Apollo Pipes Ltd (APOLLOPIPE) Q1 FY23 Earnings Concall Transcript

Apollo Pipes Ltd. (NSE:APOLLOPIPE) Q4 FY22 Earnings Concall dated Jul. 27, 2022

Corporate Participants:

Pranav Mehta — Equity Research Analyst

Sameer Gupta — Managing Director

Ajay Jain — Chief Financial Officer

Analysts:

Arun Maroti — Subh Labh Research — Analyst

Achal Lohade — JM Financial Institutional Securities Limited — Analyst

CA Garvit Goyal — Research — Analyst

Bhargav Buddhadev — Kotak Mutual Funds — Analyst

Shrenik Jain — LIC Mutual Funds — Analyst

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Dushyant Mishra — SageOne Investment Managers LLP — Analyst

Bhavin Rupani — Investec — Analyst

Dhananjai Bagrodia — ASK Group — Analyst

Vijay Chauhan — Right Horizons — Analyst

Operator

Ladies and gentlemen, good day, and welcome to the Apollo Pipes Limited Q1 FY ’23 Earnings Conference Call, hosted by Equirus Securities. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Pranav Mehta from Equirus Securities. Thank you, and over to you, Mr. Mehta.

Pranav Mehta — Equity Research Analyst

Thanks, Sanju. Good morning, everyone, and welcome to the call with the management of Apollo Pipes Limited. From the management side, we have Mr. Sameer Gupta, MD; Mr. Ajay Jain, who is the CFO; and Mr. Anubhav Gupta, who is the Chief Strategy Officer.

Without wasting time, I’ll hand over the call to Mr. Sameer Gupta for his opening remarks. Yes, sir, over to you.

Sameer Gupta — Managing Director

Thank you. Good afternoon, everyone, and thank you for joining us on Q1 FY ’23 earnings call to discuss the operating and financial performance. I hope you all had the opportunity to go through our results presentation, which provides details of our operational and financial performance for the first quarter ended June 30, 2022.

To begin with, I’m pleased to unveil the performance which has been mixed. The growth looks robust on Y-o-Y basis albeit with low base last year. However, the sequential performance is weak Q-on-Q due to market correction in PVC resin prices. This created high uncertainty in minds of our channel partners who went for destocking mode. The PVC resin prices have been corrected by 18% in Q1 FY ’23 and are further down by 17% in the July month so far. The current levels are fairly near to pre-COVID levels in dollar terms, which suggest that the correction maybe arrested. This should instill confidence in our channel partners, which will lift volumes in coming quarters.

One positive is that the underlying demand has been strong enough for us to report second highest revenue number ever. We remain on track in terms of increasing share from value-added products as the contribution from the HDPE, CPVC pipes and value-added product segments were the major drivers for the growth complemented by expanding product portfolio, increasing reach in geographies and incremental capacities. Over the next few quarters, we anticipate this performance trend to strengthen, led by an improving demand environment, expansion in addressable markets and sustained uptick in utilization levels.

Moving on to the operational front, the company did a capex of INR36 crores in Q1 FY ’23 towards enhancement of capacities, debottlenecking and adding balancing equipments majorly in CPVC, uPVC pipes and fittings. Going forward, we remain confident that our value-added offerings like pipe fittings, solvents cement, taps and faucets will enhance our reach and strengthen sales. We are pleased to announce the introduction of PPR-C range in our portfolio with complete range of pipes and fitting in all variants. These products are majorly catering the demand in North India for now and are receiving good response from the distribution point of view. Additionally, we are aiming to optimally utilizing our capacity over the next coming years, which should also help augment sales volume going ahead. On branding, media campaigns continue to garner good response, especially we launched our TV commercial in the current quarter, which will further strengthen our brand position in the market.

To conclude, I would like to state that we are continuously working towards enhancing our presence across the existing and new potential geographies. As we further improve our operational capacity utilization from our agri products, we are confident to open up the untapped markets and high potential markets of Eastern and Central India with the positive trend in the current year FY ’23. Going forward, we expect to deliver a robust performance in the quarters to come and further gain momentum on the back of Make in India for improved agility, steady extensions essentially in geographical areas and untapped Eastern and Northeast areas for penetration and brand acceptance.

Now, I would like to invite Mr. Ajay Jain to run you through the key financial highlights for this quarter ending June 30, 2022. Thank you.

Ajay Jain — Chief Financial Officer

Yes. Good morning, everyone. I will briefly cover the financial performance during the quarter and full year ended June 30, 2022. The company delivered solid operational and financial performance during the quarter, driven by an uptick in demand and consumption in key domestic markets.

Revenue from operations for the quarter stood at INR218.9 crores as against INR137.6 crores in the Q1 FY ’22, higher by 59% Y-o-Y. Sales volume for the quarter stood at 14,406 metric tons, reporting a growth of 38% as against 10,402 metric tons in Q1 FY ’22. On the profitability front, EBITDA for the quarter improved by 15% Y-o-Y to INR20 crores versus INR17.4 crores in Q1 FY ’22. EBITDA margins, which stood at 9.2% in Q1 FY ’23 was lower by 352 bps Y-o-Y.

