APL Apollo Tubes Limited (APLAPOLLO) Q2 FY23 Earnings Concall Transcript

APL Apollo Tubes Limited (NSE:APLAPOLLO) Q2 FY23 Earnings Concall dated Nov. 09, 2022

Corporate Participants:

Mr. Sanjay Gupta — Chairman and Managing Director

Mr. Arun Agrawal — Chief Operating Officer

Mr. AnubhavGupta — Chief Strategy Officer

Mr. Deepak Goel — Chief Financial Officer

Analysts:

Sumant kumar — Motilal Oswal Financial Services Ltd — Analyst

Rahul Agrawal — InCred Capital — Analyst

Sujit Jain — ASK Investments — Analyst

Bhadresh Maniyar — ALB Stock Broking — Analyst

Bharat Shah — ASK Investment — Analyst

Pankaj — Kotak Mutual Fund — Analyst

lavanya — ALB Stock Broking — Analyst

Aditya Velkar — Axis Securities — Analyst

Kunal Kothari — Centrum Broking — Analyst

Akash — Canada Robeco Mutual Fund — Analyst

Paul Vaal — Anti-stack — Analyst

Rahul Jain — Systematics — Analyst

Abhishek Ghosh — DSP — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to APL Apollo Q2 FY ’20 Conference Call. [Operator Instructions]. I now hand the conference over to Mr. Sumant Kumar. Thank you, and over to you.

Sumant kumar — Motilal Oswal Financial Services Ltd — Analyst

Thank you. Good afternoon, everyone. — and we all welcome to APL Apollo, Limited 2Q FY ’23 Post-Results Earnings Call, hosted by Motilal Oswal Final Services Limited. On the call today, we have management team being represented by Mr. Sanjay Gupta, Chairman and Managing Director; Mr. Deepak Goel, Chief Financial Officer; Mr. Arun Agrawal, Chief Operating Officer; Mr. Anubhav Gupta, Chief Strategy Officer, will begin the call with key thoughts from the management team. Thereafter, we’ll open the floor for Q&A. I would now like to request the management to share their perspective on the performance of the company. Thank you, and over to you.

Mr. Sanjay Gupta — Chairman and Managing Director

Thanks, Sumant, and thanks, Mike, — it’s a pleasure to be here and talk about our Q2 FY ’23 results. So the quarter which went by, in terms of volume, it was pretty exceptional with all-time high sales of six lakh 2,000 tonnes of volume. We are glad to share that we almost hedged our peak capacity in September month with the volume of 23,000 tonnes. Again, this shows that the capacities what we had put up over two, three years, they are near to the deutilization levels. And this number is more important because the distributors were still under destocking mode. — as steel prices had not bottomed out.

We believe prices shall plateau over the next two to three months, and we only see restocking happening with distributors post Q3 December month. There is some disappointment in terms of margins as the EBITDA spreads were under pressure, it was basically because of three reasons. What we — one was the weak sales mix as the commoditized sales contributed 45% to the overall volume versus 35% to 40% what we have seen historically. This sales — the sales were important because the markets had just opened up after the sharp ton in steel prices. So we also wanted to gain market share, and we went pretty aggressive only sales and offered some extra sweeteners discounts to our clients.

And also, if you see the contribution from Raipur has started in terms of volumes of margins in terms of profitability, we are just at the breakeven level. So as the volume starts ramping up from October, November month, we’ll see the contribution to EBITDA also coming up significantly. Without Raipur or without new Rifle plant, the EBITDA spread near about INR4,000 per tonne. When we compare our margin performance and sales performance with the other companies in the building materials sector and value-added businesses of steel companies, we believe our performance was pretty satisfactory.

Our partnership with Shankara has proven to be fruitful in the last six months. We finished the deal in the first quarter. And again, we are glad to share that the first half sales with Shankar on Y-o-Y basis. This suggests that the ROI on that investment is pretty much on expected lines, and it will match our business ROCE of 30% plus. The operating cash flows in the first half, again were super strong with OCF forming 110% of the first — we could improve working capital slightly as we liquidated inventory as the volume — sales volume were all-time high at six lakh 2,000 tonnes. This operating cash flow of INR400 crores were utilized for Raipur capex and some other capex which we are incurring. And then there was a dividend payment of around INR100 crores. That led to marginal increase in debt INR200 crores.

But these debt levels will come down as the Raipur capex is near completion. — and the operating cash flows, which will be generated, they will help us reduce our debt over the next three to four months. The Raipur plant is pretty much on track, as you can see that over the last two, three quarters, there has been an increase in the volume coming up, but substantial increase we will start seeing from month of November, December. And Q4, there should be pretty much all the lines will be commissioned and the plant will show its cool color from Q4 onwards. And our whole team is working the night to ensure that all the lines are commissioned on time.

And at the same time, all the products are innovative there. So — so the teams are also working to create the market for those products. And the results, whatever have come up, they are pretty much encouraging. Lastly, I would like to say that as we ride through this tough wave of global uncertainty and inflationary environment, our laser sharp focus remains on the innovation, market creation and — we have ensured that most of our new products, which are starting, whether in Raipur or other plants in APL Apollo are 100% innovative, and they are being launched in India or globally for the first time ever.

So our efforts towards market creation are at the same pace, so that the volume ramp-up from these new capacities can be pretty quick and fast. All in all, our long-term volume target of four million tonnes by FY ’25 remains intact, which suggests a 30% volume CAGR from FY ’22 to FY ’25, — and this will be much higher than what the group has achieved over the last four, five years in terms of volume — on the ESG front, we committed to reduce Scope one and two emissions per tonne by 25% by 2030.

