APL Apollo Tubes Limited (NSE: APLAPOLLO) Q2 2025 Earnings Call dated Oct. 29, 2024
Corporate Participants:
Anubhav Gupta — Chief Strategy Officer
Sanjay Gupta — Chairman and Managing Director
Analysts:
Udit Gajiwala — Analyst
Rahul Agarwal — Analyst
Amit Dixit — Analyst
Lokesh Maru — Analyst
Dhananjai Bagrodia — Analyst
Kunal Oji Ramani — Analyst
Anupam Gupta — Analyst
Pallav Agarwal — Analyst
Devvrat Mohta — Analyst
Sneha Talreja — Analyst
Aditya Welekar — Analyst
Bhavin Pande — Analyst
Bharat Shah — Analyst
Sailesh Raja — Analyst
Vikash Singh — Analyst
Onkar Ghugardare — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to APL Apollo Tubes Limited Q2 FY ’25 Earnings Conference Call hosted by YES Securities. [Operator Instructions] Please note that this conference call is being recorded.
I now hand the conference over to Mr. Udit Gajiwala from YES Securities. Thank you, and over to you, sir.
Udit Gajiwala — Analyst
Yeah. Thank you. Good evening, everyone. On behalf of Securities, we welcome you all to the Q2 FY ’25 earnings conference call of APL Apollo Tubes. From the management side, we have today Mr. Sanjay Gupta, Chairman and Managing Director; Mr Deepak Goyal, Director of Operations; Mr. Anubhav Gupta, Chief Strategy Officer; and Mr. Chetan Khandelwal, Chief Financial Officer.
I’ll now hand over the call to the management for your opening remarks. Thank you, sir.
Anubhav Gupta — Chief Strategy Officer
Thanks, Udit. And thanks to YES Securities for hosting us for our earnings call. Good evening, everyone. I welcome all of you to our quarter two FY ’25 earnings call. I synthesize with my analyst friends who are covering building materials sector and are attending fifth investor call today. What a mind-blowing quarter we had the Q2. Our Q2 performance reminds me of a famous phrase, the night is darkest just before the dawn. Why I say this because we have been waiting for this time when inflation in the domestic steel prices seems to be over and the gap between our products and low-grade sponge, iron-made steel pipes has narrowed down considerably.
Of course, the correction in steel prices brought rock on our profitability and our EBITDA spreads collapsed to all time low. However, we are not discouraged by this at all. And in fact, we are working harder to pounce upon the opportunity which has opened with the low base raw material costs. The gap between our product and sponge iron pipes is around 5% to 6% today and we can target additional market of 500,000 tons on monthly basis. Our products have also become affordable against wooden structures, aluminium profiles, rebars, long steel products and steel angles and channels, which is further expanding our universe.
The existing pricing situation seems to be sustainable as there is not much room for steel prices to go down given the depressed profitability for the steel mills. And at the same time, steel prices should not rise further because the new steel capacity is coming online quarter-on-quarter basis, which shall keep the steel prices under check. Henceforth, the volume trends in H2 should remain strong as we are confident of 3.2 million ton sales target for full year of FY ’25. Confidence also comes from the fact that our channel partners are still sitting on low inventory levels because their secondary sales are equally strong.
The reason for all-time low EBITDA spreads in Q2 were number-one, inventory loss of INR2,000 per ton, which even we could not stop because of 7,500 ton steep fall in the steel prices and that was back-to-back. So we had to — we — so the inventory which we were having on our books, we had to correct it. And we also offered more discounts of INR500 per ton to our customers on the falling steel scenario to push sales. One positive highlight was the operating leverage benefit of 100% as our sales volume expanded on quarter-on-quarter basis.
Now APL Apollo is ready with the 4.3 million ton capacity, which we shall expand to INR5 million ton by FY ’26. The residual capex is around INR3 billion to INR3.5 billion, which will be easily funded from the internal cash flows. Our strategy here is deeper penetration in the market with the new greenfield plants, two plants are coming in Siliguri and Gorakhpur. This is to cater to the whole of East India, including these seven sister states and some opportunity in Nepal and Bhutan markets as well.
We are also adding up a new plant in Bangalore for our lighter section where we feel that the existing capacities are fully utilized. From these three plants, we expect an additional market of around 1.5 million ton on annual basis. And we should be able to ramp up our volumes from these plants over the next two to three years. Our trust on innovation continues in structural steel space with launch of specialized structures for the solar power industry. One product is a pre-coated thicker sheet, which shall replace existing galvanized sheets and another product we added to our portfolio was to cater to the solar flatter [Phonetic] systems.
We continue to make inroads in the heavy structural steel tube space as the usage of tubular designs in heavy construction keeps on rising. Our tubular designs are now being used in major infrastructure and real-estate projects in the country. For next year, we maintain our sales volume guidance of 4 million ton and 5 million ton by FY ’27. The margin shall expand to a normalized level of INR5,000 per ton over the next two to three quarters and this margin should remain sustainable throughout FY ’26 on quarter-on-quarter basis.
With this, we are done with our opening remarks and we are happy to take questions. Thank you.