During the quarter, higher depreciation and financial costs impacted net profit. Depreciation costs stood at INR6.4 crores in Q1 FY ’23 as against INR5.7 crores in Q1 FY ’22. Financial cost was higher by INR1.1 crores during Q1. Net profit for the quarter stood at INR8.8 crores, remained flat Y-o-Y when compared to INR8.8 crores in Q1 FY ’22. Net margin during the quarter stood at 4% as compared to 6.4% in Q1 FY ’22, lower by 233 bps. Capex in the coming period will be largely funded from internal cash flows. On the working capital front, additional raw material requirement that newly commissioned capacity has moderately impacted inventory levels, though our endeavour remains on maintaining our overall working capital cycle at stable levels.

With this, I would now request the moderator to open the forum for any questions or suggestions that you may have. Thank you.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Arun Maroti from Subh Labh Research.

Arun Maroti — Subh Labh Research — Analyst

Hello, Am I audible?

Sameer Gupta — Managing Director

Go ahead, please.

Arun Maroti — Subh Labh Research — Analyst

Sir, my question is related to equate our strategy to work that our APL Group is known for the innovations. And when we see APL, Apollo Tubes that in the market, they always enjoy some of the products where we have like monopolistic situations. So, would like to know that whether we also enjoy this kind of situation in any product category?

Ajay Jain — Chief Financial Officer

Right. So see, I mean, — if you look at our track record for the last four, five years, when our focus went into the PVC pipe industry, right, from like below INR200 crore business, we have made this business INR2,000 crores in four years’ time period. And we have made it a pan-India company with almost 1,500 SKUs with expansion of capacities, expansion of distribution network, getting into consumer brand pull for our products. So, what we are trying to create here is the very solid platform for the plumbing solutions, okay, which started from agri products, agri pipes four, five years ago. But now we are a complete building material plumbing solution company with more than 1,500 SKUs, right? And our market share expanded from 0.75% to 2.5% in last four years. And our target is to take it to 4% over the next three years based on the current capacities what we have and what we are putting up over the next 12 months.

So value-addition, I mean, in terms of innovation, there may not be any product which we came up with, right? But the way we have done the business that has completely outperformed the whole industry in terms of growth, in terms of the margin expansion and in terms of the return profile, what we are able to achieve during this high capex period. I mean, from agri pipes, we went on to building material pipes, we launched CPVC, we launched water tanks, we launched bathroom fittings, where we are finding the vacancies, right, where the market is vacant, we can go and start selling our products aggressively.

Now, we recently got into PPR segment, which is super high-end value-added products in the plumbing category. Very few players dominate this space and we found the opportunity. We are doing that. We have demonstrated that in the bath fittings in the last 12 months, the way that business has been growing. So, our focus is to create a very solid platform to sell building materials plumbing solutions. And we are pretty much proud of what we have done in the last four years. And based on our current growth plans, we would be like in top five plumbing solution companies in India.

Arun Maroti — Subh Labh Research — Analyst

And my next question is, sir, with regard to our bath fittings and the value-added products, sir, that how much percentage of our total volume we are planning to have for these value-added products in near future?

Ajay Jain — Chief Financial Officer

So, value-addition, we categorize into four product categories. One is the uPVC fittings. Second is the CPVC and PPR, which are super high value-added plumbing solution category, then the water tank and the bath fittings. So put together, these would be around 30% to 35% today. Idea is to take this to 50% over the next three years.

Operator

Next question is from the line of Mr. Achal Lohade from JM Financials.

Achal Lohade — JM Financial Institutional Securities Limited — Analyst

I just missed this number. You said value-added products is how much? 30%, 35%? Did I get the number right, sir?

Ajay Jain — Chief Financial Officer

Yeah. 30%, 35%, which is value-added. And if you add 20% more on the building material PVC pipe, so that will make our contribution from building material act, 55%.

Achal Lohade — JM Financial Institutional Securities Limited — Analyst

And what is the definition of value-added products here? What per margin or ROCE, any benchmark?

Ajay Jain — Chief Financial Officer

So, they are superior both in terms of margin and ROCE, right? So, our blending EBITDA per ton last year was around 18,000 per ton. So value-added products are above 28,000 per ton, 29,000 per ton.

Achal Lohade — JM Financial Institutional Securities Limited — Analyst

Sorry, what I’m trying to ask is, how do you define value-added products? Any particular margin?

Ajay Jain — Chief Financial Officer

EBITDA per ton, my EBITDA per ton, above 28,000 per ton on any product category is value-added.

Achal Lohade — JM Financial Institutional Securities Limited — Analyst

Above 28 per kg is classified as value-added. Okay. Okay. My second question was if — as you said, there was an 18% drop in the last quarter and there is another 17% drop in this quarter in terms of PVC resin price. But if you look at the blended realization, the realization per kg, we see it is flat, kind of flat Q-o-Q. How do we explain this, sir?

Ajay Jain — Chief Financial Officer

So see, I mean you have to understand that the drop has been in the PVC category, right? And PVC as raw materials would be like 50% to 60% of my total raw material spend. One is that. Second, there is always the average what you take, right, in Q4 and Q3. So, average drop may not be to the extent of like how you see from peak to bottom, which is like INR25 per kg. And secondly, our contribution from value-added products has been going up quarter-on-quarter. Even in Q1, the contribution from CPVC, from PPR, from fittings, it has increased Q-o-Q as well, right? So, the idea is to keep on growing the portfolio outside pure PVC product category where we can command our pricing and we can offset the falling PVC prices.

