I had also listened to the concall of APL Apollo. Some of the key points of the call:
• Interest cost higher this quarter and year. As % of sales interest cost remained stable.
• Net debt is 810 crore as on March 31, 2019.
• Marked growth across sector, across products. Significant improvement in environment. Significant growth in DFT. Lot of efforts made by the company. 38% growth we were able to achieve. Accelerate the journey. Spend lot of money in branding. We want to own the category.
• Continue 20% growth in volume. Focus on debtors, inventory – all this things are looked into. Branding tie up – looking for tie up with celebrity. 2 leading products – Hollow products and GP – market share crossed 26% in domestic markets. For years to come don’t expect competitors to do much.
• Volume front – 20% volume growth? Close to it and reaching our guidance. Hope to exceed in years to come.
• Election results impact on us? On 23rd we will get the results. If current government comes to power again, we will do well.
• Capacity – quite a bit of capacity addition, capex plan for this year? Trying to consolidate now. Acquiring new unit of Shankara, 3 million tonnes we have Apollo Tricoat – total capacity is 2.4 million tonnes. In FY19 – 200 crore all the capex were done including maintenance capex. 50 crore infused by promoters. Don’t think we have further requirement for capex. After 2 – 3 quarters, we will take a call on capex in FY21 or FY22. Want to improve RoE, RoCE, free cash flow and cash flow from operations now.
• Steel prices going ahead? How much EBITDA/tonne we are planning? Last year we have done operational EBITDA of 450 crore. 3350 was EBITDA/tonne. With lot of value addition, we plant to achieve EBITDA/Tonne of 3600 – 3700 this year. All these steps will helps us growing it. RM cost per tonne was 47,000 per tonne. Going ahead what do you think will be RM cost for FY20? Current inventory at price of 40,000 per tonne. If price goes down by 500 USD per tonne. Iron ore prices are increased, coke prices are high, don’t think prices will go down. Also, prices will also not increase as lot of capacities are coming up for HR coil. In addition, auto demand is slowing down. Not sure of any sharp move in the prices of steel. Very careful about steel prices as we were badly hit in Q3FY19.
• Capacity which is coming from DFT? Currently, 8 lines of DFT. These give us capacity of 6 lakh tonnes. Last year we did 4.46 lakh tonne. Capacity utilisation to increased to 80 – 85% going forward.
• 450 crore adjusted EBITDA is after adding 50 crore inventory loss.
• Two shifts taking place for improvement in EBITDA: 1. GP pipes – volumes going up day by day. 2. Most of the increase in volume will come from DFT now. Also, setting of HR coil mill will help in reducing costs. Overall, the prices should also improve due to branding exercise. 25 – 30 crore spending on branding next year. Cash flows should also improve going ahead. We will require 1.5 lakh tonne of inventory.
• Shankara nos to be reflected in our company? From Q2FY19, it should start reflecting. 60% utilisation to be target utilisation for it.
• Shankara will contribute 90,000 – 1,00,000 tonnes in first year. For tricoat we are expecting 1,00,000 to 1,20,000 tonnes volume this year. 20% volume a conservative number. We don’t want to compromise on margins. Doing 1.5 million tonnes this year organically and 0.1 million tonne from Shankara. We will increase our market share from 18%.
• GI we are struggling with volumes, reasons for the same? We are in four type business – black tube, galvanized segment, hollow tube, GI and GP pipes. With branding activity, we should be able to do well in GI pipes. Other player like Surya, Tata have better recall. We don’t want to compromise on margins this year. Focus on RoCE, cash flows. This year we are not worrying about volumes. Focus on improving margins this year.
• Working capital improvement – sustainable or not? Should improve working capital this year.
• Current maturity of long term debt is 125 crore.
• Jump in other expenses? Freight component increased this quarter.
• Demand shifting from steel pipes on PVC? PVC is more for plumbing purpose. Hollow section, black pipes and GI pipes, PVC cannot replace them. Shifting from wood and cement to steel which is also helping it. Demand for hollow section is higher than steel pipes. Even furniture is shifting towards hollow section. Wood and cement to pipe shift is significant for us.
• APL’s current stake in Tricoat. Increase in stake? Right now we have 50.62% stake. This month shares will be transferred to Shree Lakshmi Steel Udyog.
• Sharp jump in employee expenses. Reasons for it? Always employee benefit cost increase is 10 – 12%, volume increase also happening and since we are gearing organisation for handling 2.4 million tonnes, we are hiring new people, doing backward integration also we are adding new employees and building brand as well. This is our asset and it will continue to remain our asset.
• Other building material companies struggling in the quarter. What has led to higher growth for us? Focus on consumer segment, all geographies doing well, almost uniform growth across south, north, west and even east. GP and sections doing well. Due to DFT, we are able to give them supply as per their requirements. Just recently we got an order from L&T for a specific size for airport or steel plant. Earlier these size of section used to be imported and took 3 – 4 months. Now we are giving it within 3 days. Lot of new requirements coming in. DFT is reaping benefit now. Getting benefits now. Pending order of 15 days for DFT lines for special sizes. Can help in market share and volume growth as well.
• Growth in volume will be over 20% and targeting operational EBITDA of 450 crore in FY19 will atleast be 25% more.
• Time lag for passing price increase to customers? Steel plants announce on 1st for monthly prices and then in next 8 – 10 days we revise our pricing as well.
• Tricoat – balance stake under minority post acquisition of 51% share in the company. 49% stake will be shown as minority stake.
• Capex for FY20 – 200 crore including Shankara facility and excluding Tricoat.
• Net debt – 810 crore as on March 31, 2019.
• Difference between DFT and other hollow section realisation? DFT couple of things – high size sections, all sections which cannot be made through conventional route, lower timelines. Normally realisation is higher by 1000 per tonne. EBITDA per tonne for larger size are much higher but for smaller sizes is around 1000 per tonne. Realisation difference is 1000 per tonne.
• Barrier to entry in this business? Wouldn’t steel mills themselves do it? Tata Steel was the first manufacturer of steel pipes. Currently, their capacity is 1/3rd our sales. Globally, it has been observed that steel plants are not good in steel pipe making. It has a lot to do with marketing, distribution, brands etc. Steel plants do business in 1000 of tonnes while steel pipes are sold in meters of 10/15 tonnes. Creating distribution network which is so deep that it is difficult to break. We have 600 distributors and dealers across all the cities, villages, districts etc. Also, having plant location across the geography helps. We have plant across 6 different locations. Working with 1100 SKUs. Steel plant will find it difficult to do that.
• Inventory holding? We work around 30 – 40 days of inventory. Plant to reduce below 30 days of inventory.
• Inventory loss part of business? Steel prices going up by 1 – 2% on monthly basis, inventory risk is not much. With branding, pricing power improved. We will be able to withhold prices with changes in raw material prices.
• Good days will come again. Much brighter days are ahead of us. Big movement against usage of wood. Our volume growth, EBITDA growth will continue with new product introduction.
(Disclosure: Invested)