And more than 50% of our power consumption will be met through renewable energy by 2030 — so our efforts on the ESG front are also encouraging, and we continue to ensure that all the goals of the company are aligned with the ESG calls in the coming years. All these efforts towards ESG are in addition of — or in addition to 250,000 trees, which we save by manufacturing, environmental sent products like chocolates and window frames, etc. So as a group, we are pretty much committed to ensure that our ESG goals are met in an aggressive manner. That’s it from our side, mic, we can open the floor for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] we did the first question from the line of Rahul Agrawal from InCred Capital.Please go ahead

Rahul Agrawal — InCred Capital — Analyst

Yes. Hi.Thank you so much, and good evening, everybody. Just two questions. Firstly, on ARPU. Just wanted to know the status of capacity addition and ramp-up. You alluded some bit of it in your commentary. If you could quantify, I mean, what kind of sales volume are we looking at in second half and more so for fourth quarter — and will the entire 1.5 million tonnes be ready by March? Thanks,

Mr. Sanjay Gupta — Chairman and Managing Director

Yes, Hello. Our ARPU plans, we are talking this is Q3 is almost we are going to close about 70,000 to 75,000 tonnes — and Q4, we are targeting for one lakh ton with some of our machines from China, and there is no the persons are allowed to come from sale to India. So some bottlenecking still, we are getting from the government should allow to give the tines to Visa — so we are not so — maybe we delayed by some one or two or three months, we are trying our level best to start with machines by online process. Next year, we are targeting in rapid plant almost close to six to seven lakh tonnes. And in the next three, 24, we are targeting a target of one million tonnes. And 1.5 going to 15 million tonnes, we have some — again, some bottlenecking, we have to order some machines. We are still waiting to first, we ramp up this one million tonnes, then we go for the 1.5 million tonnes.

Rahul Agrawal — InCred Capital — Analyst

Got it, Sanjay. And as one more question on pricing of a — what is the gap between primary and secondary steel. I mean, the Patra right now, how are they different from international pricing? And any outlook you could provide what’s really happening on the termarket? That’s all from my side in

Mr. Sanjay Gupta — Chairman and Managing Director

Round today, the interest market is close to landed CFR, Mumbai or Chennai, it’s close to 540, 550 — and Indian steel prices are close to 54, 55 — and Papa is still trading on around 50,000 — this key Ocado this is hurting us. What is this is in our favor. And we are thinking if praying in the industrial market, the price are bottomed out because the coal prices are very high. the cost of steel process very high. So we are looking in maybe there is a slight decrease in the steel prices in India in the next one or two months. And then the price set out of maybe in the teens market go up maybe there is no price fall in India. So we are in the middle of the situation in this time, what time you can say earlier to the product, we can’t comment and we can’t forecast anything — but the better way — we maintain ourselves very light Jalaa we don’t help at Bauer me. So we are trying to maintain a very light.

Rahul Agrawal — InCred Capital — Analyst

Got it, sir. And lastly, I have one question for you. I mean, the discounts and schemes offered to gain market share in that should go off again in third and fourth quarter. So the EBITDA per tonne should improve significantly. Is that understanding correct?

Mr. Sanjay Gupta — Chairman and Managing Director

On EBITDA per ton, we are targeting for — earlier, our business plan is 22 to 23 lakh ton of total year volume — for the volume, we are very sure we cross 22 lakh tons. Italy. Now we are looking this is a cakewalk for us. On the margin side, maybe slightly I think right now, we are in the pressure. But we’re looking — we can maintain around EBITDA margin of 5,000 be back on track. — at earlier or an asset plans go to INR6,000. This year, we are not looking to this as possible. This year, now we are targeting in the second half if we tie the INR5,000 section.

Rahul Agrawal — InCred Capital — Analyst

Got it, Thank you so much for answering my question.

Operator

Thank you, We have the next question from the line of Sujit Jain from ASK Investments. Please go ahead.

Sujit Jain — ASK Investments — Analyst

Thank you, you mentioned that LIBOR costs came in. So if I look at the OP base, which you’ve given in the presentation, Slide 19, Raipur costs are at INR10 crores. If I add that divide that by 6.0 to your volume, then that can add back only about INR170 a tonne in terms of OP, whereas your commentary was that because of those costs — of those costs would have been at INR4,000 a tonne.

Mr. Sanjay Gupta — Chairman and Managing Director

So Sujit, if you see in quarter two, Rasor, the EBITDA has been shown at Okay. In Q4, Q1, there was some operating profit. But in Q2, as the plant and machineries are ramping up and commissioning sort of high labor costs. And obviously, there was some inventory, which we have to keep as the plant is ramping up. So there were some minor write-downs also on there. So that’s why it is at 0 EBITDA level.

Sujit Jain — ASK Investments — Analyst

Maybe I will take this offline. And to Sanjay ji, if I heard it correctly, Raipur plant to contribute six to seven lakh tonnes in FY ’24 and about one million tonnes in FY ’25. And then $1.5 million in FY ’26. Is that correct?

Mr. Sanjay Gupta — Chairman and Managing Director

Yes, yes.

Sujit Jain — ASK Investments — Analyst

Okay. And INR5,000 a tonne per tonne on track. This commentary is for full year FY ’23?

Mr. Sanjay Gupta — Chairman and Managing Director

No, no, no For the second half.

Sujit Jain — ASK Investments — Analyst

For the second of INR5,000 a tonne,

Mr. Sanjay Gupta — Chairman and Managing Director

About maybe 20 or, INR300 tell minus or plus we can’t say right now amounts, but we are looking to — we can manage it around INR5,000. So — so get in the first half, we did from INR4,000 to INR4,500, right? If you take two quarters separately, — in second half, we are targeting from INR4,500 to INR5,000 per tonne. So for the full year, the blended should be above INR4,500

Sujit Jain — ASK Investments — Analyst

Right. And this commentary, Chinese people could not travel to India and visit the plant. What exactly we are taking in Raipur plant from China?

Mr. Sanjay Gupta — Chairman and Managing Director

Our 500 square miles from China, mainly this middle is struggling. And one of two small, small things we are spending, but this is not a big matter. But our 50 square, which is our main capital basket, we are aggressively waiting for this mill. And due to Chinese are not coming to India. So we are certainly ramp up this mill.

Sujit Jain — ASK Investments — Analyst

Sure. And one last question. In the initial days of selling this Raipur production, Q3, Q4, 75,000 and one lakh tonnes — would that be centered on direct sales to large clients or this would be through distributors.

