Apollo Pipes Ltd (APOLLOPIPE) Q3 FY21 Earnings Concall Transcript

Apollo Pipes Ltd (NSE:APOLLOPIPE) Q3 FY21 earnings concall dated Jan. 18, 2021.

Corporate Participants:

Sameer Gupta — Managing Director

Ajay Kumar Jain — Chief Financial Officer

Analysts:

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Ankit Gor — Systematic Institutional Equities — Analyst

Madhav Marda — Fidelity Investment — Analyst

Agastya Dave — CAO Capital — Analyst

Punit Mittal — Global Core Capital Limited — Analyst

KVRS Babu — Vishar portfolio Investment Private Limited — Analyst

Abhinav Sood — ZM investment — Analyst

Ankit Shah — Stallion Asset — Analyst

Achal Lohade — JM Financial — Analyst

Karan Bhatelia — Asian Markets Securities — Analyst

Dhiral Shah — Phillip Capital — Analyst

Aasim Bharde — DAM Capital — Analyst

Amit Soni — PwC India — Analyst

Ajay Sharma — Maybank — Analyst

Yash Modi — ICICI Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q3 FY ’21 Earnings Conference Call of Apollo Pipes Limited, hosted by Systematix Institutional Equities.

[Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ankit Gor from Systematic Institutional Equities. Thank you, and over to you, sir.

Ankit Gor — Systematic Institutional Equities — Analyst

Thank you, Steve. Hello, everyone. On behalf of Systematix, I welcome all to the Q3 FY ’21 earnings call of Apollo Pipes Limited. From the management side, we have Mr. Sameer Gupta, who is the Managing Director; and Mr. Ajay Kumar Jain, who is the Chief Financial Officer of the Company. Without much ado, I would like to hand over the call to Sameer [Foreign Speech], and the management of — management participants for the opening remarks, after which we can open floor for Q&A.

Thank you, and over to you, sir.

Sameer Gupta — Managing Director

Thank you, everyone. This side is Sameer Gupta. Good afternoon everyone, and thank you for joining us on our Q3 and nine months FY ’21 earnings call to discuss the operating and financial performance for the quarter. I trust that you and your families are safe. I hope you all had the opportunity to go through our results presentation, which provides details of our operational and financial performance for the third quarter and nine months ended on 31st December, 2020.

To begin with, I’m happy to share that we have reported an encouraging performance during the quarter led by strong recovery and robust conjunction across markets. Our total sales volume has marked a steady improvement of 7% Y-o-Y to 11,445 metric tons per annum — sorry, for nine months. In Q3, for FY ’21, mainly driven by a healthy contribution from our cPVC and value-added product segment of Fittings. In addition, our latest Apollo launch Apollo Life Water Storage Tank had also assisted volume performance during the quarter. On the whole, we are seeing increasing traction in demand across our product categories.

On the operational front, all our Greenfield and Brownfield manufacturing expansions across facilities are progressing as per schedule. The operationalization of our Greenfield facility at Raipur is also making healthy progress and we remain on track to commission this facility by March ’21. The plant with the proposed capacity of 7,200 metric tons will provide us strong impetus to our overall volumes. All our facilities are also now operating as stabilized — at a stable utilization level, and as operations further normalized it will help us boost overall volumes going forward.

I’m also happy to share that inquires and events of our latest launch Apollo Life Water Tank is seeing a strong buildup in the domestic markets. In order to address this increased demand for the product, we have already doubled our capacity for this growth at our Sikandarabad plant, and one unit at Tumkur plant. We remain confident that this product along with our other value-added offerings like fitting, solvents, cements, bath fittings, adhesives will enhance our reach and strengthens us going forward.

We are constantly working towards augmenting our presence across existing and new potential geographies. The operationalization of our Raipur plant in FY 2022 will enable us to grow our footprint in the untapped market of Eastern and Central India. Further, the launch of value-added products enhance running activities and sales wise capacity expansion across our facilities should further build the momentum going — for us going forward. On the whole, we are confident for the future growth potential and opportunities at domestic market over the medium and long term.

