APL Apollo Tubes Q1 FY27 earnings call

APL Apollo Tubes reported a challenging Q1 FY27 with volumes below expectations at 745,000 tons, representing a 20% QoQ decline. Despite this, the company maintained strong profitability, with EBITDA per ton remaining above INR5,500. Gross profit per ton notably increased by INR1,000 QoQ, attributed to effective pricing power and a strategic focus on profitability amidst market uncertainties.

Several external factors contributed to the subdued Q1 volume. Geopolitical issues in the UAE led to a loss of approximately 25,000 tons QoQ. An energy crisis in India further impacted volumes, resulting in a 25,000-30,000 ton reduction in rust-proof pipes and roofing products. Additionally, high factory inflation caused softer demand in the broader construction industry, leading to destocking by channel partners and delayed purchases by EPC contractors and developers.

Management noted a significant improvement in demand from July, with volumes increasing by 20% month-on-month to over 3 lakh tons. This recovery is attributed to the stabilization of steel prices and the end of dealer destocking. The company is targeting 330,000-335,000 tons in August and 350,000-360,000 tons in September, aiming for a total Q2 volume of approximately 1 million tons, signaling a strong rebound.

The company's strategy continues to prioritize profitability, with EBITDA spreads expected to remain in the INR5,000-5,500 per ton range for the full year. A key driver is the increasing share of Value-Added Products (VAP), currently at 65%, targeted to reach 75-80% by Q4 FY28. The upcoming 1 million-ton Malur plant, dedicated to VAP, is expected to contribute significantly with an anticipated EBITDA margin of 8,000+ per ton, reinforcing the de-commoditization strategy.

APL Apollo is undertaking substantial capacity expansion, with new plants in Gorakhpur (200,000 tons) and Siliguri (300,000 tons) coming online, and the 1 million-ton New Malur plant. An additional 0.5 million-ton plant is contemplated in Maharashtra or North Karnataka. These, along with 1 million tons from debottlenecking, will add 3 million tons of new capacity over the next 2.5 years, with the entire 7 million-ton capex plan expected to be completed by Q4 FY28.

The UAE market, which saw volumes drop to 5,000-6,000 tons/month, is showing signs of recovery, reaching 10,000-12,000 tons in July, with a target of 16,000-17,000 tons for August. The company is also re-strategizing its export operations, shifting its Mumbai plant entirely to export activities. A new 5 lakh ton plant is planned around the Pune corridor to efficiently serve the domestic market, reducing freight costs from INR1,100-1,200/ton to INR200-300/ton for the Pune region.

Management confidently reaffirmed its full-year FY27 guidance of 15-20% volume growth and over 20% absolute EBITDA growth. Looking further ahead, the company targets an EBITDA of INR6,000 per ton at 8 million tons capacity within the next 2-3 years. They also aim to improve the Return on Capital (ROC) from the current 30% back to 40%, reflecting a strong commitment to profitable growth and capital efficiency.