Mr. Sanjay Gupta — Chairman and Managing Director

Uterine mainly — so the channels will remain same, okay? Barring some projects, which we get directly. But 70% of sales will flow through the same existing sales channel.

Sujit Jain — ASK Investments — Analyst

Okay. And finally, April apo TriCoat volumes now will go in light structure and Apollo structures. — segmentation that you gave, right?

Mr. Sanjay Gupta — Chairman and Managing Director

That’s right.

Sujit Jain — ASK Investments — Analyst

It will not be mentioned separately.

Mr. Sanjay Gupta — Chairman and Managing Director

That is right.

Sujit Jain — ASK Investments — Analyst

Ok, Thank you. You’re the best.

Operator

Thank you, We have the next question from the line of Bhadresh Maniyar from ALB Stock Broking. Please go ahead.

Bhadresh Maniyar — ALB Stock Broking — Analyst

Sir, I had a question on what are we planning advertising and promotional expenses, since you’re planning an aggressive increase in volumes. So what is it currently as a percentage of sales? And what are we planning to spend going ahead?

Mr. Sanjay Gupta — Chairman and Managing Director

So Badresh, right now, it is around in the range of INR eight crores to INR10 crores per quarter, okay? And this is still very low versus what we did in the year one of FY ’20 when we had launched the a campaign and we did INR50 crores, right? So we’ve been able to efficiently rationalize the brand expenses from INR50 crores to around INR25 crores to INR30 crores annual range. right? And the visibility is same because first year, we started with bank and then second, third year, we are taking help of more efficient and more cheaper medium, like like holdings or social media. So I guess, I guess, for the time being, we are okay with INR30 crore kind of annual run rate.

Bhadresh Maniyar — ALB Stock Broking — Analyst

And

Mr. Sanjay Gupta — Chairman and Managing Director

Next year, there could be a slight increase as, of course, the Raipur products are coming online, the expenses to promote those products will be there. But then the volume uptick is also there, right? So on EBITDA per ton basis, it should be around INR200 per tonne maximum.

Bhadresh Maniyar — ALB Stock Broking — Analyst

Okay. Okay. The other

Mr. Sanjay Gupta — Chairman and Managing Director

Right?

Bhadresh Maniyar — ALB Stock Broking — Analyst

Okay, yes. Okay. Fair enough. Sir, just wanted to also understand, given that the Raipur facility will be coming out with products which are relatively new in the market, — so how do you see this acceptability — like are you in your current interactions with builders or architects how’s the traction or acceptability of these products, how do you feel that’s going to play out?

Mr. AnubhavGupta — Chief Strategy Officer

Below started this exercise already like eight, nine months ago, okay? Obviously, because of video, there has been a delay in the Life capacity ramp-up. But our earlier plan suggested that the plant should be ready between like — or by mid of 2022 calendar year, right? So our marketing plans, we had started already last year and in Jan-Feb for this calendar year. And so there are like two, three types of promotions or market education, what we are doing here. One is — so we have identified the influencers, okay, who are going to promote our products. So one influencer is the fabricator who will sell our product in retail, right? So that data we already had from last six, seven years because we were very aggressive in organizing fabricator needs and and doing direct communication with them, right?

So we have reactivated that fabricator meeting on a large scale across India. — where our teams are on ground and they are meeting fabricators one-on-one. They are doing triband of stuff where they are are trying to assemble 20, three fabricators at one place. And we are also doing mega trabogator meats where 100,10rgigators come and we tell them about our product, right? So one part is fabricator. Second part is architecture and structure consultants who are more smart and more polished audience, right? So there also, we are doing one-on-one so we are organizing a lot of seminars where we are trying to educate them about products, for example, Paracatu, sickest and heavy stuck tubes, right?

A lot of seminars. It’s all on our social media or due to channel, you can go and have a look that we would have — we would be doing at least one minor one exhibition per week, that’s been the run rate for the last four, five months now. So that way, the promotional activities are going on. And then thirdly, our distributors and retailers that also keep on meeting them and educating them about our products and innovative products. So that activity is ongoing. And that’s why like Sanjay ji, just a few seconds that said that we are eagerly waiting to start our 500 square mile because we know that we have been able to create market for that product right? And the moment he will start. So we will have a lot of orders in flow coming in. And we hope that — I mean, the mill capacity gets booked so poly.

Bhadresh Maniyar — ALB Stock Broking — Analyst

Sure.Sir, just final question. So with this large diameter pipes, will this cater more to the institutional segment with the share of B2G — or will that go up in our mix or we don’t really expect that to happen.

Mr. AnubhavGupta — Chief Strategy Officer

Not really because — see, I mean, — when we are creating the market, of course, we have to talk to the government agency who undertake the project or we talk to the contractors who are doing the project or we talk to the real estate developers who are doing the projects. But then the sales happen through our distributors, okay? The OEM business, which currently is 5% of the total sales. I don’t think it should go up significantly. And anyway, if there is any direct sales, whether B2G or B2B, we are not going to compromise on the payment terms, okay? You can check with our — I mean, clients like last year, we executed last financial year, executed this hostile project in Delhi. — and the payment terms are same as — which is like on cash, okay? Payment first year to deposit advance, then we won’t deliver even one ton of pie. — without money coming into our accounts. So that model continues, okay? The OEM sales, I don’t think it should go beyond 7%, 8% of our total volume.

Bhadresh Maniyar — ALB Stock Broking — Analyst

Yes, Thank you, That’s it for me.

Operator

Thank you, [Operator Instructions] We have the next question from the line of Bharat Shah from ASK Investment. Please go ahead.

Bharat Shah — ASK Investment — Analyst

Yes, [ Indecipherable]I heard of the conversation, but I still could not fully understand that what we were looking at almost about INR6,000 a tonne, we end up at INR3,850 orderabout. I mean what are the various sources to which such sharp reduction has occurred in the final number. If you can help in reconciling then it will be easier to comprehend what has happened?

