APL Apollo Tubes

APL Apollo Tubes delivered a robust Q4 FY26, with quarterly volume increasing 9% Y-o-Y and EBITDA per ton reaching upward of INR 5,500. The company achieved a 37% ROCE for the full year, maintained a negative working capital cycle, and generated INR 2,000 crores in operating cash flow and INR 1,300 crores in free cash flow. The year closed with a healthy net cash balance exceeding INR 1,500 crores, demonstrating strong financial resilience.

The quarter was marked by significant challenges including raw material steel shortages, global supply chain disruptions, and the Middle East crisis impacting Dubai operations, which ran at 40% utilization. Domestically, operations faced temporary shutdowns for 10-15 days in March due to gas shortages and labor shortages from heat and elections. In response, management strategically shifted focus to protecting profitability and margins over pushing volumes, leveraging brand strength and product innovation.

Management asserted the long-term sustainability of an EBITDA per ton between INR 5,000-5,500, attributing current higher margins (INR 6,000+) to market leadership, product innovation, and temporary steel shortages. The company strategically reduced volume in the Patra segment to less than 30% to avoid margin pressure and saw improved margins in galvanized and coated products. A significant INR 1,500/ton price increase for the general segment in January 2025 also boosted profitability, driving general product EBITDA from INR 2,000/ton to over INR 3,500/ton.

The long-term plan to reach 8 million tons capacity by FY28 remains fully on track, with INR 1,400-1,500 crores of pending capex to be completed over the next 2-2.5 years. This expansion, including new plants in East India and a Bangalore plant (Malur 2) for lighter structures, is entirely funded through internal cash flows. This approach allows for significant growth without straining the balance sheet or requiring additional debt.

The company's robust cash generation significantly outpaced its capex requirements. With net liabilities of approximately INR 500 crores expected to be eliminated in Q1/Q2 FY27, management indicated a strong likelihood of increasing dividends or initiating a share buyback thereafter. This commitment reflects a focus on returning capital to shareholders once financial obligations are cleared.

Despite current headwinds, the company maintains its FY27 guidance of 15-20% volume growth (targeting 15% if conditions worsen), 20-25% EBITDA growth, and 25-30% PAT growth. Management believes industry disruption^🌐s benefit stronger players, enabling them to gain market share from unorganized competitors through strategic SKU management, branding efforts, and expanding distribution networks in new markets. Monthly volume targets for May and June are 2.75-3 lakh tons and 3.5 lakh tons respectively, aiming for 8.75 lakh tons for FY27.

APL Apollo Tubes' commitment to ESG compliance, including SBTI validation, is viewed as a driver of efficiency rather than a cost burden. Investments in areas like renewable energy are expected to reduce overall power costs per ton, leading to cost optimization. This proactive approach to sustainability aligns with financial benefits, yielding better results in terms of operational costs.