Achal Lohade — JM Financial Institutional Securities Limited — Analyst

And any inventory loss, which is accounted for in the first quarter? And let’s assume that the current price stays as is, what kind of inventory loss do you expect for second quarter?

Ajay Jain — Chief Financial Officer

See, I mean, inventory loss is no rocket science, okay? We do work on some minimum inventory for PVC as raw material, okay? So, there is average drop of like whatever INR15, INR20, INR25 per kg. So, that gets accounted, right? But then how do we come out of it? How do we offset it, right? Like how explained you keep on growing your value-added products. You work with minimum inventory levels. I mean there are a few of our competitors who have come out with the results and you would see that, I mean, the margins have come down quite sharply, right? But for us, we have been able to arrest that, okay, with the increasing sales from value-added products by keeping minimum inventory levels. So, there’s no rocket science. I mean you can calculate. We do work on 3,000 ton, 4,000 ton of PVC inventory at any given point of time. But how quickly our sales team is able to pass it on the revised pricing in the market. That also factors in. So I guess, I guess, I mean, at 9% to 10% EBITDA margin, given that Q1 also July, we have seen another 20% kind of fall in the PVC prices, the margins should remain in this range unless there is uptick in the PVC prices, which is very difficult to say today. The only point, what we can tell you is that the PVC prices in dollar terms are already at pre-COVID levels. So, there is no reason that prices should crash further from here, but you never know what’s happening globally. India is anyway a very small part of global supply chain and consumption. So, global factors can take prices plus or minus, we don’t know. But assuming what fall has come in July month, we should maintain the current EBITDA margin in Q2.

Achal Lohade — JM Financial Institutional Securities Limited — Analyst

And just one more question. In terms of pricing, how do we look at the pricing? Is the margin is a function of rupees per kg or percentage? How do we rework on the pricing as raw materials fluctuate?

Ajay Jain — Chief Financial Officer

Right. So, we are pretty quick to pass it on to our channel partners, right? In the last few months, we have revised our prices by almost 6 times, right? So, this does reflect our urgency, right, and alertness to pass it on whatever it comes from the back, from behind. And as far as we are concerned, we are pretty much focused on EBITDA spreads, right, on a per ton basis because what we believe is that percentage margins, that’s not correct to see. We make our business model. We do our planning for product IRRs, etc, based on the EBITDA per ton basis.

Operator

[Operator Instructions] Next question is from the line of CA Garvit Goyal from Research [Phonetic].

CA Garvit Goyal — Research — Analyst

Hello? Am I audible, sir?

Sameer Gupta — Managing Director

Go ahead, please.

CA Garvit Goyal — Research — Analyst

My first question is, we have the target of doubling our FY ’22 revenues in the next three years. That is by ’25, our revenues should hit INR1,600 crore to INR1,700 crore. So my question is on what basis are we targeting such value? Means do we have some existing order book or otherwise? And simultaneously on the capacity utilization side, we do have the current utilization level of 43% to 44%. So, what makes us to believe that we shall achieve the 75% utilization by the end of financial year ’25? That is as per our target of 70% volume growth year-on-year. Means basically, are we having some existing order or based on which we are guiding this?

Ajay Jain — Chief Financial Officer

So Apollo Pipes doesn’t work on order book basis because our business is 95% B2C. We have network of 600 distributors who buy products from us on daily basis. Our strong sales team, services those distributors on daily basis. And those 600 distributors sell their goods to more than 20,000, 25,000 retail touch points, okay? So, we don’t work on order book basis. The guidance what we have given of doubling our revenue over the next three years is based on three factors. One is the capacity to be able to produce that much, right? Our current capacity of 125,000 tons is capable of giving us turnover of INR1,200 crores, INR1,300 crores, right? Last year, we closed just below INR800 crores and our current run rate is around INR900,000 crores. So, there is 20%, 30% upside in turnover, which will come from the existing capacity.

Then we are putting up new capacity near our mother plant in North India, which is purely focused on value-added products where we are seeing the very high utilization levels of capacity. So, we need to grow our capacity there, which we have started already. In Q1, you saw that we incurred a capex of around INR35 crores. So, it’s towards buying of land and putting up sheds and setting up the infrastructure, etc. And in the next six months, we’re going to be ordering plant and machinery. So, by FY ’24 second half or maybe towards the end of FY ’24, the incremental capacity to produce INR700 crores, INR800 crores of revenue should also start, right, so which will be ramped up over the next two years. So one factor is capacity, which we are taking care of, we have strong operating cash flows, all this capex is being funded from internal cash flows.

Second is the distribution enhancement expansion. I mean, four years ago, we were hardly selling to 50 clients. Today we are selling to 600 clients. And in the next three years, this number will go to 800. As we expand into South, as we expand into Raipur, to cater to East and Central market, our best market is becoming strong. So, a number of clients are increasing. We are expanding our sales team. We are doing secondary sales with our distributors so that there is a regular continuity of sales from their end as well. So, a lot of efforts towards sales team expansion and distribution expansion.

