operating cash flow to EBITDA ratio of over 100%, highlighting strong financial health. ROCE for FY'25 was reported at 25%, and management anticipates it to reach 35% in FY'26.

Key forward-looking points include:

1. Volume Growth Target: Management forecasted a robust 20% year-on-year growth in sales volume over the next 3-4 years, aiming to expand production capacity from 5 million tons to 7 million tons, involving a capital expenditure of around INR 15 billion.

2. Strategic Expansion: The expansion involves entering virgin markets in East India and Dubai, increasing capacity in roofing sheets, and initiating exports from a new plant in Bhuj, Gujarat, contributing an additional 300,000 tons.

3. EBITDA Guidance: Management expects to improve EBITDA spreads to near Rs. 5,000 per ton in FY'26, driven by optimizing sales mix and expanding international markets.

4. CAPEX Allocation: Management estimated yearly CAPEX of Rs. 500 crores over the next few years to support expansion activities.

5. Continued Focus on Margins: Despite the volatile macro environment and past margin pressures, management remains committed to maintaining and enhancing margins through strategic initiatives and cost control, with plans to reduce employee costs significantly over the coming years.

Overall, management conveyed a strong commitment to growth, profitability, and enhancing shareholder value through strategic expansions and operational efficiencies.

Here are the major questions and answers from the Q&A section of the earnings transcript:

Question: "What is the current capacity utilization in roofing sheets and heavy structures, and what gives you confidence to expand in these segments?"

Answer: "The roofing sheet is currently 100% utilized, which is why we're expanding. For heavy structures, utilization is at 60%. By the time the new capacity is up, we expect utilization in heavy structures to cross 80%."

Question: "What is the inventory gain in this quarter given the recent fluctuation in steel prices?"

Answer: "In Q4, steel prices increased by about Rs. 2,000 per ton, but this didn't significantly affect our EBITDA of Rs. 4.13 billion, which also includes no inventory gains, as previous losses were more pronounced."

Question: "Can you clarify your EBITDA guidance for FY'26 and volume growth expectations for that year?"

Answer: "We anticipate maintaining EBITDA spreads near Rs. 5,000 per ton for FY'26, backed by continued volume growth of around 20% year-over-year, driven by new capacities and markets."

Question: "Given the current market conditions, what are your thoughts on the future profitability and ROCE?"

Answer: "We are targeting a ROCE of 35% for FY'26, up from 25% in FY'25, with a focus on margin improvement through operational efficiencies and capacity expansions to capture higher market shares."

Question: "What is the status of your expansion plans concerning the export markets, specifically in the U.S. and Canada?"

Answer: "We now have significant opportunities in the U.S. and Canada due to recent changes in trade policies. Currently, our capacity in Dubai stands at 300,000 tons, and we expect strong acceptance of our products in these markets."

Question: "What percentage of your total sales comes from exports, and what are your targets for the next two years?"

Answer: "Exports currently account for 6% of our sales. Our aim is to increase this proportion to over 10% in the coming years by optimizing our global distribution and expanding export capacities."

Question: "Can you elaborate on the rationale behind entering the stainless steel pipe segment despite the competition?"

Answer: "We're targeting super specialty tubes in lower competitive niches with minimal investment. Our focus will be on products that offer potential for import substitution, allowing us to enter markets where competition is limited."

Question: "What will be your blended EBITDA target for FY26?"

Answer: "We are aiming for a blended EBITDA of approximately Rs. 5,000 per ton in FY26 as we anticipate improved margins from new sales mixes and optimized production strategies."

Feel free to ask if you have any more questions or need additional information!