Mr. Sanjay Gupta — Chairman and Managing Director

Is not what is the reason — the bile this margin can come down 6,000 which we are targeting to INR400 to One is or the committee parties Margala, this comes apace to given the volume, we have to sell more — number two, rapid, are covering a shuttle now Olga. We certainly buy Gasmar, INR8,000 78,000 business a Kamala business will improve a plant Tamarac. This regenesis this tracking system with Terrata. Tuskegee almost we see at the first of the steel prices are almost close to INR74,000 tonnes. And we are closing — close to our price this September, INR54,000 per ton. So from the slide from INR74,000 to 54,000, everybody want to destock the material. So when we have to sell the material, we have to push the material. These are the main three results to to 6,000 is our vision. This is not tactical. — we INR6,000. But as a promoter level as a Chairman level, I can’t take the easy target. Mera target to a [Indecipherable] so I am not a promoter. I make a target as to feel we tatargetoata. So it took us target a tough hard Samara Raipur plant Dilya, Kuchamara community product Casale destocking can impact tire. This is the four main reasons you can say a net

Bharat Shah — ASK Investment — Analyst

Yes. IIs the team has put it commodity sales, destocking and dry plants tail. In the rapid platform, sir?

Mr. Sanjay Gupta — Chairman and Managing Director

So on the target we — we made the target aggressive target.

Bharat Shah — ASK Investment — Analyst

Okay.

Mr. AnubhavGupta — Chief Strategy Officer

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Mr. Sanjay Gupta — Chairman and Managing Director

May Bespoking the it on an average per tonne may 50% is a matter destocking at and 25% a to plant has 20%, 25% [Foreign Speech]

Bharat Shah — ASK Investment — Analyst

So purchase present the impact, it is destocking

Mr. Sanjay Gupta — Chairman and Managing Director

74 to 54 prices higher.

Bharat Shah — ASK Investment — Analyst

Yes,

Mr. Sanjay Gupta — Chairman and Managing Director

Like diagnose.

Mr. AnubhavGupta — Chief Strategy Officer

My sums are — so a catastrophe to Asia, parts person on Ginde, air, Cazenave, it ended kind of breakeven — and impact code

Mr. Deepak Goel — Chief Financial Officer

Management are target back Committee 50% age. The stock is not imagine community. Coke material barometer

Bharat Shah — ASK Investment — Analyst

What about city destocking of the Toba Pantesas Motoman

Mr. Deepak Goel — Chief Financial Officer

Bara Paid INR5,500 cash for too.

Bharat Shah — ASK Investment — Analyst

Okay. — so the Yes, to September, the [Indecipherable]

Mr. Sanjay Gupta — Chairman and Managing Director

Boris technically the Kuga. [Indecipherable] And Could happen exports be on the copy but his day. It exposed in the comp. But as I expose retailing our branding or benefits of Milan. — one depot margin and Pega. Kukama is appear focus a Titan volume of get correct margin to open. I’m not worried about the market next quarter, multiple office today by market series was format not very more for margin at that one. So I’m not worried about this margins to the copies, 55%, 60% gas market as shareholder Parago’s very easy to increase the margin.

Bharat Shah — ASK Investment — Analyst

So are we to destocking or price to repeat sticky prices repeat moment. So now can we say the picture is more normal now

Mr. Sanjay Gupta — Chairman and Managing Director

I think two, three picture would be over

Bharat Shah — ASK Investment — Analyst

Q3 tactical

Mr. Sanjay Gupta — Chairman and Managing Director

Calorie.

Bharat Shah — ASK Investment — Analyst

Matter may motor motor was some upon

Mr. Sanjay Gupta — Chairman and Managing Director

But catamarans, a tower we have done well. [Indecipherable]

Bharat Shah — ASK Investment — Analyst

Sandy impact will be low. I mean

Mr. Sanjay Gupta — Chairman and Managing Director

Of course, have impacted me loan. [Indecipherable] e are peelipact of Puskaric decreasing our price is any less now. It’s a memo heavy impact

Bharat Shah — ASK Investment — Analyst

If I have to read between the line three Raposecond half coarse per ton the Gideon charge we footers.

Mr. Sanjay Gupta — Chairman and Managing Director

Yes, Meritor back to at latter I mean which is a set the market it.

Bharat Shah — ASK Investment — Analyst

It is unlike Sanjai

Mr. Sanjay Gupta — Chairman and Managing Director

Tea — on this call, I see factors in the mascara. I don’t want to misguide anybody — so as a bolt-on for site better than Bakar. — this call, I’m talking slightly connected.

Bharat Shah — ASK Investment — Analyst

Okay. So if I had to summarize, Joe destocking of inventory movement impact would abate motor motor, that sector is behind us after this quarter. Secondly, Raipur Valla plant Joana term impacting

Mr. Sanjay Gupta — Chairman and Managing Director

Last word, we have done 15,000 tonnes from app — this month, we are targeting 25,000 tonnes, and that’s month we are targeting 25,000 tonnes. And January, of course, we are targeting 50,000 at least.

Bharat Shah — ASK Investment — Analyst

So Masa Baara Bahco under recovery Cartika, most of Nikel should be normalizing.

Mr. Sanjay Gupta — Chairman and Managing Director

Yes. yearly margin part cap contracts made carriers have considered, I believe in the cash profit the Capital Kairos, who my consumer tell you to be a doable to don’t go further capitalize.

Bharat Shah — ASK Investment — Analyst

Okay. Or commodity align our mix at or cat skin with is Kitakami?

Mr. Sanjay Gupta — Chairman and Managing Director

Yes. We took about a few years volume put up in community which we led the market for the total of the market two million — in real manner, I am targeting at least INR300 crore plus EBITDA in Q3. And Q4, we are targeting 350 per target, at least 20% of growth Maiia as the other after a need to cut, yes. INR650 to INR700 crore meager. If the service are being along about beta. I mean there are minimum guidelines to empire to be INR100 crores a still I am hopeful give a petrol in the crop across Cadu.