Questions and Answers:
Operator
[Operator Instructions] Our first question is from the line of Rahul Agarwal from Ikigai Asset Management. Please go ahead.
Rahul Agarwal
Yeah, hi, good evening. Thank you so much for the opportunity and happy festive greetings to everybody at APL. Sanjay, the first question was on steel demand-supply. Could you please share your thoughts on what’s really happening with the overall global and India steel demand and supply and your outlook on how should the prices actually behave? A bit more color on that would be helpful, please. That’s my first question.
Sanjay Gupta
Good evening, Rahul. First of all happy Diwali to everyone. Rahul the demand of the steel if you see real fact not very good, but somehow we are studying from last two years with the secondary and the primary steel prices, the cargo gap, the huge gap between the primary and secondary steel price to almost close to INR12 to INR15 kg. Now it’s come down, reduced to INR3 almost close to INR2 to INR3 kg. So here a company booster. After you — if you see all the other — all the sectors, we are — our growth rate is almost close to 5% to 10%. So we have our said that we build-up with the capacity and we are very focused here quarter-on-quarter around 10% growth from target [Foreign Speech].
Globally, demand pushed as a correctly like Middle-East demand is good. Europe and U.S. side demand slowdown there. Middle East this month we are going to do our highest production of sales close to 15,000 tons this month. So this all the things are good for us.
Rahul Agarwal
So, Mota Moti for the HRC pricing in India, what do you foresee? I mean, because others have also mentioned that…
Sanjay Gupta
HRC prices Rahul you have to understood, today HRC price is close to INR46,000, INR47,000 ton in the market. [Foreign Speech] Because the margins are in pressure also the steel prices are in the pressure. [Foreign Speech] The price would be may remain same. [Foreign Speech] 2 lakh tons per month from NMDC steel, 4 lakh tons from JSW Steel and 4 lakh tons from JSPL. [Foreign Speech] So our 8 lakh tons capacity will built-up and China pressure more on overall world market, steel prices. [Foreign Speech]
Rahul Agarwal
Got it, sir. Got it. Thank you so much for answering my questions. I’ll get back in the queue. Thank you.
Operator
Thank you. Our next question is from the line of Amit Dixit from ICICI Securities. Please go ahead.
Amit Dixit
Yeah, hi. Good evening, everyone, and thanks for the opportunity. A couple of questions from my end. The first one is that despite pushing volumes, the general structure segment, we found that the contribution was negative. So what explains that? Are we pushing volumes at the cost of margins and realization? In that case, it could be counterproductive as we ramp up our capacity. So that is the first question I have, that how do we see this margin shaping up of this critical, I would say, bucket, which is like 45% of your overall sales volume?
Anubhav Gupta
So, Amit, the EBITDA per ton spread was negative because of the inventory loss overall that the company took, right? If we remove the inventory loss, the — it was pretty much profitable. And going forward, we don’t expect further inventory losses, right. So the EBITDA per ton in this particular category will recover to the previous levels which we have been showing around INR2,000 to INR2,200 a ton.
Amit Dixit
No, because I was asking what gives us confidence that these steel prices will not fall from here because what we have seen that Chinese stimulus. I mean the measures and the impact have been fairly, I would say, muted at this point in time. Chinese exports have remained 12 million to 10 million tons odd. So — and last quarter also we said that now things are — the worst is behind us possibly, but although we said that Q2 might be a little bit here and there, but going ahead in Q3 also, the demand that we saw like 4% to 5% now in Q2. So what gives us the confidence that we’ll go back to this EBITDA per ton of INR5,000 in two to three quarters?
Anubhav Gupta
Amit, no one will be more happy if steel prices go down further from here. The question is, can steel prices go down again INR7,500 per ton in single quarter? Answer seems to be no, right. Because see, I mean, company if you look at our performance for last 10 years, right, we have seen in the cycle of steel volatility wherein in a single quarter, steel prices swing by INR2,000, INR3,000 a ton very easily, right. And we don’t have inventory losses in every quarter. It is just in Q2 when there was such a sharp decline, right, INR2,500, INR2,000, INR2,000 month-on-month, we saw the correction in the steel prices, which we have not witnessed in the last 10 years, even an efficient inventory churning company like Apollo, right, which we always boost of, right.
Our inventory churn is like 25 days, 15 times, 18 times in a year. When we are churning inventory so quickly, then INR2,000, INR3,000 per ton fall or increase in steel prices in a quarter does not impact our profitability, but if steel prices were to fall off by INR7,500 a ton in a single quarter, then it does impact our profitability. So if in quarter three, we expect that steel prices could further go down by the same pace. I mean, at one side, we will be very happy because then — I mean, we will just eliminate the sponge iron pipes, okay, because right now the gas is INR2,000 a ton and with steel prices, my base for material goes down by like INR6,000, INR7,000 a ton, you can imagine the situation where I mean, I will be able to sell at such a lower price.
