Amulya Leasing- Apollo Pipe Story

(ramdhawad) #126

Thank you. Yes, reading again it mentions in the fine print that these are all plastics faucets.
Still point being, from being a PVC / CPVC pipe manufacturer, they are getting in to bathroom fittings. Are they going to manufacture it or simply buy and brand it as APL Apollo ? These should require a different expertise and set up to manufacture vs a pipe. What’s the rationale?

(Growth_without Debt) #127

Chrome plated plastic faucet market is dominated by Chinese and unorganized see sectors. There is no moat . People who afford good faucet they always go for metal as plastic in bathroom is considered as cheap status

(ankush raghuvanshi) #128

Trying to find its dealers and presence in retail. Cannot locate in UP. Major cities not covered. Any idea/update on it?

(narendra) #129

Apollo pipes Q3 results show top line growth of 16% and net profit increasing from 4.5 to 5.3 Cr mainly led by other income.(without other income of 3.4 cr nos does not look impressive).

Particulars(Crs.) Q3FY19 Q3FY18 Y-0-Y Change 9MFY19 9MFY18 Y-0-Y Change
Income from operation 87 74.7 16 272 219 24
raw materials 65 53.7 21 202 157 29
total expenses 83 68.4 21 255 204 25
PBT 4 6.3 -37 17 15 13
PBT Margin% 4.6 8.4 -45 6.3 6.8 -9
other Income 3.4 0.9 278 9 2 350
PBT+OTHER INCOME 7.4 7.2 26 17
Tax expense 2.2 2.7 -19 7.8 6.3 24
PAT 5.2 4.5 16 18.2 10.7 70
EPS 4.4 4 10 15.5 9 72
sales volume(MT) 9300 8934 4 30210 25061 21
revenue/MT 93,548 83,613 12 90,036 87,386 3

Greenfield capacity of 15,000MTPA at Raipur by December 2019 to expand footprint in central and western India.

25,000MTPA of capcity at Bengalurru by March 2020 to cater to southern market.

Total target capcity of 116,000MTPA by2020.

Launched new product portfolio of plastic taps,faucets and accessories.

Focus on increasing revenue contribution from fitings to 15% by FY2020(from 11%)

(khs) #130

I believe they have annual capacity of 70000MT. Utilization is roughly half of that. Any specific reason for this?

(ramdhawad) #131

For whatever it’s worth, but Catamaran ( Narayan Murthy fund ) and Vallabh bhansali exited from the company during Dec quarter. Or may have reduced the holding to less than 1%

(ramdhawad) #132

Finolex and Astryl both reported subdued vol growth in Q3. Management commentary was suggesting difficult quarter which traditionally is not the case in agri sector. Weak demand due to tight liquidity. Jan and Feb so far have shown decent demand and they feel it will normalize as liquidity comes back to system. Overall both management sounded bullish over long term but cautious/ bearish in short term.

(bullrun1988) #133

Equity dilution has happened so the number shares must have remained same but in percentage terms numbers have gone down from threshold 1. This is my explanation for u.

(tejassavani) #134

Have great respect for Summet Nagar and his approach towards investing. As an investor in Apollo Pipes, its always frightening to listen to capex plans of Astral and Supreme each quarter. Take comfort from the small base, decent management quality and low cost manufacturing skills of the group. Also hope that the remaining ~145crs are converted at 590/s and are well allocated.

A few questions :

  1. Why was the Blore plan postponed while Raipur is now coming before Blore ? Astral too is coming up in the East.
  2. How long will it take for the company to completely utilize the proceeds received back in Jan’18 ? 1H19 results suggests external debt has been added, does this mean the remaining cash will be converted into equity soon and deployed towards capex ?
  3. Cash-n-carry model will alleviate working capital needs but whats the hit on the margin in a commoditised business ?

An increasing capacity utilization + growing fixed asset base + a slow move towards light working capital structure can do wonders.

But where are the margins ?

(zygo23554) #135

I am actually happy that the management has decided to defer the capex plan. When they are hardly doing 45000 MT per annum, what is the point in taking capacity to 150,000 MT by 2020? I’d rather have the cash sit on books and make other income rather than get stuck in fixed assets and depreciate till they get to respectable capacity utilization. My base case has always been that capex will end up being much slower than what management is projecting.

The central hypothesis for me is industry leading volume growth - maybe at lower margins than leaders for a while till they generate enough traction with the channel. Finolex Ind volumes actually went down YoY for Q3, Astral did lower growth than their usual rate. In such a scenario 15% volume growth is pretty good. If the volume growth starts falling I will need to revisit this, then you are just left with a me too business selling PVC pipes.

Part of the debt on books is an overdraft against the FD in which the 202 Cr raised has been parked. Q2 saw the working capital cycle get elongated - mostly due to the company pushing inventory at higher margins to the channel.

Recent margins are lower due to - lower gross margins in Q2 and Q3, higher employee cost and other expenses as % of sales. The latter two are to be expected till the time the new plant starts doing healthier utilization, then the overheads just get spread over higher sales and EBITDA will come back to the normal range. Gross margins should get better with product mix and higher volumes over time, Prince Pipes does a gross margin of 31-32% at more than 2X the volumes so one might expect that over the next 3-4 years.

Let’s see if they can continue the industry leading growth rate, this is a story where you enter and wait for the market to excited over the high growth rate and for the story to get priced accordingly. My sense is doubling of PAT is possible over 3-4 years which is enough for the market to get excited, once the volume per year crosses 100,000 MT growing at 2X industry rate won’t be that easy and the growth will need to taper down.

Disclosure: I am a SEBI registered investment adviser and hold this in my portfolio and customer portfolios under advise. I have added to my allocation in the past month and may add more depending on the market condition