Bharat Shah — ASK Investment — Analyst

GHG So appreciate, I understood the picture. — sorry, unusual circumstances despite the robust sales.

Mr. Sanjay Gupta — Chairman and Managing Director

Receipts raise [Foreign Speech]

Bharat Shah — ASK Investment — Analyst

Centered [Foreign Speech]

Mr. Sanjay Gupta — Chairman and Managing Director

Like talk something. I can’t then route to try my level best to fulfill the things

Bharat Shah — ASK Investment — Analyst

Okay. me we say the. Come kind of — we put over — I can intimate power don’t grow. But be management service for.

Mr. Sanjay Gupta — Chairman and Managing Director

[Foreign Speech] Although we know that for sure. No, no. So to summarize, basically, quarter unusual circumstances combination which has taken us to kind of result on per ton EBITDA, which is something will make in the past. — you bought a number

Bharat Shah — ASK Investment — Analyst

Yes, but complete spend okay, are asset bookings are patient complete EBITDA almost a bill a year Samasta, 72 cars 54 on Malapelle zero sector, you’re negative

Mr. Sanjay Gupta — Chairman and Managing Director

Editing we managed very well as a manager.

Bharat Shah — ASK Investment — Analyst

Mitel

Mr. Sanjay Gupta — Chairman and Managing Director

Can I concrete my team number that came anticonvulsant. Our whole Board Jabrenior people cost nobody’s metricies type of numbers should become.

Bharat Shah — ASK Investment — Analyst

Okay. Many Aptito cable arabica Farnair Salagen Jomari Bike second quarter where going number Motoman Motor Mota Puka, Pula Guinea mic can be catastrophic. So I quite understand.

Mr. Sanjay Gupta — Chairman and Managing Director

Error at all. a quarter on an, but I’m very hopeful this midterm Chalet type of machine we have put in the Raton plant and an Bantou we have done the but I’m very hopeful the results soon by come. Maybe one quarter later, sooner or later.

Bharat Shah — ASK Investment — Analyst

Thank you, Sanjai.

Mr. Sanjay Gupta — Chairman and Managing Director

Thank you so much. Thank you

Mr. Deepak Goel — Chief Financial Officer

Thank you

Operator

Thank you, We have the next question from the line of Pankaj [Phonetic] from Kotak Mutual Fund.

Pankaj — Kotak Mutual Fund — Analyst

Good evening, My question was more on cash flow. So when I look at first half consolidated cash flow there has been a significant release from the trade receivable and you have reduced your trade receivable by about INR250-odd crores, which is roughly a swing compared to last year about almost INR280 crores to INR90 crores in one single half — so I just wanted one understanding that how such a large number has been achieved, one? And second, what is a little surprising is that despite of huge generation of cash flow, compared to the last half, which — and after capex, we see that the noncurrent borrowings and current borrowings have gone up by INR400 crores, and that has been then reinvested in fixed deposits. So can you just help us understand the cash flow part that why INR400 crores have been raised on borrowings again despite of higher operating cash flow Thank you.

Mr. Sanjay Gupta — Chairman and Managing Director

Thank you, Pankaj. A, there’s two what I understood your questions, there is two main questions. One about the data recital and what about the cash flow bank — the bank debt is increased.

Pankaj — Kotak Mutual Fund — Analyst

Yes. Okay.

Mr. Arun Agrawal — Chief Operating Officer

Current or noncurrent on

Mr. Sanjay Gupta — Chairman and Managing Director

Yes, the data reduction wise, this is due to started by company from us at the earlier the coin Mupa Siti to Gindaco Bank Patetta, who sat with the concern I think it will be dealer book sale almost close to INR200 crores per sellage. — whose contain digit the debt reduction or — and number two, the bank volume, the cobannering. — because we omni-atwe have done our — you can say conjecture with INR600 crores from APL in the ABC Lior. Now we left the PLA is not going to give you any fun. You take your own fund from the banks, and now you perform a repayment option will be to a capex who a working capital as a Paboase I course. And then do free cash flow rose from Advanta.

Pankaj — Kotak Mutual Fund — Analyst

Okay. Okay.

Mr. Sanjay Gupta — Chairman and Managing Director

This is — if you Electrochemicals million to almost plant Chaori, which is equivalent to almost old planter. So Usabilla, all the numbers are mismatched. You have to see old APL and the EBIT could see after two quarters. To the consol cash flow takes borrowing increase Cash flow. — option of net debt, taking cone debt only INR75 crores increase the capital bank balance may be INR300 crores or increase it.

Mr. Arun Agrawal — Chief Operating Officer

Okay, Amaripas three. entities there. Polomex, there is a cash surplus ours to only metal. The Lapointe calculus is around INR50 crores or INR100-odd crores. So one have demand all PLM boring and either occupant car surpluses. That’s why offering Symetri in Mazararia. Or secondly, Amit export arbitrage milepost where we have the interest of Menais there to humble Boring Carpenter.

Mr. Sanjay Gupta — Chairman and Managing Director

Because our export rate of interest is less and a rate of interest is almost 3% to 3.5% arbitrage3.5% if the is we gain more interest

Pankaj — Kotak Mutual Fund — Analyst

Okay. Thank you so much. If further clarification, I’ll take it offline.

Mr. Sanjay Gupta — Chairman and Managing Director

Thank you. Thank you

Operator

Thank Passano touch on telephone — we have the next question from the line of Lavanya [Phonetic] from UBS.Please go ahead.

lavanya — ALB Stock Broking — Analyst

Thank you for the opportunity.So I just wanted to check on what is the current export share and what it was in the base quarter like last year.

Mr. Sanjay Gupta — Chairman and Managing Director

So Lavanya, it’s been quite stable below 5%. That’s the contribution we get from exports. Now that some of our value-added products will start in Rio, that proportion will rise. But right now, it’s just below 5%.

lavanya — ALB Stock Broking — Analyst

Okay. Even in the current quarter, export share is similar at similar levels.

