- Proposal for preferential issue of 4,00,000 Equity Shares of Rs. 10/- each, at an issue
price of Rs. 1800/- per share (Rupees Eighteen hundred only) or price as may be
determined in accordance with the provisions of Chapter VII of SEBI (lCDR) Regulations,
whichever is higher, subject to shareholders’ approval, to APL Infrastructure Private
Limited, being an entity belonging to Promoter group. - Proposal for preferential issue of 5,00,000 Fully Convertible Warrants (“Warrant”) at an
issue price of Rs. 2000/- per warrant (Rupees Two thousand only) or price as may be
determined in accordance with the provisions of Chapter VII of SEBI (lCDR) Regulations,
whichever is higher, subject to shareholders’ approval, to APL Infrastructure Private
Limited, being an entity belonging to Promoter group
Result is haphazard. Profit down by 35% due to high margin compression (EBITDA margin of 5.2% vs 7% yoy). Need to understand what went wrong in the concall
It looks like the company is not able to pass on the rise in Steel prices to its Customers although they have claimed in the past that they will be able to do so with a small lag (1 week?).
Gross Margins Q2 FY17 are at 13.50%. Last quarter was at 9.35% and current quarter at 8.19%.
Disc: No holdings
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APL Apollo reported fall in net profit in Q2FY19 due to a sharp rise in raw material costs. Revenue grew by 26.4% yoy to Rs1,690cr. EBITDA stood at Rs86cr, down 8.2% yoy. EBIDTA margin fell by 192bps yoy to 5.1%. Net Profit stood at Rs26.7cr for Q2FY19, down 34.4% yoy.
- Gross margin for the quarter stood at 11.4%, down 462bps yoy.
- Total debt at the consolidated level stood at Rs920cr.
- The company has announced that they would be raising Rs172cr via a combination of preferential issue and warrants. Of this Rs72cr is via a preferential issue of 4 lakh shares at Rs1,800 per share, while Rs100cr is via 5 lakh options attached to warrants of the company at Rs2,000 per share.
- Sales volumes rose by 7% yoy to 3.04 lakh tonnes in Q2FY19. Sales volumes for 1HFY19 stood at 6.06 lakh tonnes, up 11% yoy.
- Breakdown of sales volumes for Q2FY19 stood at:
- Hollow Sections 177.2k tonnes (up 14% yoy)
- Black Round pipes 44.3k tonnes (up 13% yoy)
- Pre-Galvanised tubes 62.5k tonnes (up 5% yoy)
- Galvanised tubes 20k tonnes (down 31% yoy)
- Realizations for the various segments for Q2FY19 stood at:
- Hollow Sections Rs49,053 per tonne (up 15% yoy)
- Black Round pipes Rs48,209 per tonne (up 16% yoy)
- Pre-Galvanised tubes Rs58,443 per tonne (up 14% yoy)
- Galvanised tubes Rs58,267 per tonne (up 13% yoy)
- Sales break down for the various segments for Q2FY19 stood at:
- Hollow Sections 54%
- Black Round pipes 14%
- Pre-Galvanised tubes 24%
- Galvanised tubes 8%
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EBITDA per tonne for the quarter stood at Rs2,813 per tonne, down 17% yoy. The company attributed this fall in profitability to:
- Floods in Kerala, which contributes 10-11% of company volumes
- Heavy monsoon in July and August affected demand from the building materials sector
- Tax Rate for H1FY19 stood at 34.1%.
- The company has acquired a 40% stake in Apollo Tricoat Tubes Ltd. Apollo Tricoat has a 50ktpa facility to manufacture. Tricoat tubes with three variants - SureCoat, DuraCoat and SuperCoat. This would help APL Apollo enter the high margin coated pipe segment.
Prima facie, it looks like the price hikes might have been delayed which is evident from the strong realizations. However, EBITDA per tonne is very low compared to 3300/ton that the management kept on saying in the last concall.
In my view, the company will take price hike in Q3 which should bump up EBITDA/tonne.
Also, I’m not sure how much substance is there in their narrative of decline in profitability due to kerala floods and heavy monsoons in July and August
Any other views are welcome.
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Investor Presentation provides good insight about the business.
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company is buying 66% stake in Apollo Tricoat for approx 240 cr. It means valuing the company at approx 363 cr.
they will be putting up a 150 cr capex .
50,000 TPA capacity of door frames , 50000 TPA capacity of tricoat tubes , and rest 1 lakh tonnes of capacity of GI pipes. Max revenue potential of this expected to be around 1000 cr , will be a higher EBITDA margin business , somehwere around 12- 15 %.( numbers based on my interaction with CFO)
but i am a bit surpisred at apollo tricoats valuation . apart from the technology and land they dont bring much to the table. if someone can comment on that it would be great.
Disc - Invested
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Please have a look at the article below…
Steel Stocks Fall After Citi Downgrade
Shares of steelmakers fell after a report by brokerage firm Citi said falling steel prices, rising leverage and valuations made Indian steel “unattractive”. Steel prices are also expected to normalise in 2019 as China demand slows, it said.
Steel Authority of India Ltd. declined the most on the Nifty Metal Index, falling as much as 4.5 percent to Rs 50.65 apiece. JSW Steel declined 2.4 percent to Rs 298.25 apiece.
- Tata Steel: Downgraded to ‘Sell’ from ‘Neutral’; cut price target to Rs 440 from Rs 620.
