Apollo Pipes

Apollo Pipes reported an 8% year-on-year growth in consolidated sales volume for Q2 FY26, reaching approximately 21,000 tons. Despite this growth, margins were under pressure due to lower capacity utilization and heightened competition across the sector. The company's standalone EBITDA per ton was around INR10,000, while the Kisan segment experienced a drag on EBITDA spreads, operating at a 4-5% margin or INR4,000-6,000 per ton. The overall industry faced significant headwinds from weak end-user demand and raw material price volatility.

The company is actively pursuing a 4-pronged strategy to navigate the current environment. This includes expanding its product portfolio with additions like PLB ducts, DWC pipes, PE gas pipes, PVC-O pipes, and venturing into UPVC doors and windows. These new products are designed to diversify into high-growth segments and cater to infrastructure, real estate, and utility sectors. Management expects these new segments, currently contributing less than 5% of volume, to ramp up significantly as the market accepts them.

Apollo Pipes incurred a capex of INR92 crores in H1 FY26, with a full-year target of INR150 crores. The company is committed to expanding its total installed capacity to 286,000 tons over the next two years, funded entirely without debt. The new plant in Varanasi is on track to commence operations in the coming months, strengthening the company's presence in Eastern India. While current capacity utilization is low, management views this as a short-term phenomenon and expects new capacities to ramp up to 70-75% utilization in the next 2-3 years.

The sector has been impacted by frequent and sharp fluctuations in PVC resin prices, leading to cautious behavior and continuous destocking by channel partners. The potential imposition of Anti-Dumping Duty (ADD) on PVC resin is highly anticipated, with management expecting it in November. This is projected to lead to a 7-8% increase in PVC resin prices and trigger massive restocking by channel partners, which would significantly boost sales volumes.

Demand was weak in H1 FY26, particularly due to a slowdown in private real estate and government infrastructure spending, exacerbated by heavy monsoons. October also saw weak demand due to festival holidays. However, management anticipates a more favorable demand environment from November onwards as construction activities resume post-monsoon and increased government spending on infrastructure projects boosts liquidity and cash flows. The company aims for 100,000 tons sales volume in FY26 and 125,000 tons in FY27.

Apollo Pipes is increasing its focus on CPVC pipes, which currently contribute 15% of its volume. The company has tied up with Lubrizol, a leading raw material supplier, to strengthen its presence in this high-margin category. This partnership is strategic due to Lubrizol's superior quality and strong brand value (FlowGuard), which will help Apollo Pipes cater to institutional and contractor segments where it previously had limited presence. The goal is to increase CPVC sales mix beyond 25% in the next 2-3 years.

The working capital cycle was slightly elevated in H1 FY26 due to high inventory levels. However, management expects it to self-settle with higher sales in H2. The company's long-term capex plan of INR600 crores from 2024-2027, including INR150 crores for FY26, is being funded entirely through internal accruals and equity, without incurring any debt. This debt-free expansion strategy is expected to help the company recover revenue quickly once demand improves and improve ROCE from single-digit to double-digit in the next 1-2 quarters.

The OPVC segment, primarily targeting government infrastructure projects, is seeing increasing competition. Demand from most states is still in the implementation phase of converting from DI to OPVC, suggesting a few more quarters are needed for demand to ramp up and pricing to see an uptrend. While only 3-4 states were using OPVC last quarter, this is expected to double in the next quarter, with states like Bihar, Rajasthan, and Kerala in the final stages of tender processes. The company is also expanding its sales team and distribution reach, including connecting 25,000-30,000 retail shops via a mobile app by year-end.