Mr. Sanjay Gupta — Chairman and Managing Director

Yes, Less.

lavanya — ALB Stock Broking — Analyst

Okay, okay. So maybe on the heavy segment that you’re seeing I mean, participation or interest from private hospitals. I just wanted to check on that because MAX health company has highlighted on structural steel usage for hospitals. So I just wanted to know your view on how you are looking at private hospitals also for this segment?

Mr. Arun Agrawal — Chief Operating Officer

So Lavanya, it’s not just about private hospitals, See, there are two types of influences there. One is the government. Second is a private owner or developer. If you look at government today, they want fast hospital today. They want faster tools. They have gone faster, they want faster educational buildings. They want faster they want faster transportation, whether it is metro station or railway station or airports, then they want faster housing projects. Now coming to the private side, whether it’s a hospital chain, hotel chain, real estate developer, right? If they are able to finish construction within two years versus three years, it boosts their — is Okay. So interest is from hospitals, yes. And second, I mean, whether you take up hotels, you take up data centers, you take up warehouses, you take up manufacturing facilities, you take up shopping malls to take up commercial buildings, office complexes, we are working on all types of projects.

lavanya — ALB Stock Broking — Analyst

Okay. So can you help us understand what’s the progress in any of this? Like everything is in still talk or discussion stage and

Mr. Sanjay Gupta — Chairman and Managing Director

After daily operators, we have got four, five confirmations, okay, across categories like a grade warehouse, okay? — an office building, right, one more hospital, okay? And there are three, four more projects. So four, five confirmations have already come, a school building also for that matter. So that work will start over the next one to two months for these projects. And right now, there is a pipeline of more than 45 projects. where — which could put up the steel tube demand of 250,000 tonnes, okay? So we are working aggressively on these projects. And as and when the projects start, right, that pipeline will keep on rising, and you will see more and more tubular buildings across India.

lavanya — ALB Stock Broking — Analyst

Okay. Got it. And if I may ask one more question. So for the new projects, like four or five, which you have mentioned that you got confirmation. So the current capacity, which is there, will that be sufficient or the deal which we are facing related to 500 by 500 will that impact these projects. So I just wanted to understand that.

Mr. Sanjay Gupta — Chairman and Managing Director

So we already have a mill, which is running in old APL plant, right? So that is sufficient to feed any upcoming demand, right, three, four projects which will start over the next one, two months. And maybe by December worst case last week of December, we will have our 500 square ready, right? So that will feed any kind of demand. We are not very about

lavanya — ALB Stock Broking — Analyst

Got it. Thank you for answering my questions.

Operator

Thank you, We have the next question on the line of Aditya Velkar from Axis Securities.Please go ahead

Aditya Velkar — Axis Securities — Analyst

Thank you so much for the opportunity. So I have one question on the balance sheet on Slide 28. So if we see the inventories are still at a higher level of INR100 crores from INR850 crores in FY ’22. So does that mean that in Q3, there will be further liquidation of these inventories, and we will see kind of repeat of what has happened in Q2? Or is it a raw material inventory or more of a finished good inventory. And if it is a finished good inventory, then again, in Q3, we will see more offloading of that.

Mr. Sanjay Gupta — Chairman and Managing Director

See, I mean inventory, if you see in a number of days, right? So you compare FY ’22 and September 23. So in days, it is like 24 versus 27%, right? So it’s pretty much the same. In terms of value, it has gone up, of course, because of the rising sales volume right? — starting off the Liporplant where we have to keep some inventory like we are projecting 75,000 tonnes of volume in Q3, right? So we need to have some readily raw materials there. So that’s why it is — and like majority of this inventory is raw material, we keep very less or low finished good inventory at our warehouses.

Aditya Velkar — Axis Securities — Analyst

Yes, understood. And secondly, on capex. So with this Raipur plant now being 80% complete. So what’s the guidance in FY ’24? Or will the capex level go down further?

Mr. Sanjay Gupta — Chairman and Managing Director

So for the next three years until FY ’25, we think we’re going to spend around INR500 crores maximum, which will be residual right, then we are putting up one plant in Dubai, right? — we might do Calcutta also, right, and some maintenance capex. So all put together,Cumulative FY ’20 Second half FY ’23, FY ’24, FY ’25 in 2.5 years, it should be INR500 crores cumulative That

Aditya Velkar — Axis Securities — Analyst

Okay, understood.

Mr. Sanjay Gupta — Chairman and Managing Director

And this will take up our capacity beyond 4.5 million tonnes.

Aditya Velkar — Axis Securities — Analyst

Yes. That’s it from me. Thank you.

Operator

We have the next question from the line of Kunal Kothari from Centrum Broking. Please go ahead.

Kunal Kothari — Centrum Broking — Analyst

Thank you for the opportunity, Sir, my question is that you mentioned the measure is a fall in the EBITDA margin is due to for industrial prices. But during the quarter, if we see the movement of the steel prices, so it has been quite stable from June to July, July to August and August to September. — despite — and also like our inventory base is also very stable to.

Mr. Arun Agrawal — Chief Operating Officer

Sorry, sorry to interrupt. We didn’t say that EBITDA per ton declined because of falling steel prices. our EBITDA per ton declined because of destocking with our distributors, they were in the destocking mode because steel prices are falling, so they were not ready to lift materials. Normally, our distributors work on 20 to 30 days of inventory at their warehouses. But when the prices are falling, they go into destocking mode, and they work on 15, 20 days inventory. So they destock, right? — when the destock we have to offer some discounts to our distributors. That’s why EBITDA per tonne declined not because there were inventory write-downs on our books.

Kunal Kothari — Centrum Broking — Analyst

Okay. Okay. Okay.So like as we believe that the destocking will further continue in quarter three. So how the discount movement do you see for

Mr. Arun Agrawal — Chief Operating Officer

So obviously, see, I mean, in Q3, we don’t expect steel prices to fall INR15,000 per tonne as they get in Q2 or INR10,000 per tonne as they get in Q2, okay? So there should be a marginal drop. And obviously, we will lift the discounting, which we have been giving. So it should boost our margins in Q3 and Q4.