Second point, we may not need to lower my selling price once steel prices go below the patra coil price, okay, because I have almost 500,000 ton of monthly incremental market, which I will take from sponge iron steel pipes. And even if my base raw material is lower, I may not decrease my selling price, right. So in fact, my margin will go up, okay, in a situation when steel prices crash by INR7,000 per ton in Q3 or Q4 and sponge iron steel prices are at similar levels. Sorry, Amit, I also add to one point here. Today the total structure to marketing of India is almost close to 5 million ton with the primary steel and for almost 6 million tons from the secondary steel. If the price go down with the secondary steel, nobody can supply the material to market other than Apollo. It will be our second — the second number player just one-time from our capacity. So if market requires 5 lakh, 6 lakh tons per month more material. So Apollo also can give maximum 1 lakh, 1.5 lakh ton material per month to market. So then we don’t need to crash our price then our margin should increase.
Amit Dixit
Okay, got it. The second question is on employee expenses. Last quarter you indicated that maybe they have peaked off, but this time we saw again employee expenses increasing. So what is the sustainable rate of employee expenses that we can see going ahead?
Anubhav Gupta
So Amit, the employee expenses for the Q2 is INR870 million, right. Out of this again INR70 million is for the notional piece of expense, okay. So EUR800 million per quarter is what like we have peaked, right? And as a goal third year. As the sales volume increases quarter-on-quarter, the per ton cost will keep on going down.
Amit Dixit
But in absolute amount, we can expect that INR800 million would be — thereabout would be a quarterly rate.
Anubhav Gupta
Definitely, yes.
Amit Dixit
Okay, got it. Thank you so much and all the best.
Operator
Thank you. Our next question is from the line of Lokesh Maru from Nippon India Mutual Fund. Please go ahead.
Lokesh Maru
Thank you for taking my questions. Two, three questions. One is still now assuming that steel prices are down already lower inventories, what kind of growth are you seeing right now or maybe what is your estimate for — in the current situation, say, Q3, Q4? That is first. Second is, as prices were down already were on a declining trend, the discount of INR500 per ton that we had said even in the call and in the PPT, when did you actually start giving this discount and how long do you intend to stretch that? And what was the rationale is it to still push volumes in a declining destocking environment or gain share from maybe peers, anything like that?
And third, last question is on the while doing some channel checks dealers also mentioned presence of or rather competitive intensity in these heavy structures by JSPL. So what is — how do we counter that? What is our strategy around that piece? Thanks.
Anubhav Gupta
So, Lokesh, first question will be addressed by Sanjayji. Rest two, I will take. Sanjayji, please.
Sanjay Gupta
Hi, Lokesh, good evening. Because now we are targeting quarter-on-quarter 10% growth. Like this quarter, we have done 7.5 lakh ton near about. And on Q3 we are targeting 8.25 lakh tons. And Q4 we are targeting 9 lakh tons and Q1 we are targeting 10 lakh tons and Q2 I’m targeting 11 lakh ton and Q2 up to 12 lakh ton. I think this type of market share, we are not going to stop. We are going to quarter-on-quarter 10% growth because I have the capacity, I have the market, I have the — all the things I have. Now nothing is to — for me any excuse for Apollo, now no excuse. We are very confident, okay, already the secondary market is in the loss. [Foreign Speech] And we are still in the comfort position. [Foreign Speech]
I think now the ball is in our court. Now we are going with the capital external support also. So we are very hopeful. If we can’t do it, so we have to rethink where is our structural problem, how can we remove and how can we go ahead. But right now, I can say one, I can give you an incidence. [Foreign Speech] We have no excuse. Thank you.
Lokesh Maru
Sir, just one counter to that, sorry. Sir, steel has fallen right now if our gap with this narrow, so why not front load that volume which we are forecasting later on? [Foreign Speech] That is an unknown scenario, right? So any thoughts around that if growth could be accelerated today rather than maybe Q4 or Q1? Please pardon my ignorance.
Sanjay Gupta
Lokesh, important things is we are going to first time do these type of volumes. Now we know about the market nature, because what type of way we have a full basket. [Foreign Speech] But right from September month, we are increasing volume. [Foreign Speech] How do we increase the volume? [Foreign Speech] We are still confused. [Foreign Speech] We can’t do anything. Now we reach the market. The problem is we are going to face. I am not worried about. [Foreign Speech] like in Maharashtra 30,000 tons per month volume. This month we are going to close the volume at 45,000 tons per ton. [Foreign Speech]
Number two, as a margin point-of-view, Dubai plant ramp-up, this month we are going to close to 16,000 tons. [Foreign Speech] So we are very hopefully quarter-on-quarter with 10% of growth and first year EBITDA INR4,000 to INR5,000, second phase may INR5,000 to INR6,000 [Foreign Speech].
Lokesh Maru
Understood. Understood.
Anubhav Gupta
And just to add to this, our East plants which we are setting up two plants, Siliguri and Gorakhpur, so that will also give us incremental market of around 1 million ton a year and that will also boost our volumes, which will contribute to the quarterly run-rate which Sanjayji just highlighted.
Now on your second question about the discounting in the second quarter for our customers, see, I mean, in the falling price scenario, the sentiment for the distributors, our channel partners also go to like pretty low levels and we have to compensate by — compensate with some additional discounts, right, to pull the volumes. And then it would be like first time in our own history that in a quarter when steel prices crashed by INR7,500 per ton and our sales volume increased in that quarter versus the previous quarter.