On that note, I would now like to invite Mr. Ajay Jain, to run you through the key financial highlights. Thank you, and thank you for joining this. Thank you.

Ajay Kumar Jain — Chief Financial Officer

Yes, good afternoon, everyone.

I will briefly cover financial performance during the quarter and nine months ended 31st December 2020. The Company delivered healthy operational and financial performance during the quarter, led by an uptick in demand and consumption in the domestic markets. Total income from operations for the quarter stood at INR128.1 crores, up by 28% as compared to INR100 crores in Q3 FY ’20. Sales volume for the quarter grew by 7% and it stood at 11,445 metric ton per annum, as compared to 10,712 MTPA, in Q3 FY ’20. Total income from operations for nine months FY ’21 stood at INR343.9 crores as against INR313.8 crores higher by 10% Y-o-Y.

On the profitability front, EBITDA for the quarter grew by 139% at INR25.5 crores as against INR10.7 crores in Q3 FY ’20. I would like to highlight that here, that there were notable price increases in raw material prices, material during the period due to which there has been a one-time inventory gain. This has resulted in sharp increase in EBITDA margins, which stood at 20% in Q3 FY ’21, as against 11% in Q3 FY ’20. However, we anticipate EBITDA margins to normalize going forward.

EBITDA for nine months FY ’21 stood at INR47.2 crores, higher by 32% as against INR35.8 crores in nine months FY ’20. Margins for nine month FY ’21 stood at 14% as against 11%, up by 232 bps. Though depreciation cost stood at INR11.8 crores in nine months FY ’21, in Q3 FY ’21, it stood at INR4.4 crore, as compared to INR3.4 crore in the same period last year, higher by 32%.

PAT for the quarter stood at INR16.3 crore up by 145% when compared to INR6.7 crores in Q3 FY ’20. PAT margins for the quarter also stood at 13% as compared to 6% in Q3 FY ’20, higher by 609 bps. PAT for nine months FY ’21 grew by 25% stood at INR27.8 crores as against INR22.3 crores in nine months FY20. PAT margins during the period stood at 8% as compared to 7% in nine months FY ’20, higher by 101 bps.

From this quarter onwards we have discontinued sharing the segment wise revenue detail, because of the sensitivity of the data, I hope so. And hope we can provide the details in due course.

On the balance sheet front, our net cash position stood healthy at INR29 crores. Our capex outlook remains steady, and we expect to fund the same through internal accruals. On the working capital front, additional raw material requirements at newly commissioned capacities in a moderately impact inventory levels in the near term. However, our endeavor 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 very much. [Operator Instructions] The first question is from the line of Bhargav from Kotak Mutual Fund. Please go ahead.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Yes, good afternoon team and congrats for a good set of performance.

Sameer Gupta — Managing Director

Yes, thank you.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Sir, my first question is that, we’ve seen significant increase in PVC prices. So just wanted to have your thoughts in terms of, what is the impact of this on the volumes per se?

Sameer Gupta — Managing Director

Hi, Bhargav, the prices are almost at the peak right now and the industry is witnessing the same. But as you know that there is no much alternates to this product. So the volume may be deferred for a short time, but it cannot be avoided. So we don’t foresee any much, you can say, volume impact on the — this product going forward despite the prices are high. But the market will stabilize and the volumes will be, you can say again, back to normal, once the you can say prices are, you can say, they’re in the — it is stabilized in the mind of consumer.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Okay, understood. Secondly sir, any views in terms of where can these prices sort of stabilize? You mentioned that they’re at all-time high levels. So essentially what are your thoughts in terms of where these prices could stabilize in the medium term?

