Apollo Pipes Ltd. ~ From the house of APL Apollo (Erstwhile Amulya Leasing & Finance)

Stock Opportunities
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All the Apollo Triplets following the same pattern.
After APL Apollo and Apollo Tricoat, Now the board is considering a proposal for the Bonus issuance in Apollo Pipes as well.

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Dec-2021 Results

Q3FY22
Sales volume higher by 9% Y-o-Y to 12,520 MTPA
EBITDA declined by 15% Y-o-Y to Rs. 21.6 crore
PAT declined by 30% Y-o-Y to Rs. 11.4 crore

Short view of Management Highlights:

  1. Sales volume grew by 9% YoY to 12,520 MTPA and 9MFY22 sales volume grew by 9%, 37,440 tons driven by a healthy contribution from the cPVC, HDPE pipe and value-added product segment of Fittings.
  2. Improved contribution from the high-margin fittings segment further resulted in a better gross margin performance during the quarter.
  3. Current Facilities operating at steady levels. Greenfield facility at Raipur is now operationalized. We progressing on our brownfield expansion plans at the three plants of Dadri, Ahmedabad and Tumkur.
  4. Latest range of Water Storage Tanks are seeing strong acceptance in the domestic market and accordingly, we have already doubled the capacity for this product.
  5. We are confident that once the macro-situation normalizes, we should be able to deliver strong and sustainable growth, going forward.
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Sharing my concall notes for Q3FY22:

  1. Sales volume growth 9 YoY contribution from PVC and Value added products.
    1. Revenue growth 49% YoY
    2. EBITDA declined by 15% YoY
    3. Net Profit after Tax declined by 30% YoY
  2. Appointed tiger shroff as brand ambassador.
    1. 1.5% spent on advertising
  3. Planning next phase: Towards value added products and bulk will be from internal accruals
  4. Q: How did we achieve volume growth better than reported players so far?
    1. It is due to value added products which have done good → CPVC, Bathroom fitting, Tanks, etc.
      1. Commodity products like PVC volume were flattish and agri PVC declined
  5. PVC & bathroom fitting realization have been stable.
  6. Guidance: Sticking to 1000cr sales by FY23. They are on track.
    1. Even after 1000cr management believes they can still grow 20% for next 3 years.
    2. Next goal is Rs.2000cr in next years from FY23.
      1. Current focus is not on margins rather turnover.
        1. Once scale is achieved then focus will be on margins.
    3. 30% growth is divided into 20% volume growth and 10% growth in realization.
  7. Rs.17,000-18,000 per ton and would improve to It should reach with immediate target of 20,000 and long term target of 25,000 per ton realization.
    1. Competition does at 30-35,000 tons.
  8. Discount to leaders is around 3-4% across category.
  9. Q: When will EBITDA per Kg gap reduce?
    1. 50-55% utilization level currently but once they increase EBITDA per kg should improve
    2. As the brand pull would start working discount to distributors should go away and should go at premium.
  10. Bathroom fitting at 5-6% and target is 10% for next year.
  11. Distributors is almost same but dealers network is increasing.
  12. 55 (non-agri) - 45 (agri) revenue mix.
  13. Channel destocking took place due to volatility in commodity price.
    1. To push the sales they decided to provide discounts.
    2. Guidance: Core EBITDA margins should be 13-15% without any inventory gain/loss.
  14. 40% raw material is locally sources and 60% is imported. (last year local sourcing was 20-25%)
    1. CPVC is 100% imported
    2. Currently no problem is sourcing raw material
  15. Market share reached from 1 to 2%.
    1. Barring top 5 players there has been a lot of shifting of market share.
      1. Small organized had to exit the market that is where players like Apollo Pipes were able to gain market share.
  16. Industry should grow at lower double digit.
    1. Due to their small base they can grow faster than industry.
  17. Rules for their capex:
    1. Capex 30-35% should not increase of EBITDA,
    2. majority internal accruals,
    3. towards value added products,
    4. ROC of 30-35%
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Q4FY22 Concall notes - Apollo Pipes