So the momentum, what we were seeing, we wanted to continue with that and we thought, okay, if we lead further by INR500 per ton, but that will keep the momentum going with our channel partners, we should go for it. So that was the conscious decision and decisive strategy, which we adopted and we went for it. And we knew that once — and we also had fair idea that prices will stabilize in September. Okay. So from October, we shall withdraw such discounts and there will be no need to continue with the pricing.
Lokesh Maru
So we have already rolled back the discounts. And this INR500 crores should flow through P&L.
Anubhav Gupta
That is right.
Lokesh Maru
Into our EBITDA.
Anubhav Gupta
That is right. And on your third question, competition on the steel heavy space, see, our philosophy here is the more the myriad, because we are the only ones who are promoting the tubular construction in the heavy construction if more strong players or strong brands come and pitch the same theme to the developers, to the contractors, to the structural engineers, to the architects, to the government, it will only expand the market in a bigger way. So everyone shall reap the benefits in long term.
Lokesh Maru
Sure, understood. Thanks, Anubhav. Thanks, Sanjayji.
Operator
Thank you. Our next question is from the line of Dhananjai Bagrodia from ASK Investments. Please go ahead.
Dhananjai Bagrodia
Happy Diwali, sir, and very good numbers in a tough economic environment. I just wanted to understand roughly we are expecting around INR170 crores was the inventory loss for this quarter.
Anubhav Gupta
It was INR2,000 per ton. So if you calculate, you shall come around INR1.5 billion.
Dhananjai Bagrodia
So, sir INR2,000 into INR250 because only one month inventory we keep, right?
Anubhav Gupta
Right. So normally the stock is around 280,000 to 300,000 ton on that the loss we would have booked around INR5,000 a ton.
Dhananjai Bagrodia
So loss would have been INR2,000 a ton.
Anubhav Gupta
Yeah.
Dhananjai Bagrodia
Okay. So effectively now [Technical Issues] what in terms of like…
Operator
Sorry to interrupt Mr. Dhananjai, if you can please repeat your question, your voice was not audible.
Dhananjai Bagrodia
Effectively for the second half, what OP per ton would we be targeting assuming now no more losses?
Anubhav Gupta
So we shall be going from INR4,000 to INR5,000 a tonne for the second half.
Dhananjai Bagrodia
Okay. So effectively, that’s right and volumes guidance is — would it be increased because our numbers have come higher in the first half?
Anubhav Gupta
Yes, I mean, if you sum up the guidance which Sanjayji just gave, right, quarterly volume, I’m sure you will see that the guidance seems to be a bit better.
Dhananjai Bagrodia
It would be above 3.23 million, 3.3 million, right?
Anubhav Gupta
That’s right. I think the main impact you will see for the FY ’26, right, because here the six months have already gone. But yes, we should be surpassing 3.2 million ton guidance if we do second half as we are saying.
Dhananjai Bagrodia
Thank you, sir.
Operator
Thank you. Our next question is from the line of Kunal Oji Ramani [Phonetic] from Kedaara Capital. Please go ahead.
Kunal Oji Ramani
My question has been answered. Thank you.
Operator
Thank you. Our next question is from the line of Anupam Gupta from IIFL Securities. Please go ahead. Sorry to interrupt, Mr, your voice is not audible.
Anupam Gupta
Can you hear me now?
Operator
Yes. If you can switch to your hand and three more — like to handset mode, that would be better, sir.
Anupam Gupta
Yeah. So can you hear me now? Is this better?
Operator
Yes, sir. It’s much better now. Yeah. Please go ahead.
Anupam Gupta
Yeah, okay. Okay. So the question was on the EBITDA per ton number which you have put in the PPT of INR5,000 for FY ’27 targeted. But just doing the math from your current number and assuming there are no inventory losses and you have this INR500 discount rolled back, plus there would be operating leverage, which will come through, ideally you should be INR5,000 per ton in the next two quarters itself in fourth-quarter itself in fact, assuming there are no further this thing. So are you assuming adverse mix incrementally because, let’s say, you’ll push out more of general structures given that the competition there is much lesser or how are you looking at that number specifically?
Anubhav Gupta
So, Anupam, if you heard Sanjayji, right, he said in first phase, our target is INR4,000 to INR5,000 a ton EBITDA and in second phase INR5,000 to INR6,000 per ton EBITDA, right. I mean, right now the EBITDA per ton has been so low for the last two, three quarter, right? If I — if we mentioned INR6,000 per ton on presentation, we just thought let’s be a bit conservative in highlighting the numbers. But yes, you are right that the business has the ability to produce INR6,000 per tonne EBITDA, which Sanjayji also highlighted.
Anupam Gupta
Understand. Okay. And the second question is on the utilization of the Raipur facility at this point of time. Last quarter, you mentioned it was close to about 60%. What is the number for second quarter?
Anubhav Gupta
Yeah.
Operator
Thank you. Our next question is from the line of Pallav Agarwal from Antique Stock Broking. Please go ahead.