Third is the brand pull, where we are trying to establish our product, our brand in the minds of the end consumer and the influencers who are plumbers in our case. So our ad spend, which used to be like below 1% of our sales has moved to 1%, 1.5%. So, all the benefits from the contribution increase from value-added products, we are utilizing on those funds to make our brand stronger and we have gone above ATL branding as well as in the last one to two quarters. And we are getting very good response. It does excite our whole network. It does excite our influencers who are our plumbers. And it also helps to create the demand at the end level, like the consumer, whether it’s a developer, contractor or a household owner, okay, who wants to buy plumbing solution products. So, these are three factors where we are working day and night. And last three years, four years performance also demonstrates our efforts are paying off. So, this gives us the confidence that doubling of turnover in three years is achievable and we are going to do it.

CA Garvit Goyal — Research — Analyst

I agree with this, we are doing the right extension towards the demand side. But as happened in this quarter, like there is an effect on the PVC prices and due to which the volume is down. So, do you see anything this kind of can happen in the near future?

Ajay Jain — Chief Financial Officer

So again, there are two parts to it, right? So I mean, when we talk about three-year plan, okay, there will be some quarters where there will be like sharp, sharp revision in the PVC prices, right? But that trend will not remain always, okay? It’s a quarter phenomena wherein the prices go down and channel partners, channel partners will get into destocking mode. But the other way to look is, look at our value-added products, right? We have increased sales in CPVC, we have increased sales in water tanks, we have increased sales in fittings, okay? It’s just that the regular uPVC agriculture pipes where the volume has come down. But our focus is on value-added products and that growth is there. And there will be some quarters in our journey of three years of achieving INR2,000 crores turnover, wherein there will be a few quarters where, I mean, they could be destocking the channel. But then the demand always comes back, right? If your bathroom gets damaged, right, or you need to replace PVC pipe, you may wait for one month, two months, but ultimately you’ll have to get it replaced, right? So, demand will come back and we’re not going to leave that space whenever the sentiment will improve from our channel partners.

CA Garvit Goyal — Research — Analyst

And my next question is on the EBITDA per ton realization side, which has basically reduced in this quarter to 14,000 per ton. And last quarter, I think this was 17,500 per ton. So, what makes us to think or believe that we shall be able to achieve the target EBITDA per ton of 20,000 in the next two years? That was target.

Ajay Jain — Chief Financial Officer

This drop of 3,000 per ton on Q-o-Q basis is purely because of the decline in PVC prices, like I mentioned that there is underlying inventory of PVC always in the books in our plants. So, price correction leads to some write-downs, right? But given the drop in PVC prices, the EBITDA spread could have gone below 10,000 per ton, right? But it’s not the case. So, we have been able to arrest that. So again, I mean, it’s a quarterly phenomena. As the prices stabilize and our core manufacturing EBITDA remains at 18,000 per ton — 17,000 per ton and 18,000 per ton. It’s just that we had to take some write-down. Once the prices stabilize, we’ll go back to 17,000 per ton, 18,000 per ton.

CA Garvit Goyal — Research — Analyst

Do we still maintain the guidance of 20,000 EBITDA per ton next two years?

Ajay Jain — Chief Financial Officer

We do, yes.

CA Garvit Goyal — Research — Analyst

So, is there any revision in your guidance for financial year ’23 in the terms of revenue INR1,000 crore, volume of approx. 65,000 MT? And EBITDA, definitely, you have already told 18,000 per ton at least should be the end of financial year ’23?

Ajay Jain — Chief Financial Officer

Yeah. So, what we guided to our investors is that we should be able to do 30% growth, right, in FY ’23 and not FY ’23, FY ’24-’25. So, we are targeting 30% CAGR that will take our turnover to INR2,000 crores. We are pretty much sticking to it. No change.

CA Garvit Goyal — Research — Analyst

And from on the volume side, you are targeting it to be 20% volume growth year-on-year?

Ajay Jain — Chief Financial Officer

Yeah. So yes. So volume, again, is a factor of like these quarterly phenomenon, right, one. Second, our whole focus is towards value-added products, right? So, I mean to achieve 30% revenue growth, we have to grow our volume by 20%, okay. Without that, it’s not doable. So I guess our statement of 30% revenue CAGR takes care of all the factors.

Operator

Next question is from the line of Bhargav Buddhadev from Kotak Mutual Funds.

Bhargav Buddhadev — Kotak Mutual Funds — Analyst

Is it possible to get a geographical spread of revenues, broad spread in 1Q?

Ajay Jain — Chief Financial Officer

Right. So, Bhargav, no change in that, okay? Even in Q1, I mean, the North is contributing around 70%. So it continues to do that. I mean, this was not be the perfect time to ramp up our South and Eastern facilities. But I guess, once the prices stabilize, the contribution will start inching up from there as well.

Bhargav Buddhadev — Kotak Mutual Funds — Analyst

Secondly, if you look at a few of the results which pipe companies have reported, the three-year, the volume CAGR seems to be either negative or flat at best. Now that prices have corrected and become more affordable and monsoon has also been strong, what is your sort of view on the industry growth in the medium term?