Sameer Gupta — Managing Director

Yes, right now, because in India if you see that, almost 50% or 60% of the demand for PVC product is catered through the imports. And because of logistic issues of COVID going across the world, so the material availability is real problem. Once this thing stabilizes then we can see that the prices will be stabilized. But we don’t see too much, you can say, drastic change in the near future for this product. Minor changes maybe there, but we don’t see right now too much drastic change. So you can say that the prices will be, you can say, stabilize and going forward around six months or nine months down the line, it may go back to now the normal stage.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

So in these uncertain times, how are we planning our inventory? Because are we sort of resorting to reducing our inventory levels, given that we expect a correction in the price or how are we doing it?

Sameer Gupta — Managing Director

Of course with the prices to be all-time high, we are very much cautious regarding the inventory level of our plant. And we are trying to work on the minimum level that will benefit us on the both side whilst the working capital cycle will be low and other the inventory loss will not be there too much. And of course we are seeing the strategies for purchase because we are mainly dependent on imports for our purchases. So we are, you can say, planning in such a way that the minimum impact should be there on our, you can say, profit lines.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

And lastly, in terms of our water tank business, is it possible to share our manufacturing capacity? And have we tied up with any outsourcing partner for it?

Sameer Gupta — Managing Director

Yes, right now we have not tied up with any outsourcing partner. During the third quarter, only one machine was available and three more machines were under installations in which two machines have been installed in the last month of, you can say, late December somewhere around last week of December. So from this quarter onwards we will be seeing that, you can say, number for next two machines and the fourth machine will be coming in Raipur. So that number will be coming from the quarter one next year. So, and right now we don’t have any tie-up with any, as you can say, service provider.

Bhargav Buddhadev — Kotak Mutual Fund — Analyst

Okay, gentlemen. Thank you very much. And all the very best.

Sameer Gupta — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Madhav Marda from Fidelity Investment. Please go ahead.

Madhav Marda — Fidelity Investment — Analyst

Yes, hi, sir. Good afternoon. Thank you so much for your time. My first question was that, our volume growth for this quarter has been 7%. Broadly at the industry level, what could it be for PVC pipes?

Sameer Gupta — Managing Director

We are not very much sure because the numbers from other companies are yet to come. But there has been a pressure on the volumes, because of the all-time high prices. The dealers and the retail networks, they are trying to reduce the inventory and working on day-to-day basis, on need to do-it basis. So because of that, a little bit of pressure is there on that events of volumes.

But going forward, we don’t see too much, you can say, backlog on this account because as the inventory level will go down, then they have to purchase their needs — daily needs and you can say the projected needs of their demand from us. So going forward, there will not be any much impact on the volumes. And as concern about the — if we talk about the rest of industry, it should be at par with our volumes, I think so.

Madhav Marda — Fidelity Investment — Analyst

[Technical Issues]

Sameer Gupta — Managing Director

I cannot hear you. Please repeat again.

Operator

Mr. Marda?

Madhav Marda — Fidelity Investment — Analyst

[Technical Issues]

Operator

Mr. Marda, we have been unable able to hear you.

Madhav Marda — Fidelity Investment — Analyst

Yes. Is it better now?

Operator

Yes, sir. We can hear you now.

Madhav Marda — Fidelity Investment — Analyst

Yes, my question sir, was that, given that PVC price is bit high and we hear of smaller PVC players struggling either to get raw material or to fund working capital. So because of that can there be more consolidation in the space in 2021?

Sameer Gupta — Managing Director

There can be because, for the smaller players, it has been a tough year because of the all-time high premium also on this product and the material was not available and premium was too high. So they were not able to sell their products. So there may be some cost consolidations in this numbers. But right now we don’t have any such data with us that how many such players have been stopped their, you can say, this production activities and what is exact impact on them. So we cannot comment right now on them.

Madhav Marda — Fidelity Investment — Analyst

Okay. And sir in our reported results, is it possible to give us a broad sense as to how much does the inventory gain contribute towards the margin expansion versus the product mix improvement that we have achieved?