- JSW Steel: Downgraded to ‘Sell’ from ‘Buy’; cut price target to Rs 290 from Rs 410.
- SAIL: Downgraded to ‘Sell’ from ‘Neutral’; cut price target to Rs 40 from Rs 72.
Watch the accomanying video to know more about the rout in metal prices
Now that the metal prices are off by anywhere by 50% and their demand is also expected to be subdued for the next couple of months, our company APL must witness inventory gain and that should reflect positively in their bottomline. Also, the price hikes which they deferred last quarter given the inventory loss should act as an additional trigger.
Any thoughts?
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The factors that I thought were tailwinds have not been able to plug the fall in share price. Does any one have any opinion on this ?
As a long time investor in this company, do you have any updates on the current position of the company? Share price has been continuous slide down.
Market position of the company is as good as it was a few Q’s ago when everyone was gung ho about the stock. What has changed in my opinion is this -
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Expectations of future growth are lower - The days of 25%+ volume growth will be tough to replicate unless one sees an urban infra boom take off, 15% over the next 3-4 years is more likely
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Near term earnings visibility is poorer than it was 1 year ago. For this FY looks like PAT will be around the same as it was last year but then this has never been a steady PAT business. You are likely to get a couple of average years and then 1 very good year.
Share price is almost 55% down from the peak but then the increase from 1600 to 2400 was very steep - nothing very unexpected from the markets.
Overall not concerned, if you like the business one should not worry too much about such stock price corrections as long as the market position continues to be strong.
Disclosure: I am a SEBI registered Investment Adviser and I hold this in my personal capacity as well as for my clients. I have bought this stock in the past 30 days
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I’m waiting to see the impact of inventory losses this quarter and next. Growth will be difficult as core construction market is bad.
IMO, inventory losses would be next to nil as the metal prices are down by more than 50% over the last couple of months.
Plz let me know your thoughts
They will have to mark down the inventory and since the increase/decrease in price are passed on to the consumer, the older inventory will be sold at a loss
Results are out … Flat revenue growth… Erosion in margins. Would be interesting to see the volume growth and capacity utilization. Also, DFT doesnt seem to have picked up looking at the numbers. Waiting for the investor presentation.
absolutely pathetic results…
company talks about being able to pass RM costs to finished product; but has been unable to do so since the last 2 quarters. EBITDA margins has been 2.7 % this quarter.
Disc - Invested
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Looks like the end market for tubes is struggling. Don’t understand what happened all of a sudden in the last few months. Management is honest as far as I know. That’s the only silver lining
Tata Steel Bhushan Ultra Large Diameter Tubes ( High Margin Product) started production from January onwards. With marketing/sales team of Tata Steel, it would be interesting to see how well this mammoth 5 Lac MT/Annum mill is handled. Tata Steel management is counting big time on this setup as this would double their tube making capacity.
Aman
Updates from the latest press release -
Company acquiring Shankara Pipes capacity of 200,000 MT for 70 Cr, also gets committed volume of 250,000 MT from Shankara. Shankara was hardly running this unit at 50% utilization and decided to exit a business that is not core to them, effectively APL Apollo is acquiring one of the largest competitor capacity in South with this deal.
Along with the planned organic capex, this acquisition gets their capacity to 22,00,000 MT and their lead over competition only gets bigger in terms of capacity, balance sheet strength and the ability to deal with the occasional inventory losses. For Q4 the company has done volume growth of 40% going by their press release.
Source: Public media release
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Looks like a good move. 200kt capacity for a capex of 70 cr and additional spending of 10cr to get it up and running. Overall, the company aims to grow at a CAGR of 15-20% in volumes for 3 years. EBITDA/tonne should also likely improve with scale as per the management. Looks interesting hereon.
Disc: Invested
Takeaways from Q4 results -
Volume growth appears to be getting back on track, they have done almost 40% for Q4 YoY and 19% for FY19 YoY
HRC prices have stabilized after the Q3 hammering, company has no control on prices though; all they can do is pass on to customers and manage inventory tactically when prices fluctuate a lot
EBITDA/ton is creeping back to the desired level of 3300 - 3500 per MT
Equity infusion and warrants conversion at 2000 and 1800 per share done as of April 12, 2019 - hence won’t show up in the Q4 numbers
Market share improved to 18%, up by 200 bps - looks like company still does not have a worthy competitor and has a free run to expand capacity and capture market share
Sales volume of 13.4 lakh MT for FY19
Acquisition of the pipe unit of Shankara will be completed in FY20 and will take capacity to 23 lakh tonne by end of FY. The capacity here is more in the higher margin products of APL, hence expected to pay back investment of 70 Cr in 3 years time
Running the numbers, assuming a 15% rise in volumes over FY19 steady state and adding the 250,000 MT of committed business from Shankara, company should be able to deliver healthy growth in both volumes and revenue for FY20 if HRC prices don’t fall too much. At a 3% PAT, company might do 240-250 Cr for FY20 if this base case materializes
The market share increase continues and by the looks of it the competitive position is getting stronger after the Shankara Pipe unit acquisition
Source: Q4 press release and investor presentation
Disclaimer: I have a large position in APL Apollo since 2014, have added to position in the past 6 months. I am a SEBI registered IA and also work as an asset manager, I may add more story over the next 6 months based on market conditions.
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