APL Apollo Tubes Limited

APL Apollo Tubes reported a Q1 FY26 sales volume of 794,000 tons, which was below the company's internal target by at least 5%. This underperformance was attributed to a continued slowdown in the macro environment, evidenced by weak industrial production data (2-3% IAP growth) and softer Q1 FY26 GDP expectations. Geopolitical tensions, including the India-Pakistan war and the Middle Eastern conflict, also impacted northern state and export volumes. Additionally, an early monsoon halted construction activity, and a softer money supply reduced dealer buying power.

Despite a QoQ decline in overall EBITDA spread by Rs. 250 per ton, gross spreads improved by Rs. 400 per ton, driven by a better value-added product mix. The company's strategy to de-commoditize its portfolio by adding products like heavy structural, coated, and rust-proof tubes is proving successful, allowing them to maintain a premium of Rs. 3,000 per ton over competitors in certain segments. The FY26 EBITDA spread guidance remains robust at Rs. 4,600-5,000 per ton, significantly higher than FY25's below Rs. 4,000 per ton, reflecting confidence in this strategy.

APL Apollo is aggressively pursuing long-term capacity expansion, aiming to increase total capacity from 4.5-5 million tons to 7 million tons in the next 2-3 years, with a target of 7 million tons by FY28. Key expansion areas include Eastern India (500,000 tons), Dubai (200,000 tons, targeting 1 million tons), South India (400,000 tons), and a new plant in Bhuj, Gujarat (500,000 tons) primarily for exports. The company is also adding 500,000 tons of coated capacity and 100,000 tons of heavy structural tubes, along with 300,000-400,000 tons for Specialty Tubes.

The company maintains a net cash position with prudent working capital days. Excess cash generation is allocated across four buckets: tax, 20-25% for CAPEX, 25% for shareholder rewards (dividends/buybacks), and 25% as a buffer for liabilities. Management aims to be liability-free and expects a larger cash surplus by FY26 end. They also reduced current liabilities (payables/creditors) by Rs. 400-500 crores, leveraging cash for early payments to secure discounts from steel mills.

The FY26 volume growth guidance was revised downwards to 10-15% from 15-20% due to the soft H1, but management expects a strong second half driven by the end of monsoon, increased government spending, and recovery in retail and private infrastructure. They anticipate significant growth from new product lines (heavy structural and rust-proof tubes) and recovery in export markets. The company also projects 20-25% growth in the PEB segment for the next 3-4 years and expects FY27 growth to be much higher than 15-20% due to a lower base.