Pallav Agarwal
Yeah, good evening, sir. I hope my line is clear.
Anubhav Gupta
So just to answer Anupam’s last question, see, in Raipur, there has been expansion in the capacity as well, right. So earlier it was 61%, but now on the expanded capacity, it is 53%.
Operator
Thank you, sir. Pallav, sir, you can please go ahead with your question.
Pallav Agarwal
Yeah. Good evening. Sir, I have a question on the new plant in Bangalore. I think on the last call, you had mentioned that there was a plant — the location was supposed to be in Ahmedabad. So has there been any change in our strategy in terms of geography?
Anubhav Gupta
So, Pallav, hi. We did decide to go for Ahmedabad initially, right, and then we evaluated the raw material availability, right, the market dynamics and existing plants, which are already feeding the Gujarat market, right. So we thought that existing plants can keep on feeding and in fact, there is a need for a plant in Southern market. So we changed that strategy. Anyways, we did not invest any money on land acquisition, etc. So it was withdrawable and we did withdraw that. Sanjayji, you want to add?
Sanjay Gupta
Yeah. Pallav, the main thing is that we now very hard work case now we’ve stabilized our ABTL and our Raipur capacity. And of these plants, our main market is Gujarat. Right now and in South region, now we are the sorting of lighter structure due to the patra market. [Foreign Speech]
Second thing is when we are going to from 5 million to 10 million tons target that we are [Foreign Speech] And so we dropped the Ahmedabad plant and right now we don’t want to disturb the Raipur facilities, because Raipur facility is big backbone [Foreign Speech].
Pallav Agarwal
Also, sir, so the reason for us turning into [indecipherable], net cash to debt again is because of the lower EBITDA this quarter, again the inventory build-up Raipur working capital.
Anubhav Gupta
So Pallav, here, there are two reasons. Of course, the profitability was low. So operating cash flow was very, very low compared to the other quarters. And secondly, we also went ahead with INR4 billion of capex in the first-half. So as you know that the capacities have increased from 3.6 million ton to 4.3 million ton. So some residual capex also we had to incur, which we did. So that’s why there is a slight buildup in the debt, but as the operating cash flows will normalize in the second half, it shall come down sharply.
Pallav Agarwal
So we still probably have a target of being net cash by the end of FY ’25. Is that a possibility?
Anubhav Gupta
Definitely, yes.
Pallav Agarwal
Sir just lastly, so given the difference in between domestic and import prices, now so did we — do we import any HRC in the last quarter because this INR6,000 to INR7,000 of decline in prices seems to be on a point-to-point basis because on average, the prices are probably low about INR3,000 to INR3,500 as per what stock prices we track. So were there any imports of HRC that happen either in Q1 or Q2?
Anubhav Gupta
Pallav, just one second. Pallav the import price earlier, like in India there are two type of imports. One is Japanese, Korean and Vietnam material, which are duty free. Ane is Chinese materials on which 8.25% duty is there. So the Japanese and Korean materials, [Foreign Speech] starting of the quarter. And now the last May $500 [Foreign Speech] now this material stabilized almost of $520, $525 per ton. So if you see the $80 decrease into INR84, almost close to INR7,000 per ton. In India was INR7,500 ton decline both are very correct. Indian market is going with the international market.
Pallav Agarwal
Okay. Okay, sir. Thank you so much.
Operator
Thank you. Our next question is from the line of Devvrat Mohta from Capital Group. Please go ahead.
Devvrat Mohta
Hi, Sanjayji. Thank you for taking my question. My question really was, if your mix-shift towards taking away more market share from patra. Does that become adverse for margins going forward? And really when you say margins are INR4,000 to INR5,000 in first phase and INR5,000 to INR6,000 in second phase, really, I mean, what time period are we talking about Phase 1, Phase 2?
Sanjay Gupta
Yes. Devvrat, 100% right point here., [Foreign Speech] why should I go to lose the market. [Foreign Speech] Maybe it’s come down to INR1,000 per ton. [Foreign Speech] So as problems are sitting with a of 4.5 million tons or I am provisioning 3 million tons. [Foreign Speech] So I don’t want to lose the premium there. [Foreign Speech] So I can lose my margin side, and I can capture the market share. [Foreign Speech].
Devvrat Mohta
Got it. So basically, our focus is on absolute EBITDA rather than EBITDA per ton. So how should we think about EBITDA going forward is absolute EBITDA going forward? [Foreign Speech]
Sanjay Gupta
[Foreign Speech].
Devvrat Mohta
Got it, thank you.
Operator
Thank you. Our next question is from the line of Sneha Talreja from Nuvama. Please go ahead.
Sneha Talreja
Hi, sir, and thanks a lot for the opportunity. Sir, just two confusions here. One is you said that you have discontinued the discount which were given, which was around INR500 a ton, which has been done in October starting, is that correct?
Anubhav Gupta
Sneha, this was on the overall portfolio, right. But if you go in the market, you may still see that we have discounts on the products which are directly competing with sponge iron steel pipes. Okay, but overall portfolio, the discount which came out to be INR500 because of destocking, because of sales force that we have rolled over. But on our general products, the discounts continued in month of October.