  1. Did annual capex of 42cr major towards CPVC and fitting
    1. Going forward, 40-50cr of Capex annually is expected every year.
      1. 80-85% will be towards non-pipe segment.
    2. Maintenance capex: 20-25% Growth Capex: 75-80%.
  2. Agri - Building material mix 50-50 but soon will go to 35/40-65/60
    1. Fitting contribute 15% (growing at 40-50% in terms of revenue) and CPVC also 15% (growing at 89% in terms of revenue)
      1. Non-pipe revenue for FY22 18-19%
        1. 15% fitting and 4-5% other products.
    2. Agri growing below 5%.
  3. Still there is a lot of scope in growing building material.
    1. They don’t want to focus on agri at the cost of margin and extended working capital cycle but they do have the capacity if demand picks up.
  4. Guidance: 30% revenue CAGR for next three years with EBITDA margins of 13-14% and EBITDA per tonn of Rs.20,000.
    1. If Agri segment picks up then it can go beyond 30%.
    2. 15-20% minimum volume growth with 10% value growth irrespective of PVC prices.
    3. Management itself is saying that this is a conservative guidance by them.
    4. Working capital: target is to take it to below 50 days by FY23 and at 45 days by FY24
  5. Q: Why margin have come to 11-12%?
    1. In last four years they have increased market share from 1% to 2.5% today.
    2. They used to be at EBITDA per tonn of Rs.9,500 in FY18. At FY22 they are at EBITDA per tonn Rs.17,500. (FY21 was Rs.15,000)
  6. They have long term contracts with CPVC resin suppliers and there is no supply constraint for Apollo
  7. Triggers for growth:
    1. Southern and Western plant + Raipur plants are ramping up well with new distributors
    2. New products which they added they capacity is increasing and internal target are being achieve earlier then set.
    3. Good response from channel partner backed by Ad campaign
      1. 600-700 direct channel partner who are supplying to 25,000 retailers
        1. YoY there will be 10% addition.
    4. Good housing demand.
    5. Product expansion launched last two yearly backed with good acceptance from consumer
    6. They had done BTL advertisement, now they are focusing on ATL advertisement.
      1. Getting leverage from overall branding from APL Apollo brand from group company.
    7. Utilization level at 45% but can achieve 75-80%.
  8. Water Tanks, Bathing fittings, and CPVC pipe will contribute maximum to incremental sales.
    1. Company will soon launch more value added products.
  9. As per management, they are top 5 players in terms of quality standards.
  10. Importing 70% of raw material as they are cheaper.
  11. Credit payable days: lower the days from 34 to 26 days, now 26 to 30 days will be new normal as they are getting better terms because of demand of product.
  12. ROCE seems 16% but when you look at our core business it jumps to 20%.
    1. By FY25 there should be 30% ROCE minimum.
      1. current due to constant Capex the numbers wont be visible.
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My thesis on Apollo pipes:
*30+% CAGR top line growth for next few years (FY23-25)
*Capacity utilization just at 45% (Operating leverage will kick in as utilization ramps up.
*No major capex in next 3 years (just 45Cr - for mostly valued added products)
*ROCE to be 30% by FY 25, currently at 20% tough it appears to be 16%.
*Current EBITDA per ton at 16K and will be 20K by FY25.
*Current sales force at 150 and will be 200 by FY23 and will be enough upto FY25.
*Channel partner/dealer at 600, will be 10% increase YOY.
*Volume growth to be 20% and value growth will be 10% for next 3 year.

Took entry into Apollo pipes and exited Prince Pipes, Opportunity hear looks much higher as compared to Prince Pipes plus lower base of AP.

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Few prominent insights on the business going forward from the recent concall by the management : -

Looking to expand the total capacity to almost 2X of their current capacity of 1.36Lakhs MT in 3-4 Years. ( Majority towards value added products - CPVC , HDPE , Bath fittings and Tank Storage). Funded by Internal accruals + Equity Infusion.

Intends to make presence in untapped markets - South , West and East. (400cr Capex in these 3 region) - They already back tested the product acceptance from some pilot batches in terms of demand, hence confident of growing well in these regions.

They are looking to grow their market share by competing more against the unorganised and organised players below them.

Industry is growing at 10℅ CAGR and hence long runaway for growth.

My opinion - Given their past record , the business direction seems good, the valuation might seem little stretched here optically but mind you one has to factor in ROIIC here (Major capex in value added) which would be high than their present ROCE and the longevity of industry growth(10-11℅ CAGR). Given all of this, Apollo pipes could grow at 25℅ over next 3-4 years.

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Apollo pipes have stake in APL Apollo tubes? Promoter is same.

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APL belong to elder brother and Apollo pipes belongs to younger one of the same family but not stake. They share common brand promotion and network. Chances of merger to become an empire in that category is bright if everything in the family goes well and smooth.

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Thank you…much helpful

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Apollo pipes is planning to invest 125 cr in Kisan mouldings will be big boost for having strong foot hold in UP and other parts of india.
7bbcdfb6-9dd6-439f-9a33-96014b3ff033.pdf (272.8 KB)
0786ddfe-81e9-4a41-bb0b-26a39fe962c7.pdf (783.6 KB)

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the Company has completed the acquisition of 53.57% share
capital and voting rights in KML on March 26, 2024, as per terms of the definitive documents executed
in this regard. As a result of capital infusion, Kisan Moldings Limited has become the subsidiary of
Apollo Pipes Limited.

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