Sameer Gupta — Managing Director

Yeah. In terms of industry growth, when you see the prices that have come to that almost pre-COVID level. So, we are pretty much sure that the sale of and you can say, unorganized sector where they were making low-quality pipes, they will actually — the difference between the high quality and the low quality pipes has since narrowed down. And since earlier it was used to be around INR30 per kg to INR40 per kg, and right now, it is only around INR20 per kg or INR15 per kg. So, that is definitely strengthened our sales in terms of, you can say, volume and we hope that if the prices continue to the same level for the coming years or even at least for one or two years, that will definitely help us in accepting excesses from those markets, which has been actually left out in the last one or 1.5 years because of the high-value PVC prices.

Other than that, the other products because the prices has not gone up so high. So that will be remaining in the same level even in the coming years, but we are actually pushing our sales team very hard to get the higher volumes from the lower market or from the added products that we are adding up in our portfolio. So, we are hopeful that we will be adding up consider volumes in those categories at the same level that we are going out right now. And with that, enhance, you can see sales in that that leftover areas of PVC that we also hope that we can, of course, get those sales also in —

Operator

The next question is from the line of Shrenik Jain [Phonetic] from LIC Mutual Funds.

Shrenik Jain — LIC Mutual Funds — Analyst

Sir, my first question is regarding the value-added products. So, as you just alluded that storage tanks count in value-added products. So versus other players have been highlighting that it is more of a product basket, product storage tanks and the margins are lower than pipes. So could you throw light on the margins for storage tanks, as you said, it is a value-added product?

Ajay Jain — Chief Financial Officer

Shrenik, water tanks is part of our value-added products, right? When we started this business two years ago, the margins were pretty high, right? And they still are high, it’s just that we need to ramp it up at all our plants. So, we are putting up capacities, some supply chain, we have to bring some efficiencies which we are. So, the scale is very small today. Once it grows to like sub INR100 crore kind of product segment, then the margins will be much, much higher than what we are making today.

Shrenik Jain — LIC Mutual Funds — Analyst

But sir, I can, as Achal, had asked about the EBITDA per kg for value-added products, you alluded it’s 28 per kg above. So, the margin can range above 20 per kg for storage tanks? Is that what you are highlighting?

Ajay Jain — Chief Financial Officer

Yeah. So, here also, we make around 25 per kg.

Shrenik Jain — LIC Mutual Funds — Analyst

And sir, could you please highlight about what is our right to win in the new geographies like the West, Central, South that you’re targeting where the existing shares are already very big. So, what is that your are differentiating there? Are we giving better margins to the distributors or are our pricing is better? What is it that we are doing there?

Ajay Jain — Chief Financial Officer

So I guess, see, I mean, the right to win here is the right to win here is the APL Apollo brand, okay, in the building material space, which is the largest than any other PVC pipe company in India, okay? One is that. Second, our product range, our ability to service the clients, our quality, right and our efforts to bring the brand pull from the end consumer. So there is no one right to win. We have to go as a full package to our clients. And we have been able to achieve that, okay? In North, we are already a dominant market leader. In South, our APL Apollo building materials brand is super strong. So, it helps us get into — it helps us get into any new market very easily within the southern region. East, Raipur, also because of the strong tailwind what we get from the North market in terms of the promotional exercise or the end user or the influencer management campaigns, what we are running, okay?

So, that’s what help us grow our market share, and we have been growing our market share consistently. Like I said, from under 1% to 2.5% in four years and targeting 4%. So, the whole package gives us the opportunity to take the wallet share of our distributors. And then once you are there, then you have to give them some extra sweeteners, which we do, right? And apart from that, the SQ range, one window solution than the serviceability, helping him with the secondary sale and influencing the plumbers and trying to create a brand pull, right? So these five factors help us increase the wallet share for Apollo pipes.

Shrenik Jain — LIC Mutual Funds — Analyst

And sir, could you please throw light on why have the PVC prices corrected so sharply? Like what are the key reasons as per you that the PVC prices have corrected sharp? And what is your view for the next six months, eight months?

Ajay Jain — Chief Financial Officer

So, PVC correction is a global phenomenon, right? All the commodities in the last two years, they have behaved in a erratic manner, which was triggered in Feb-March of 2020 on the onset of pandemic globally, right? The demand collapsed suddenly due to the lockdowns. The supply chain got disrupted globally. You would know that the shipping prices, etc, they skyrocketed during those times. And the new capacity, right, the new capacities, which got delayed, right? So, the prices was dropped and then they started going up. And then it was then triggered by Russia-Ukraine war, which again disrupted the supply chain. And then the world figured out that it is putting up inflation to very elevated levels, right? And then all the governments started taking measures to control this factory inflation, right? It’s not the PVC, it’s a lot of other commodities, whether metals, non-metals, oil, you know that how it has behaved, right? So PVC is part of that phenomenon. Nothing related to India. India is anyways, I mean not small, but not a major influencer of the value chain.

Shrenik Jain — LIC Mutual Funds — Analyst

Can you give me a rough estimate how much will be the India PVC consumption versus global PVC consumption?