Sameer Gupta — Managing Director

Yes. Of course, there is the inventory gain in this quarter, but it is very difficult for us to determine because of the regular movement of material and we have been regular selling our products. So it is not very easy for us to calculate. But we are actually very much focused to have a sustainable, you can say, EBITDA margin of 12% to 13% of our product, and we are also working on the value-added products side. That is also supporting us a bit in our this EBITDA levels improvement. So it should be a good, you can say, numbers. And there is some part of this profit margin is from this inventory gain. But it is not very easy for us to calculate the same.

Madhav Marda — Fidelity Investment — Analyst

Okay, sir. I’ll come back in the queue.

Sameer Gupta — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Agastya Dave from CAO Capital. Please go ahead.

Agastya Dave — CAO Capital — Analyst

Thank you, Sameer, for the opportunity. And congratulations on good numbers. Sir, [Foreign Speech] question [Foreign Speech] if I look at the quarter-to-quarter numbers, compared to Q2, our volumes have dipped. So how should I look at it, because I am not very sure how seasonality plays out. And this year, Q2 was impacted because of corona. So how do I look at that?

Sameer Gupta — Managing Director

Yes.

Agastya Dave — CAO Capital — Analyst

And you mentioned that there is volume pressure [Foreign Speech], can you quantify that, like how much, I mean, is there an estimate to that?

Sameer Gupta — Managing Director

Yes, Agastya, thank you. First of all, there has been a volume contraction if we see quarter-on-quarter, but because of that, we have started after COVID in quarter one in somewhere until late of May. And there was lot of demand back up was there in quarter two. Ordinarily quarter two, as you can say, is back on the demand side. But because of the backlog of the quarter one, we saw a good, you can say, demand from that quarter two. But because of that good demand, the demand shifted a bit, you can say.

Agastya Dave — CAO Capital — Analyst

Got it.

Sameer Gupta — Managing Director

From July to — from June to July and August. So because of that, we saw a good, you can say, good jump in demand in quarter two. But if you talk about quarter three, we were mainly focused on building products and you can say, value added products. And because of, you can say, all-time high prices, the impact was there on some of the agri products. But being a building product, we were much more focused on building products and the cPVC and other bath fittings and adhesives.

So we were getting good response from there. So that helped us in improving our profit margin as well as the top-line was also very much you can say has gained because of that thing. And there was some impact on this agri products, which we see that, it should be back on track by — in this quarter, because the inventory levels are again going down with the dealers and the retailer network.

Agastya Dave — CAO Capital — Analyst

Sameer [Foreign Speech], I know it’s a very tough thing to estimate, but how would you gauge the demand as of now, the strength of the demand, because I understand price is high, obviously people have maybe postponing a bit.

Sameer Gupta — Managing Director

Yes, of course…

Agastya Dave — CAO Capital — Analyst

But are you satisfied with what you’re seeing? Is it encouraging or do you think we will see some sort of a slowdown?

Sameer Gupta — Managing Director

No, as Apollo is — we are in a growing stage and we are increasing our, you can say, product SKUs along with that we are also increasing our geographical markets. So we don’t foresee any much challenge on our side, maybe industry may see something, but being a very small size in numbers, you can say that industry of the total — considering of the industry, we are almost at 1.5% to 2% of the total industry. So we don’t see any much challenge to us. So there may be a slowdown across the industry, but that — not to that level, because of the high prices, the inventory level with the dealers and retailers are also at very low. So the demand will we be — should be continuing in the coming quarter.

Agastya Dave — CAO Capital — Analyst

And sir, the PVC price spike, could you quantify how much the prices went up by last quarter compared to Q2?

Sameer Gupta — Managing Director

I don’t have the exact figures for quarter — at what prices quarter two ended. But it should be somewhere around 30% to 40% price hike should be there on PVC.

Agastya Dave — CAO Capital — Analyst

Quarter-on-quarter. And sir, has it stabilized or is it still going up, let’s say last 15 days?

Sameer Gupta — Managing Director

No, it’s right now stabilized. And a bit of correction is there of around, you can say 2% to 3%. But that is not again impacting because of the availability of the material. It is not available in ample because of the COVID situation, the transports and the vessels are not available. So that challenge is still there.