Sneha Talreja
And that is not the reason of your EBITDA per ton fall this particular quarter or how do we see EBITDA per ton impact because of that?
Anubhav Gupta
INR50-INR100 a ton.
Sneha Talreja
Sorry, how much?
Anubhav Gupta
INR50 to INR100 a ton in that whole.
Sneha Talreja
Understood. Secondly, one of the impact what I wanted to understand is last quarter you had mentioned the gap between patra and your primary steel prices for about INR2 to INR3 odd. This particular quarter you said it’s INR5 to INR6 odd plus there was a INR500 discount which you gave it on the overall basis. Despite these gaps increasing, what is the confidence that you have on 10% Q-on-Q growth is what I wanted to understand?
Anubhav Gupta
Sneha, one correction I said 5% gap. I didn’t say INR5,000 per ton gap. I said INR5,000, so INR5,000 on 5%, 5% on INR52,000 per tonne selling price absolute comes out to be INR2,500 a ton, INR3,000 a ton.
Sneha Talreja
Okay. My bad. Understood. Understood. Next thing I wanted to understand is how quickly can you actually ramp up your capacity once you achieve 5 million tons sort of a number in terms of capacity? Because earlier what I understand is you were trying to ramp up your Raipur capacity itself, later you decided to get into various other markets. So I think that particular area would help in understanding.
Sanjay Gupta
[Foreign Speech] We have some left on the bigger sectors and the bigger pipes. [Foreign Speech] We have utilized all the capacities. [Foreign Speech] After that 4.5 million ton, we had a plant in Siliguri for 2 lakh ton. [Foreign Speech] 1 lakh ton market for Rorakhpur and 2 lakh ton market for Bangalore, the South is lighter structured market. [Foreign Speech]
Sneha Talreja
Understood, sir. Thanks. Thanks a lot for the opportunity and all the very best team and Happy Diwali.
Sanjay Gupta
Same to you. Thank you.
Operator
Thank you. Our next question is from the line of Aditya Welekar from Axis Securities. Please go ahead.
Aditya Welekar
Yeah, thanks for the opportunity. Anubhav, just a few points which I’ve missed. So you said 53% capacity utilization on Raipur plant on expanded capacity. So what is that expanded capacity now? And residual capex guidance for ’25 and for ’26?
Anubhav Gupta
Right. So last quarter the rated capacity was 1.1 million ton. Now it is 1.2 million ton, okay. So there has been addition by 110,000 ton to be precise in the capacity and if you calculate the volume, it was kind of unchanged on a Q-o-Q basis.
Aditya Welekar
Okay. And on capex guidance for ’25 and ’26.
Anubhav Gupta
So capex, we have around the INR3.0 billion to INR3.5 billion of residual capex, which we shall spend over the next six to seven months and we shall reach INR5.0 million ton capacity.
Aditya Welekar
Understood. And one question on this value-added product share, means it is 55% and that percentage is almost flat year-over-year. So what is the function of that value-added product share in our EBITDA per ton increase? Means, do we see any case where we can — we have the flexibility to increase the value-added product share and reduce our general product share because in this quarter, we have incurred losses on EBITDA per ton basis on general product? So in that scenario is that — market is developed or is there a sufficient market for pushing volumes for value-added products?
Anubhav Gupta
Aditya, please understand that the EBITDA loss in general category is not because of our pricing, but because of INR2,000 per ton inventory loss which we booked for the whole company, right. So if I remove inventory loss, it was pretty much profitable product, right. And there is no strategy to lower the volume from general products because the opportunity which has come in front of us with the decline in the sponge iron steel pipes, we have almost 500,000 ton of new incremental monthly market, right, which we can target and very, very aggressively. We have the capacities, right, we have the distribution network, right. It’s one of the most fast-moving products. So here, the inventory churns are even higher, right. In this segment, inventory churn touches almost 20 times in a year, right.
So on EBITDA per ton basis, you may see it being dilutive, but on ROC basis, this is like super, super accretive, right. And we are not going to leave any stone unturned to grab the market from sponge steel pipes, which got opened up over the last three, four months. Because it is not ROC dilutive, it is highly, highly ROC accretive.
Aditya Welekar
Understood, Anubhav. Thanks a lot.
Anubhav Gupta
Thanks.
Operator
Thank you. Our next question is from the line of Bhavin Pande from Athena Investments. Please go ahead.
Bhavin Pande
Am I audible?
Operator
Yes, Bhavin, please go ahead.
Bhavin Pande
Yeah, sure. So I just wanted to draw your attention to Slide 23 on the opportunity in solars, if you could just quantify the size of the opportunity? And second, you could touch upon if products in this particular offering are fungible and could be used across segments.
Anubhav Gupta
So see I mean the products are not fungible, the target if you look at the opportunity, right, in the area of residential rooftop, right, there our lighter structurals will be used, right. Now for ground-mounted, one is still, so there our aluminium sheet and thicker color-coated sheet will get used, right. And for tracker, again, we have specialized tubes, which can only be used in solar trackers, right. So these capacities are not fungible. So we have introduced the products specifically for each area.