Sameer Gupta — Managing Director

India, I think India’s consumption is somewhere around 28 lakh to 30 lakh tons of PVC resin per annum. And I don’t have the exact figure of the global consumption. That I have to check, but it should be somewhere around, you can see in the section, somewhere 5% to 6% of the total, we can say that. But I don’t have the exact figures with me for the global consumption of PVC.

Operator

Next question is from the line of Aasim Bharde from DAM Capital Advisors Limited.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

So first question, with the PVC prices coming down, don’t the smaller players also become more competitive? And so in a price-sensitive market where perhaps quality is not a high criteria for purchase, those markets will still be difficult to crack for organized players? Your views on that?

Ajay Jain — Chief Financial Officer

So in fact, I mean, the large organized sales will benefit, okay, because the PVC prices are coming down. Because when the prices go up and some of this segment is very, very price sensitive, so the people switch to low grade, low quality unorganized sector. But now that the overall PVC prices are coming down, so even the large organized players become competitive against smaller players. So, it’s the opposite phenomena, which is happening.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Because I would presume even for the smaller guys, PVC is getting cheaper or is it the case that PVC supply is still an issue for smaller players, they cannot buy in bulk versus what larger players can do? So, their per metric prices are still higher vis-a-vis — rather, the drop is much more better for organized players versus smaller player?

Sameer Gupta — Managing Director

Actually, what happens when the prices drop, right now, first of all, let me tell you that the PVC sourcing right now is not a problem for the last at least five, six months. It is very much easy because the prices were dropping and each and every player in the market, they were selling based on and destocking themselves from the resin stocks also. So that sourcing is not a trouble. And right now, also the government is after the prices to cool it down to the pre-COVID levels. So, all the suppliers they are into the market to sell their products. So, in the current scenario, the sourcing is not a trouble.

Secondly, when we talk about the prices coming down, the gap between the good quality material and we can say, sub-standard material, they will get narrowed out. Actually, you can say around one year back, the gap between the — you can see a good quality ISFI and you can say not standard pipe was almost INR30 to INR40 a kg. Right now, the gap is almost around INR15 to INR20. That has actually narrowed down, which creates, you can say, trouble for the small players to sell their products because they are selling their products only on the base of cost, not on the basis of their brand or the quality.

So, that is a big trouble for them when the prices are narrowed down and the farmers or the end users, they are easily able to afford you can say the pipe within their budget. With a good quality pipes, they can buy it. So that is the advantage that we get when the prices go down. So, in that sense, we don’t see any — you can see that we will be getting trouble from the unorganized sector if the prices go down. Of course, the working capital, that is — you can say that, that is the support for them that they don’t need much of capital to run their business. But the other factors remains the same, that the branding or the quality where exactly the game plays.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Secondly, on the PPR forte, so I just wanted to understand the market potential out there. So if the estimated pipes volume at the industry level, maybe say about 2.5 million tons or whatever the number is, how much would PPR be today? And what can it be, say, like maybe five or 10 years down the line? And also what needs to change on the ground to improve its acceptance? Because I presume PPR pipes are more expensive compared to PVC and maybe even CPVC pipes?

Ajay Jain — Chief Financial Officer

So PPR industries, you see, it would be around INR40 billion, 4-0, INR40 billion in our assessment, okay, which is a very big market. We have just started, right, from June itself, we started manufacturing and selling into the market. We believe all these new products, what we have launched in last one, 1.5 years, we want to make each product a INR100 crore basket revenue for us, INR100 crore, right? So, the immediate target is to ramp it up to INR100 crores, which may take two to three years.

Coming to your second point, yes, it’s an expensive product compared to existing CPVC segment, which is available in the same space. But PPR is in quality-wise, PPR is even better than CPVC. That’s why it’s expensive, okay? I mean in many of the regions in India, even CPVC fails and in high cold areas, it’s only PPR, which is used. And globally anyways, US Europe PPR is widely accepted product versus what’s available in India. So this market has been growing slowly, right, as more product awareness comes into play. What we believe is that this INR100 crore number, what we have set for ourselves, shouldn’t be much of a challenge, okay, like how we have tackled water tanks, how we have tackled bath fittings in the last two years, CPVC anyway is a great success story for us. So we do believe that PPR also, we can create this basket very soon once we have stabilized capabilities to manufacture it and market it.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

But this still would be a niche segment in the overall pipe space, even for you guys, right or would there — even though the pricing gap is still fair the difference between that and say, even CPVC, but would growth come from, say, cannibalization of PVC and CPVC into PPR or would PPR grow on its own?

Ajay Jain — Chief Financial Officer

Yeah. So, I guess, it would be like a mix of both, okay. It’s a pure function of awareness about the product, right? There are contractors, builders who do sell their projects by saying it’s better product even than what is available in the market, okay? So they do get premium. It’s a niche product. And at Apollo, we know how to market a niche product and make it a sizable business. So yes, it’s pretty — it’s nothing like which is new to us, we are pretty much on to the job.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

And just one last thing, just a clarification. So, what would be your non-agri mix right now. The 30% to 35% you’ve talked about earlier, saying that’s the value-added mix. Is that also the non-agri mix for you?