Agastya Dave — CAO Capital — Analyst

So, sir, how — you mentioned that you would be reducing inventories, better inventory management. So can you like, throw some light on how are you managing it, because if you over-correct then probably you will have material shortages. So, how are you just exactly managing that?

Sameer Gupta — Managing Director

Yes, I understand that thing. Because of that thing we are trying to have some local sources for our procurement for at least next 5 months to 6 months so that the inventory problem should not be there at our plant. Along with that, again we are, you can say, optimization the stock levels because of that thing we can also manage some inventories over there.

Agastya Dave — CAO Capital — Analyst

Right, one last thing, sir, last call you mentioned that, your target for existing assets, with the existing asset base, you were targeting 3 times asset turnover and 12% EBIT. Now obviously, the prices have gone up, so the asset turnover obviously will be impacted. So that I understand, but on the EBIT side, do you think that long term 12% is sustainable or slightly more than that, are you changing that view?

Sameer Gupta — Managing Director

So we are focusing that thing only because we are trying — also trying to increase our market share along with that. Therefore we have — in this quarter we have seen a good demand from the cPVC and the fittings segment and there is a good growth on both the sectors. So going forward, the margins should be minimum 12% to 13% in the coming, you can say, quarters.

Agastya Dave — CAO Capital — Analyst

EBIT level?

Sameer Gupta — Managing Director

EBIT — I am talking about EBITDA level.

Ajay Kumar Jain — Chief Financial Officer

It could be around 10% to 11%.

Agastya Dave — CAO Capital — Analyst

Okay, perfect. So thank you very much sir. And all the best for the next quarter.

Sameer Gupta — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Punit Mittal from Global Core Capital Limited. Please go ahead.

Punit Mittal — Global Core Capital Limited — Analyst

Hello. Thank you for the opportunity. Couple of questions, one is, I think you mentioned in Q1 that you are targeting about INR60 crore to INR70 crore of revenue from your water tank business in FY ’21. Does that target stay or does it change?

Sameer Gupta — Managing Director

No, right now — I still remember. But in FY ’21 INR60 crores to INR70 crores from tank business, I don’t think it is right now possible because the capacities is not that much. We have only one machine at Sikandarabad in which we will be achieving somewhere around INR15 crores to INR20 crores on annual basis of this tank business. But going forward in the next year, we can target this amount. Because of that capacities will be available from this quarter onwards — Q4 onwards. So after that, we will be able to achieve that number.

Punit Mittal — Global Core Capital Limited — Analyst

So, let’s say from FY ’22 annually from each machine how much do you target, what revenue base do your target from each machine?

Sameer Gupta — Managing Director

Roughly around each machine will be around one point, you can say, around INR1.5 crores, Yes, roughly around INR15 crores to INR20 crores per machine will be there in — and if we multiply it by 4, it should be around INR60 crores to INR70 crores.

Punit Mittal — Global Core Capital Limited — Analyst

Okay. The second question is, would you be able to give some color on your geographical distribution and revenue now? I know you were very strong in North and some West — Western part and you are trying to expand into East and South. So, what is the distribution of revenue now and how do you see that panning out going forward?

Sameer Gupta — Managing Director

Going forward we, like we have installed in this capacity at Tumkur plant of PVC and with this tanks and fittings, and we are getting good response over there. So going forward, we think that the South will also be a good base for Apollo in the coming days. Along with that, we are also getting good response from other markets like markets like Western India, like, and you can say that from Ahmedabad plant, we are feeding that Western — Northern of Maharashtra and Southern of Rajasthan along with some parts of MP. And going forward bit from this Raipur plant, we will be feeding Central and the Eastern you can say India mainly.

So right now, much more focus is on the southern plant because Tumkur is a big plant. And we see that in the next year we will be seeing the — gets a good market presence in those markets. Along with that, in the — you can say, in the one or two, next one or two years we will also be seeing some good footprints in this Eastern India.