Kunal Kothari — Centrum Broking — Analyst

Okay, fine. Thank you so much

Operator

Thank you. We have the next question line from Akash [Phonetic] from Canada Robeco Mutual Fund. Please go ahead.

Akash — Canada Robeco Mutual Fund — Analyst

Just if I understood it correctly, so you are guiding for Q3 to be around 70,000, 75,000 tonnes from Raipur. And Q4, you are talking about like time. So that amounts to, say, one to 1.75 at tons. And then FY ’24, you are talking about six to seven lakh tonnes from Raipur. And in FY ’20, you’re talking about one million tonnes. And in FY ’26, 1.5 million tonnes. So then how does the math work like? How do we achieve four million tonne in FY ’25 — like is there some mistake in my numbers? Or how is it — or maybe if you can reiterate your guidance, like what is the volume expectations over the next two, three years? And what what part of it will come from Raipur and what is the EBITDA part and expectation from your side? So if you can clarify this, that would be helpful. Thank you.

Mr. Sanjay Gupta — Chairman and Managing Director

If you see in the Q2 number, sir, we done the volume from APL without Apu,000 tonnes. You multiply 5.85% improve is close to 24 lakh tons. And with the support of demand and some are some bottlenecking we are also kick away this category go to 2.8 million, 2.9 million tonnes. And this means last to Kia September month as put Promega Boss — and what point for five year — one million tonne abamararApuPo Jaa, — this is close to 3.8 or 3.7%, 3.6%. — you can see any number. and plus Dueser aka a plan to ship a gaga. So this got together plant, we have no worry to take the volume to four million tonnes.

Akash — Canada Robeco Mutual Fund — Analyst

Okay. So you mean that on the existing plant you are doing some debottlenecking exercise, which will increase the capacity from 2.6.

Mr. Sanjay Gupta — Chairman and Managing Director

Two actors not more.

Akash — Canada Robeco Mutual Fund — Analyst

Okay. Okay. Okay. Understood, sir. And you’re also EBITDA part guidance, like in ’23, ’24, ’25 what as the expectations?

Mr. Sanjay Gupta — Chairman and Managing Director

Always get a message where my target is always high. I’m seeing at this minimum 5,000% EBITDA for APL, 7,000 to 8,000 to EBITDA for — and what type of facility we are putting in Dubai. And there is bigger size demand is very good in Dubai. — sent we are sending the material from India selling there. we see the trends are to my bet more than 10,000 piston Dubai. Algeta, again, there is a commentary the close to INR5,000 tonne EBITDA. So all put other I’m very sort 6,000, can 2,025.

Akash — Canada Robeco Mutual Fund — Analyst

Okay, sir. Okay. Okay. Sir, that was very helpful.. Thank you.

Operator

Thank you, We have the next question from the line of Paul Vaal from Anti-stack. Please go ahead.

Paul Vaal — Anti-stack — Analyst

Yes, sir. Sir, I just had a clarification on a minority interest. So I understand that the merger has happened, but I don’t see any dilution in the share capital. So could we just clarify what will be the dilution and when that will come in?

Mr. AnubhavGupta — Chief Strategy Officer

Today, we have allowed the sale to the new shareholders of the Apollo Rico. So in the next quarter, impact will be done.

Paul Vaal — Anti-stack — Analyst

And could you just quantify before you sit now over what is the personnel dilution?

Mr. AnubhavGupta — Chief Strategy Officer

10% dilution over

Paul Vaal — Anti-stack — Analyst

Ok, Yes.

Operator

Thank you, We have the next question from the line of Rahul Agrawal from InCred Capital. Please go ahead.

Rahul Agrawal — InCred Capital — Analyst

Hello, one question on the Delhi pollution. Last time, I think we had some issue with material dispatches this time around, how is that behaving? Is there any government regulation again? Could we see some negative surprises here in there?

Mr. Arun Agrawal — Chief Operating Officer

I can’t understood our gap

Rahul Agrawal — InCred Capital — Analyst

Continued Dilipllution ena,the transport of materials had some issues for APL in history, I was asking, is that very serious even this time around?

Mr. Arun Agrawal — Chief Operating Officer

Slightly transport is not a problem. But slightly in the north region in the LC demand is sluggish because all the customer activities on hold. So there’s slightly — 20%, 25% demand is slow in the — you can say the NCR system for the whole system, which is very negligible for us.

Rahul Agrawal — InCred Capital — Analyst

Okay. Okay. So whatever number we’re talking about, that is adjusted for this thing, right? We should not see any negative surprise in dispatch.

Mr. Arun Agrawal — Chief Operating Officer

No, no. For the volume, no surprise. — for the margins, we are studying, and we want to fulfill our target.

Rahul Agrawal — InCred Capital — Analyst

Got it, sir. And one clarification on the receivable thing, you explained some INR250 crores shift because of some trade channel finance, I couldn’t really understand.

Mr. Arun Agrawal — Chief Operating Officer

No, no, no. No. Lease the correct answer is not set with our almost our banks are not giving them a channel timing or other facilities. So this — our — the finance company is given for casitalmost close to INR200 crore odd crores. I believe right now, I mean not age number. they are now taking the facility from the GPs.

Rahul Agrawal — InCred Capital — Analyst

It’s like that the team of Fine is going and meeting the steel traders in the market, including distributors who may be doing work of a colo or not. — right? And if they find their offering good or they’re going for it. And in that situation, some of the receivables from Apollo got like funded from [Indecipherable] Got it. This should also help increase volumes, is it it because some business would — you would have lost because of low credit, that should come back

Mr. Arun Agrawal — Chief Operating Officer

Sure, sure. So there is no doubt this is the clear impact in the month of month of September, we have got our highest volume ever Igual 30,000 tons not transacted to 240 precisely like 38,000 tonnes we have during the month of September.

Rahul Agrawal — InCred Capital — Analyst

Got it, sir. And this SG Finserve supply chain finance is completely nonrecourse to APL is it?