Ajay Jain — Chief Financial Officer

Yeah. So okay. So agricultural pipes will be around 45%, right? 55% is housing, plumbing, all right. Out of 55%, 35% is all those value-added products and 20% is uPVC plumbing pipes.

Operator

[Operator Instructions] Next question is from the line of Dushyant Mishra from SageOne Investments.

Dushyant Mishra — SageOne Investment Managers LLP — Analyst

I just wanted to know what kind of capex we’re planning out for this year in the North region that you were earlier talking about? And what kind of sort of volume we can expect from there?

Ajay Jain — Chief Financial Officer

Right. So, if you look at our current turnover on gross block, it is around 4 times to 5 times. So, all our incremental capacities will achieve same 4 times to 5 times turnover, maybe slightly higher because the new capacity is highly focused towards value-added products, where we have better realization, okay? So, yes, assuming 4 times to 5 times of asset turnover, one is that. And second, we would be spending around INR1.5 billion over the next three years, okay, to build the capacity, the new capacity.

Dushyant Mishra — SageOne Investment Managers LLP — Analyst

And this is all in the value-added products you said, right? Fully internal approved?

Ajay Jain — Chief Financial Officer

70%, 80% value-added and 20%, 30%, we have to put up extrusion lines, right? So yes, I mean 70%, 80% is towards the value-added products.

Dushyant Mishra — SageOne Investment Managers LLP — Analyst

And then on the second front, so our goal is to become a pretty sizable player in the next two, three years. I wanted to know how our PVC and CPVC sourcing strategy would change, let’s say, three or four years down the line? Are we going to be a little more flexible with pricing? How will that impact our profitability? And how you guys see that?

Ajay Jain — Chief Financial Officer

So, our strategy is simple, okay. We are looking ourselves as a strong manufacturing from marketing platform, okay, for all housing plumbing solution products, right? I mean if you look at our journey, we started from like agri pipe, but today, 55% of our products belong to housing plumbing category, right? So, the focus is to keep on growing portfolio in that segment and become a pan-India player. Today, we have one mother plant in North India, but we want to have three plants of similar size across geographies, right, South, West, East. And all plants should be producing like all the products, right, so, that we have very deep penetration into that geography. And at the same time, we keep on expanding our distribution network. We keep on adding new customers every month and try to penetrate more and more into that geography so that we can cater to more hardware shops, more retail touch points. So to do that, we have very strong cash flows coming in from our business. So, all the capacities will be funded from internal cash flows. Our working capital cycle is around 50, 60 days. Sure, we will not let it go up, right? It will only be rationalizing over the next two, three years. So, we are working on a very simple strategy philosophy wherein we keep on adding capacities and we keep on adding the client base, right, so that we control the whole value chain right from manufacturing to the end product.

Dushyant Mishra — SageOne Investment Managers LLP — Analyst

And just a quick question on that. How much are we sourcing from India for PVC and CPVC?

Sameer Gupta — Managing Director

It should be somewhere around PVC, almost, you can say around 30% we are sourcing from India and 60% to 70% from international markets.

Operator

Next question is from the line of Bhavin Rupani from Investec.

Bhavin Rupani — Investec — Analyst

My first question is what is the normal inventory days for PVC and CPVC resins?

Ajay Jain — Chief Financial Officer

You mean the raw material?

Bhavin Rupani — Investec — Analyst

Yeah.

Ajay Jain — Chief Financial Officer

Right. So it should be around like the raw material will be around 20, 25 days.

Bhavin Rupani — Investec — Analyst

And my second question is, what is the average inventory holding cost for PVC and CPVC versus spot price?

Ajay Jain — Chief Financial Officer

Can you speak a bit louder, please?

Bhavin Rupani — Investec — Analyst

Yeah. What is the average inventory holding cost for PVC and CPVC versus the spot prices?

Ajay Jain — Chief Financial Officer

Inventory cost as an —

Bhavin Rupani — Investec — Analyst

Holding cost.

Ajay Jain — Chief Financial Officer

What is holding cost. Our working capital is internally funded, we don’t have any debt on the books. So, there is no holding cost to hold inventories.

Operator

Next question is from the line of Dhananjai Bagrodia from ASK.

Dhananjai Bagrodia — ASK Group — Analyst

What have we done in terms of gaining market share? Are we pricing lower? How are we communicating to influencers and —

Ajay Jain — Chief Financial Officer

Dhananjai, there is background noise. Can you speak closer to the mic or louder, please, I’m sorry.

Dhananjai Bagrodia — ASK Group — Analyst

So sir, I was asking with so many other incumbent players who have been in this industry for so much longer, what have we done in terms to gain market share? Are we pricing our products competitively or have we done a better job in terms of approaching the last-mile better? What have we done in terms of that?

Ajay Jain — Chief Financial Officer

So I guess I did address this question earlier as well, I’m doing it again. It’s not just one factor, okay? It’s, we, when we approach any client, we go with a complete package. We offer him a complete package. So, it starts right from APL Apollo brand, one of the leading brands in the building material space, one. Second, there will be some extra sweeteners to the clients so that he starts doing business with us. Yeah, our margins inheritance are lower than our competitors, right, the top five competitors. So, this explains because we offer additional discount sweetener to our clients. Third, third part of the package will be the SKU range, which matches any top or PVC company in India, right? Four, is the serviceability, okay, to make the product available at his counter when he requires, right? So all the supply chain infrastructure, what we have created to service those clients regularly.