Punit Mittal — Global Core Capital Limited — Analyst

So, currently how much percentage of revenue is coming from like North versus other region?

Sameer Gupta — Managing Director

Tumkur is roughly around right now contributing around 10% to 15%. And along with that, other mainly this plant, Dadri plant is mainly focusing towards the northern market. And along with that, from Dadri plant, we are also supplying to all the parts like in Maharashtra or in Gujarat or in Tumkur or the fittings and other range of the products, because all the products are not being manufactured all across, you can say, plants. So the bit of stock transfers is also there. So put together, you can say that the South should be around, you can say, 10% to 15% minimum. And going forward, it should be around 20% to 30% in the next year.

Punit Mittal — Global Core Capital Limited — Analyst

Great. And the last question from me is that, you mentioned that your — due to the extensive distribution network, your delivery time is reduced to 48 hours from 10 days to 12 days. How does that compare to the competitors in terms of the delivery time?

Sameer Gupta — Managing Director

I’m not exactly aware what — how many days they are taking to deliver the goods. But 48 hours delivering the goods is good time in the industry. And if it — if you are able to maintain this 48 hours delivery, we will be getting good response from the market.

Punit Mittal — Global Core Capital Limited — Analyst

Do you think, I mean, given the current situation where you just mentioned that dealers are trying to reduce the inventory, this 48 hours delivery time gives you some advantage because you’re able to replenish the stock very quickly with the dealers.

Sameer Gupta — Managing Director

Yes, of course, it will.

Punit Mittal — Global Core Capital Limited — Analyst

Fine. Okay, that’s it from me. Thank you so much.

Sameer Gupta — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of KVRS Babu from Vishar Portfolio Investment Private Limited. Please go ahead.

KVRS Babu — Vishar portfolio Investment Private Limited — Analyst

Fittings is almost 20% of our revenue last quarter, and at what level you want to see the fittings reach that same as our main product, our — at what level you want to see fittings in next two years to three years?

Sameer Gupta — Managing Director

Fitting is still our main part. And the level right now it is around 20% to 25% only. And it will be around 25% to 30% at peak level also. And at this level also fitting is, you can say, will be contributing main — will be a main contributor to the top and the bottom line. And going forward, if we increase the sales volume of fittings, then it will also have the impact of, you can say, on pipes also. So, if we increase the sales of fittings, it will be added — it will also be adding the sales of pipes. So percentage will be around this thing only going forward.

KVRS Babu — Vishar portfolio Investment Private Limited — Analyst

And what is the margin for fittings?

Sameer Gupta — Managing Director

It depends upon — yes, yes, it depends on, because there are lots of SKUs on the fittings and it is, you can say, from product to product like agri fittings or uPVC fitting our cPVC fittings like we have been diversifying in all the three products. So they have got a little bit of different margins. But it should be somewhere around 20% to 25% of EBITDA margin.

KVRS Babu — Vishar portfolio Investment Private Limited — Analyst

Is there any market share gain from unorganized sector because of COVID or with raw material pricing, they are unable to produce, is there any…

Sameer Gupta — Managing Director

Yes, of course, there is certainly you can say market gain from the unorganized sector because of the all-time high prices. And the premium was too much and the unorganized players were not able to feed the market because of the sourcing from open market was very high. So definitely the organized players have gained in this account.

KVRS Babu — Vishar portfolio Investment Private Limited — Analyst

And what is the industry growth you are expecting. I mean, presently government is giving a lot of things to this mainly agri people, farmers who are agri people, and our main product is uPVC. So we are expecting any big change in industry growth or it will be same as the previous year?

Sameer Gupta — Managing Director

No, actually, if we see the industry growth, it is right now stable and a bit of impact of COVID is there because of the unorganized sector not able to perform well because of the high prices. Along with that the government is also supporting us, so for the — for this product by agriculture or the housing plans that is going on in India. So we see that there should be a good growth in this product of uPVC or cPVC because all these products are going in this sector. So there should be a good growth, you can say of around, you can say, around 7% to 10% in the, you can say, industry.

