APLAPOLLO - APL Apollo Tubes Limited Share Price

For the full fiscal year 2026, APL Apollo Tubes Limited management has provided a volume growth guidance of 10%-15%, a revision from the earlier estimate of 15%-20%. This adjustment is attributed to a combination of factors, including a slowdown in the macroeconomic environment, early monsoons affecting construction activities, and geopolitical tensions. Specifically, the industrial production growth was reported at 2%-3% for April and May, and the quarterly GDP growth expectations were weaker than anticipated.

The management also highlighted that the EBITDA spread is expected to be between Rs. 4,600 and Rs. 5,000 per ton for the full year, which marks a significant increase from the spreads of below Rs. 4,000 per ton in the previous year. This focus on maintaining spreads is part of a brand premium strategy initiated in January 2025, which the management emphasizes will not compromise volumes but instead enhance profitability.

Key forward-looking points include:

1. The expectation of a more robust second half of FY'26, driven by increased government spending and the completion of monsoons, which is anticipated to boost construction activities.

2. A commitment to long-term capacity expansion, aiming to increase overall capacity from the current 4.5 million-5 million tons to 7 million tons over the next two to three years.

3. Expansion initiatives in Eastern India and Dubai, with plans for two new plants in Eastern India, a capacity increase in Dubai by 200,000 tons, and new product lines focused on structural and coated tubes.

4. The ongoing strategic push for value-added products, with a current mix of 61% value-added products, and aspirations to reach 70%-75% as capacity expands.

5. Financially, the company remains in a strong position with net cash, a focus on maintaining single-digit working capital days, and potential dividend or buyback strategies as excess cash is generated.

Major Questions and Respective Answers:

Question 1: "How is the competition brewing up, particularly from your peers in the general structure category, and do you see a payables build-up due to cash strain on your dealers?"

Answer: We have enhanced EBITDA spreads significantly over the past six months, moving from below Rs. 2,000 to Rs. 2,800 per ton. There seems to be minimal competition as the market has absorbed our price increases without decline in volumes. As for the payable days, they aren't associated with dealer stress; our creditors have decreased due to cash generation. We are managing our payables prudently while negotiating for better cash purchase terms.

Question 2: "Can you quantify the impact of the one-time ESOP expense and provide insight into sustainable employee costs going forward?"

Answer: The notional ESOP cost was Rs. 6 crore. Moving forward, we expect quarterly employee costs to stabilize between Rs. 87 crore to Rs. 88 crore, representing Rs. 600 to Rs. 700 per ton. Currently, it's higher due to the ESOP impact. Absolute costs will not escalate from here but will align around Rs. 600-700 per ton over time.

Question 3: "Can you clarify your confidence in achieving the 10%-15% volume guidance despite historical trends showing stronger H2 performance?"

Answer: Our confidence stems from several factors: recovery in Middle East exports that were impacted by geopolitical tensions, new product lines slated to boost volumes, and general construction activity expected to accelerate post-monsoon. Although Q2 might remain soft, demand should rise due to infrastructure projects gaining momentum later in H2.

Question 4: "What is your capital allocation strategy given the excess cash generated beyond CAPEX needs?"

Answer: We have structured our cash flows into four buckets: tax obligations, CAPEX (20%-25% for growth), shareholder rewards (25% for dividends or buybacks), and a buffer (25% retained in the business). We aim to maintain a liability-free balance sheet while exploring dividends and buybacks, contingent on board approvals.

Question 5: "With your volume guidance of 10%-15%, can we expect a revision if H2 performs better than anticipated?"

Answer: While we are optimistic about potential H2 performance, our guidance is based on current market conditions. Any upward revision will depend on external factors aligning, but we are prepared to achieve higher growth if the environment supports it. Our infrastructure, capabilities, and brand are all set for expansion.

Question 6: "Can you discuss the difference and current strategy regarding the solar module mounting structures from SG Mart compared to APL Apollo?"

Answer: SG Mart specializes in the mild profiling of solar structures, while we focus on manufacturing top tubes from flat steel. Both serve distinct roles in the solar sector, and we have different applications for our products.

Question 7: "What is the expected trajectory for EBITDA per ton as you enter FY'27?"

Answer: Although we expect FY'26 EBITDA per ton to stabilize between Rs. 4,600 and Rs. 5,000, our aim for FY'27 is higher than Rs. 5,000, with an ultimate target of Rs. 5,500 to Rs. 6,000 per ton. This will align with our capacity growth as we scale our operations to 7 million tons.