Bhavin Pande
Okay. And Anubhav what would be the mix of exports and domestic revenue?
Anubhav Gupta
So if you look at our Dubai sales, right, that is our international sales.
Bhavin Pande
Okay. Okay, got it.
Operator
Thank you. Our next question is from the line of Bharat Shah from ASK Investment Managers. Please go ahead.
Bharat Shah
Yeah, I just wanted to ask one question. Out of the other expenses, which are booked per ton, so which was about INR4,400 odd in the first quarter, a little over INR4,000 in the second quarter. How much conceptually is likely to be fixed-cost and how much is kind of variable linked to the output? In other words, as we ramp up the sales, what kind of operating leverage I can expect to see on roughly 1 million ton — sorry, 1 Lakh extra kind of ton per quarter ramp-up that we are talking about? Just to get a bit more clarity on that.
Anubhav Gupta
So Bharat bhai see in fixed-cost, our primary is employee cost, right, which right now is INR1,050 a ton. Okay, I’m excluding these…
Bharat Shah
[Technical Issues] is about INR1,100 a ton, INR1,000 to INR1,100 I am talking about other expenses.
Anubhav Gupta
Bharat bhai your voice is cracking.
Bharat Shah
I’m saying the manpower cost is about INR1,000 to INR1,100 per ton in each of these two quarters. That I’ve seen. I’m saying the other expense, which goes up INR4,400 a ton in the first quarter and roughly INR4,000 in the second quarter. So what kind of operating leverage one can see? In other words, how much normatively is the fixed element of the cost broadly? I mean it did not be very precise and how much is likely to be the variable part?
Anubhav Gupta
So Bharat bhai, like I was saying, see, I mean, in fixed-cost, there are three main components, right. One is employee cost, salary. Second is the head office expenses and third is the branding expenses. Now in the variable-cost, which are number one, power. Number two, consumables. Number three, steel wastage. And number four, the freight cost, right, apart — And if you look at the operating leverage, which we can get right from the employee cost, from the head office expenses and the seasonal expenses, almost INR500 to INR600 per ton operating leverage we can get. If we keep on producing 300,000 ton of steel pipe every month.
Bharat Shah
Okay. And on the variable part also, we have a program to save the cost in each of the areas. So roughly what kind of improvement over in the next one and two years we expect to see on the variable part of the cost?
Anubhav Gupta
Variable, the power cost has some potential to go down because we are investing in renewable energy, right. So that helps us reduce the cost. And secondly on freight cost also, every day we keep on improving efficiencies from the plant dispatch to the end-market so that we can optimize the freight cost. And after opening or commencement of Siliguri and Gorakhpur plants, definitely the freight cost to Eastern markets will come down. Sanjayji do you want to add?
Sanjay Gupta
Yeah. Bharat bhai, one thing is very clear. Right now, we are sitting with the expenses of close to 4.5 million ton. [Foreign Speech] One part is when we run the mills then cost comes. [Foreign Speech] But all the charges we have to pay for 4,000 KVA. So if you see the total of INR2,000 of fixed-cost comes close to INR2,000 per ton, which was manpower, power, fixed power. [Foreign Speech].
So we are not required to send the materials to Pune market. [Foreign Speech].
Operator
[Operator Instructions] Our next question is from the line of Sailesh Raja from B&K Securities. Please go ahead.
Sailesh Raja
Thanks for the opportunity. Sir, how is the current capex trend seen in the government infra projects like metro, railway stations, airports, then water infrastructure project like steelwater tanks, which you were referring two, three quarters back? So today, what is our total volume from these sector and what is the total — overall contribution is coming from government infra projects?
Anubhav Gupta
So, around 20.5% of our sales come from the infrastructure project, right, I mean, last few months have been pretty slow, right, because of elections and new government formation and delayed budgets and then monsoons, right. Now in the month of October, we have seen the pickup, right. But we have been working on these projects for last one, one and a half years in terms of the approvals and our tubular design, right. So we are seeing — we have started to see a good traction from October onwards and this momentum should continue throughout FY ’25 and FY ’26.
Sailesh Raja
Is it back to pre-election period?
Anubhav Gupta
Not yet because now North India again will see construction slowdown because of the pollution, elevated pollution levels, right. So we believe that Jan, Feb, March. I mean last quarter we shall see the pre-election levels momentum.
Sailesh Raja
Okay, thank you.
Operator
Thank you. Our next question is from the line of Vikash Singh from PhillipCapital. Please go ahead.
Vikash Singh
Hi, sir. Thank you for the opportunity. Sir, just wanted to understand one thing that the competition is also getting into the segments which previously was dominated by you only with basically you are the only player. At the same time, you are actually selling more of a low grade products. So in this context and given a lot of HRC capacity coming, so competition would also get some benefits of the bulk buying. How do we expect that our blended EBITDA would still be growing to INR5,000 to INR6,000 level given our value-added would also come under pressure?