KVRS Babu — Vishar portfolio Investment Private Limited — Analyst

Yes. Thank you.

Sameer Gupta — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Abhinav Sood [Phonetic] from ZM Investment. Please go ahead.

Abhinav Sood — ZM investment — Analyst

Yes, good afternoon, sir. And thank you for the opportunity. Sir, I wanted to know how are we seeing the PVC price momentum going forward for the next one to two quarters only, not beyond that because beyond that, you obviously mentioned that the prices would normalize. For the next one to two quarter, how do we see the prices?

Sameer Gupta — Managing Director

There should be a pressure of, you can say, on prices of PVC, because it is all-time high. But along with that, in the next one to two quarters, the main PVC season period is also there. So there a little bit of confusion is there in the market whether to stock the material or to vanish the stock and just turn around the plant with very lower inventory. So, a bit of confusion is there. That call we have to take and industries also, you can say, are cautious regarding that thing.

So in the next one or two quarters, we don’t see too much, you can say, drop in the prices. And along with that, because of the robust demand in the quarter one of FY next year, so because of that, we have also to, you can say, keep the inventories with us. So depending up on — seeing that, the prices should not be impacted too much in the, you can say, one or two quarters.

But going forward, after June or July, there should be a impact. But international market behavior is also you can say a important thing to watch in this aspect because of material, if the material is not available and vessels are not available, so that again will be a challenge for us to procure the material and the prices will remain on the same level.

Abhinav Sood — ZM investment — Analyst

Okay. That’s very clear explanation. Thank you, sir. And sir, one more question. In EBITDA levels, you mentioned, what are a targeted EBITDA normal levels that you are targeting, is it 12% to 13%?

Sameer Gupta — Managing Director

Yes, we are targeting this EBITDA level only right now.

Abhinav Sood — ZM investment — Analyst

And we are mainly dependent upon imports, whereas our — some established competitors are sourcing it from Reliance and other local domestic companies. So why aren’t we not sourcing from Reliance and other domestic sources?

Sameer Gupta — Managing Director

No, we are also sourcing from Reliance because — after — earlier we were mainly depending on imports. But from last quarter, we have shifted our — some of the purchases from imports to domestic market. And almost you can say around 10% to 20% around, roughly around 20% of our right now purchases is from the domestic market, which we are keen to increase, like I told in my earlier or — to earlier person also that, we are increasing this percentage to roughly around 30% to 40% from the domestic market.

Abhinav Sood — ZM investment — Analyst

Okay. And sir, import prices, are they higher or lower than the domestic prices?

Sameer Gupta — Managing Director

Right now, they are, you can say, roughly around equal to the domestic prices, there is no much gap right now from the import prices and the domestic prices.

Abhinav Sood — ZM investment — Analyst

Okay, sir. And sir, last question from my side. What is the capacity utilization levels right now?

Sameer Gupta — Managing Director

Right now capacity utilization level is roughly around 50% to 55% across — all across units.

Abhinav Sood — ZM investment — Analyst

50% to 55%?

Sameer Gupta — Managing Director

55%.

Abhinav Sood — ZM investment — Analyst

And what are the peak levels we can achieve?

Sameer Gupta — Managing Director

It is roughly around 70%, you can say that, 65% to 70% is the peak level that we can achieve of the total levels.

Abhinav Sood — ZM investment — Analyst

So on an 1 lakh MTPA capacity, we can achieve around INR700 crores to INR800 crores of revenue?

Sameer Gupta — Managing Director

Of course.

Abhinav Sood — ZM investment — Analyst

Okay. Thank you, sir. That’s it from my side.

Operator

Thank you. The next question is from the line of Ankit Shah from Stallion Asset. Please go ahead.