Next, fourth will be the brand pull, which comes from the influencer, who is the plumber here and the end consumer, right? So, the influencer programs, what we run regularly and second, trying to get mind share in the end consumers’ mind through ATL, BTL activity, what we do regularly. And lastly, now we have started supporting our channel partners with the secondary sales also to some extent, right, we have started pilot projects in some of the markets. So, that’s also helping us kind of have more wallet share from our clients. So, these are the broad-based five things, which we take as a complete package and offer to our clients. This has helped us to grow our market share and this will help us to grow our market share further.

Dhananjai Bagrodia — ASK Group — Analyst

And do you see a market share gain, as you see for the next three years? Do you see that coming more from competitors?

Ajay Jain — Chief Financial Officer

Of course, we do from 1%, we have moved to 2.5%. And at INR2,000 crores, we could be around 3.5% to 4% market share.

Dhananjai Bagrodia — ASK Group — Analyst

And this will come pretty much from organized or are we seeing more unorganized to organized shift?

Ajay Jain — Chief Financial Officer

Yeah. So majority will come from unorganized sector because that’s where we see a lot of vacuum, okay? We coming in. And yes, I mean, there could be some market share gains from established strong players also, but we yeah, majority from unorganized.

Operator

Thank you. Due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to —

Ajay Jain — Chief Financial Officer

Let’s take one more question, please. Sorry, let’s take one more. We still have two minutes.

Operator

Okay, sir. Not a problem. Please give me a moment. Next question is from the line of Vijay Chauhan from Right Horizons.

Vijay Chauhan — Right Horizons — Analyst

So in the short-term, like we were impacted due to the destocking phenomenon in the industry-wide. So, is there any color that like we can have on the — like the June scenario versus the April and May in terms of monthly run rate or something? And how the situation has been in the July or in the — like any improvement are we seeing on the ground?

Ajay Jain — Chief Financial Officer

Right. So see, I mean, we have witnessed volume decline Q-o-Q basis in Q1, right? So, we believe that Q1 should be bottoming out because the price crash was — I mean, 20, 25 per kg and in July, although it’s like more brutal because it took three months for PVC prices to come down by 20, 25 per kg. But in July itself, it has come down by that much. So I guess, we do believe that we should be doing at least a similar kind of revenue run rate in 2Q as well. But let’s see, I mean, how things move up. There are two fluids, right? For example, I’m just saying for the sake of it, if the prices start going up, then 2Q could be much better than Q1 because all the distributors, channel partners are sitting with very, very low inventory levels, right, and they’ll try to restore. So I guess I mean, situation is very fluid. It’s changing on a daily, weekly basis. So, we are monitoring it. And our focus is more on like to cater to the demand, which is underlined with our channel partners, right? This is the reason that why we could also do the revenue run rate, what we did, right? Otherwise, some of the industry has — the volume in the industry have fallen quite significantly in Q1, right? But we could arrest it to around 12% decline, right? So I guess, our strategy is simple that whatever demand comes from our distributors, we try to meet that.

Vijay Chauhan — Right Horizons — Analyst

So any monthly update in terms of volumes that we’re doing maybe 5,000 per ton or 6,000 per ton right now?

Ajay Jain — Chief Financial Officer

Sorry?

Vijay Chauhan — Right Horizons — Analyst

On monthly run rate basis, are we selling somewhere around 5,000 ton per month or anything, like any improvement we have seen or in the ground scenario?

Ajay Jain — Chief Financial Officer

For July, as we know that they have fallen, the prices have fallen more brutally, right? So run rate is similar to like what we did in Q1, the monthly run rate so far.

Vijay Chauhan — Right Horizons — Analyst

And last question like the margin side. So, we are targeting to reach INR20 per kg or INR20,000 per ton in the next coming two years. But this is maybe a mid-term goal, but our value-added products are somewhere between INR28 per kg and more than that category. So how we are looking at from the longer-term perspective, maybe four, five years down the line. Are we looking somewhere around INR25 per kg, INR26 per kg, kind of margin profile because that will help us to further enhance our ROCE and ROE levels.

Ajay Jain — Chief Financial Officer

So we will move from 13,000 per ton, 14,000 per ton to 17,000 per ton, 18,000 per ton, which we have achieved. And now we’ll be moving towards 20,000 per ton, right, in three years, by March ’25, that’s our guidance. So, I guess it will take us one to two years to stabilize that 20,000 per ton, okay, number. Only after that, once it’s stabilized for one year, two years, only then we’ll be in a situation to see can this number go to 25,000 per ton. I don’t know. I don’t know today, right? So, our first objective is, first goal is, first target is to achieve this number and sustain it for at least one to two years and then we’ll see how it goes.

Operator

Thank you. Due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Sameer Gupta for closing comments.

Sameer Gupta — Managing Director

Yes. Thank you for joining the call. For any further queries, you may get in touch with us. Thank you once again and take care.

Operator

[Operator Closing Remarks]