Sanjay Gupta
Good evening, Vikash. Vikash what competition are doing we don’t bother because we have our own branding, we have our own distribution network. We have our own expertise on the costing part. Number three, market is also expanding. [Foreign Speech] But we don’t think there is any serious in our segment. [Foreign Speech] We are creator. [Foreign Speech] We are doing lots of small, small, small things. You can see the volume of the market, we can’t describe on the phone. [Foreign Speech]
Vikash Singh
Understood, sir. Sir, just one small clarification. I know the inventory loss point had been said too much, but we had a similar situation in Q3 FY ’23 when the export duty led to almost INR10,000 price correction. Even then we have managed the EBITDA per ton reduction of only INR700, while this time was almost INR2,400. So are we setting up some extra inventory HRC pipes this time or I’m reading the situation differently?
Sanjay Gupta
So that time, I don’t remember, but I think that time we compromised with the volume.
Vikash Singh
[Foreign Speech] The volume was also good actually.
Sanjay Gupta
[Foreign Speech] Without seeing the facts, I don’t want to comment anything.
Vikash Singh
Understood, sir. I’ll take it offline from Abhinav. Yeah. That’s all from my side. Thank you and Happy Diwali to you.
Sanjay Gupta
Thank you.
Operator
Thank you. Next is a follow-up question from the line of Bharat Shah from ASK Investment Managers. Please go ahead.
Bharat Shah
Sorry, Sanjayji, my line drop off. [Foreign Speech] There is an effective scope for saving, plus part of the variable cost like powers where there is some level of semi variability of that. [Foreign Speech]
Sanjay Gupta
Yes, sir. [Foreign Speech]
Bharat Shah
[Foreign Speech]
Sanjay Gupta
[Foreign Speech]
Bharat Shah
[Foreign Speech]
Sanjay Gupta
[Foreign Speech] So we ship the material from Hosur to Hyderabad or Pune or Ahmedabad, whatever demands are there. [Foreign Speech].
Bharat Shah
So Sanjayji, will it be fair to say we finally are at a point where all that we needed or all that we have desired in market conditions is what we have got today? In other words, on the value-added component, realization steadily should improve. On the raw material side, we now have stable conditions and favorable one where we can at a lower end expand the volumes. On the fixed asset — fixed-cost side, we will have operating leverage benefit to save and to gain. And on the variable, our efficiency and cost-saving programs will result in some reduction. And all of that combined with opportunity in the global arena where overall, I would say that there should not be any reason now going ahead for APL Apollo not to be right at the top and shining. Otherwise, it will require a lot of introspection within as to why with all the favourable factors I would say there is now no scope for any analytics. It is only the numbers.
Sanjay Gupta
[Foreign Speech] Everything is in our favor. [Foreign Speech] This is a worry point for us and we have to rethink about the whole system and the whole spectrum why we couldn’t do it. [Foreign Speech] Right now I can say both boldly and loudly I have no excuse to deliver the number. [Foreign Speech] And we are working too hard. [Foreign Speech] we come with the reason. [Foreign Speech] But today I can say boldly and loudly again we don’t have any reason but to perform. [Foreign Speech].
Bharat Shah
No, no. I do know that and I do understand. Sanjayji, Happy Diwali to you and the entire APL Apollo team, including the three other members on the call. Shubh Dipavli wishes to all of you.
Sanjay Gupta
Thank you, Bharat bhai and same to you. And all the listeners, Happy Diwali.
Operator
Thank you. Our next question is from the line of Onkar Ghugardare from Shree Investments. Please go ahead.
Onkar Ghugardare
You mentioned that because of the price differential in the sponge steel market, you are — you will be able to garner the additional market. So what exactly — what exact steps are you taking in order to garner that market, which has been vacated?
Anubhav Gupta
Which market are you about which market are you talking about?
Onkar Ghugardare
The sponge steel market just now you mentioned. So you said that you will be capturing volumes from that market, right, because of the price differential.
Anubhav Gupta
Correct.
Onkar Ghugardare
So what exact steps are you taking in order to garner that market share?
Anubhav Gupta
See, I mean, it has become a pool market, right? If we have the product, right, and if we are able to service our distributors well, the sales will go up automatically, right, because the end user, whether the fabricator or contractor or a house owner, if he’s getting HR coil quality steel pipe at the same price or maybe at a price gap of 5%. So he’s going to ask for APL Apollo steel pipe, right. And my product has just to be available at my distributor counter so that he can service his retailers, his fabricators efficiently and sales will go up on their own.
Onkar Ghugardare
Okay. Just a small question is that how has been the month of October so far as we are already at the end of October?
Sanjay Gupta
We are right on target.
Onkar Ghugardare
So whatever you mentioned right now that you will be gaining momentum in each of the segments, I mean the revenue, the volume and EBITDA, everything. Do you think you are on target?
Sanjay Gupta
I got the EBITDA right now. And right now I know about the volume. [Foreign Speech] But the volumes are right on target. [Foreign Speech]
Onkar Ghugardare
Okay. So you are right on the track for whatever you have guided sofar.
Sanjay Gupta
Yeah.
Onkar Ghugardare
All right. Thank you.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Anubhav Gupta
Thanks, YES Bank for hosting us, and thanks to all the participants. And I wish everyone Happy Diwali on behalf of APL Apollo team. Thank you so much.
Operator
[Operator Closing Remarks]