Mr. Arun Agrawal — Chief Operating Officer

Without any recourse. This is a totally different body. They were differently, they actually evaluate by all the customers. and then they give the finance. So sir, just to put on record, there is no guarantee from APL Apollo. There is no recosthere is no risk on APL Apollo. SGPs a totally separate entity being owned separately, managed separately. — with zero default rates to APL.

Rahul Agrawal — InCred Capital — Analyst

Got it, Thank you for clarification.

Operator

Thank you. We have the next question from the line Rahul Jain from Systematics. Please go ahead.

Rahul Jain — Systematics — Analyst

Yes, Rahul here. Just want to check, sir, we are going. Our volumes at 25% CAGR you mentioned.The steel market definitely people are looking at 15% kind of volume growth over the long term. So where do you think you’re getting this extra market share from? And what are your thoughts on doing any kind of inorganic because we have not really looked at that side. So can you just clarify these two things

Mr. Sanjay Gupta — Chairman and Managing Director

So Raul, coming to the second part of the question first on inorganic acquisition or opportunity — the market is under — has been under stress for the last two, three years. There have been a lot of mills who have shut down and there are a lot of deals which come on the table. So we keep on evaluating, but nothing material today, which we can talk about. And first part of the question was about how do we improve the market share, right? That was the question.

Rahul Jain — Systematics — Analyst

Yes, exactly because both rates are really outstanding in terms of how the market is growing. And my only concern from that point is that does it also lead to a challenge in terms of keeping your margins where they are because if you’re offering such higher quantity, obviously basic math says that you will have to make our product a lot more attractive, right? So that is — I just want to bring these two things.

Mr. Sanjay Gupta — Chairman and Managing Director

So see, for market share, which reflects 55% for our you need to break our portfolio into three segments. — one is commoditized. Second is value-added, super value added, okay? And in Supervalu added, which are like complete innovative products where APL has the lead for next four, five years because no other competitor is in the competition. right? There, we have 100% market share because we innovated the product, we launched the product, and we control 100% of the market, right? So that portfolio say stood at 20% or 25%. — then comes the value-added product where APL innovated three, four, five years ago, and then we created the market, we enjoyed the market share, but then the competitors came into picture and they also came into the competition. right? So that portfolio will be, say 40% today. okay, where margin will be slightly lower than super-valued. And the market share will be, say, 60%, 70% for those products. Then the third category, which is commoditized, which today is like 35%, 40% of the portfolio where the market share will be 10% to 20% only. Okay. Because we started mass manufacturing of Square rating cube like 15 years ago, right? And then the competitors came in, they also switched from round sublets to square tender tubes. — and how that segment is commoditized, right? So there, our market share is 10% to 20%. So how we will achieve 30% volume CH and still improve the EBITDA spreads by growing our portfolio in the super value-added segment right and value-added segment.

Rahul Jain — Systematics — Analyst

Obviously, you just buy from a new product which we’re developing, so you’re very positive on the kind of trajectory and the customer acceptance and you will be able to get the margin, which will keep it wherever higher somebody levels?

Mr. Sanjay Gupta — Chairman and Managing Director

Obviously, you just buy from a new product which we’re developing, so you’re very positive on the kind of trajectory and the customer acceptance and you will be able to get the margin, which will keep it wherever higher somebody levels?

Rahul Jain — Systematics — Analyst

Got it, Thank you. Thank you so much.

Operator

Thank you, We have the next question from the line of Abhishek Ghosh from DSP. Please go ahead.

Abhishek Ghosh — DSP — Analyst

Hi, Thanks for the opportunity. Sir, just in terms of the EBITDA per tonne, if you see on a sequence is, I think one of the major drop has come in about the general structures. — the rest of the — so is the discounting more into that particular commodity product? Or how should one read it? Because there you have done almost something like INR1,400 of EBITDA per ton — so is that section which was more impacted by the destocking element?

Mr. Sanjay Gupta — Chairman and Managing Director

Yes, because that is also the most competitive product Abishek, right, where I just said that our market share is — so there, we have to go most aggressive, and that’s where we offer extra weakness to our distributors.

Abhishek Ghosh — DSP — Analyst

Okay. And how is the differential with scrap today in terms of — because that is very important in determining the margins in this section. So how should one look at the difference with the scrap today?

Mr. Sanjay Gupta — Chairman and Managing Director

So it is back to the long-term average historic long-term average, which is like INR five to INR seven per kilo. That’s where we are today.

Abhishek Ghosh — DSP — Analyst

Okay. Okay. And just one last question in terms of the — if I look at the volumes in the Rapro structures, that volume seems to have seen a major decline of almost about 13% on a Y-o-Y basis sequentially, so it is down. So is it a conscious decision as a strategy? Or how should one look at it, just your thoughts?

Mr. Sanjay Gupta — Chairman and Managing Director

So Abhishek, this is another point which you highlighted, Dean is highlighting that this school structure is our value-added product. And the sales were weak in Q2 of FY ’23 because of our floods and late monsoon in certain coastal markets, which is the main market for this product, okay? So there is nothing conscious decision like that as the markets have opened up after the monsoon and floods, etc., you will see the uptick in volume in Q3 and Q4.

Abhishek Ghosh — DSP — Analyst

Okay. So in terms of the general structure, which has increased to almost something like 46% of total volumes and which has — which in certain quarters goes down to as low as three what should this number be post Raipur comes in? How should one look at this number?

Mr. Sanjay Gupta — Chairman and Managing Director

Eventually, like on 4.2 million, 4.3 million tonnes of capacity, this number should be less than 25% on a consistent basis.

Abhishek Ghosh — DSP — Analyst

Okay, that Okay.Wish you all the best. Thank you.

Mr. Sanjay Gupta — Chairman and Managing Director

Thank you

Operator

Thank you. That was the last question. I now hand it over to the management for closing comments.

Mr. AnubhavGupta — Chief Strategy Officer

Thanks, Mike. Thanks Motilal team for hosting us for our quarterly call.

See you next time. Thank you very much. Bye.

Operator

[Operator Closing Remarks]