Ankit Shah — Stallion Asset — Analyst

Yes, I just wanted to understand what were the differentiated margin for value-added products and PVC pipes? And what would be your long-term revenue share from these two products going ahead?

Sameer Gupta — Managing Director

Right now we are much more focused on value-added products like fittings and we are getting a margin of something around 20% to 25% from PVC products. And on the pipes if you talk about, this is roughly around 5% to 10% of the — you can say EBITDA margin. And going forward, we will like to maintain the same level, you can say. Because we are much more focused on the consumer market increasing rather than increasing the, you can say, bottom line of because of this PVC pipes, it may hit us if you increase the, you can say, bottom line in PVC.

Ankit Shah — Stallion Asset — Analyst

So what will be the long-term revenue share from these two product lines, value-add and PVC, what would be the long-term guidance for that?

Sameer Gupta — Managing Director

Roughly around 50% to 60% will be coming from pipes. And we can say around 5% to 10% will be coming from, you can say, other products and this fittings will be somewhere around 25% or to 30%.

Ankit Shah — Stallion Asset — Analyst

Okay. And I just wanted to understand how many distributors of Apollo Pipes and APL Apollo would be same, like what percentage of distributors would be also with there — be there with APL Apollo, as well as with Apollo Pipes? And what percent of distributors are yet to be covered by Apollo Pipes or are already catering to APL Apollo?

Sameer Gupta — Managing Director

Earlier I also told in my earlier calls also that, right now we are not much focused upon that to target the Apollo Pipe distributors, rather we are targeting the dealers and the retail networks. So that the retail and the dealer networks should be the same or we may have the, you can say, benefit from there. Some dealers or distributors of Apollo Tubes, they are big and they are quite substantial, but they are not focused on plastics. So if we go through them, then it will be not good for our business.

So we are much focused towards the market side where we do have a good brand presence and the, you can say, and we can say the branding of Apollo Tubes should complement us in this product. But if we go through that same distribution network, then that would hamper us. So we are not much, we can say, very much focused toward same distributorship, the markets we are targeting to be same. And we can enjoy the benefit of APL Apollo’s branding.

Ankit Shah — Stallion Asset — Analyst

But would you have distributors who are already part of APL Apollo currently?

Sameer Gupta — Managing Director

Of course, there are some distributors who have shared — who are common in both the companies. But we don’t have such numbers with us.

Ankit Shah — Stallion Asset — Analyst

Okay. And just a bookkeeping question, what will be the inventory gain this quarter? If you can quantify the number?

Sameer Gupta — Managing Director

It is not easy to quantify, I told in my earlier [Indecipherable]. It is not easy to quantify, but it is good, because we are selling on a regular basis, and the material movement is also there on the regular basis. So it is good and we are trying to maintain the EBITDA level of 12% to 13%, we are working out as per that only. So you can see that, because of that thing, you can — it can go.

Ankit Shah — Stallion Asset — Analyst

Okay. And when do you expect the capacity to be completely utilized? We’re — I think so [Indecipherable] 125,000 MTPA by March ’21.

Sameer Gupta — Managing Director

’21, yes.

Ankit Shah — Stallion Asset — Analyst

Yes. And currently you are at — we are at a run rate of 45,000 MTPA to 46,000 MTPA. And how many years do we expect to be completely utilized?

Sameer Gupta — Managing Director

We don’t know, actually it’s a seasonal product. And in the season time, we are always running short of the capacities. So, running 100% capacity of 125,000 right now it’s not possible, because if we see that, going forward we will definitely increase in the capacity of all the products again. If we — first we reach this 125,000 and we reach a turnover of INR1,000 crores, then going forward, we will be increasing the capacity of all the products again. So going forward, the capacity utilization will be good and we are targeting good, you can say operational efficiency at our works also. So it should be, you can say, roughly around 60% to 70% at the peak level, I think so.

Ankit Shah — Stallion Asset — Analyst

Okay. Thank you. Thank you, sir.

Operator

Thank you. The next question is from the line of Achal Lohade from JM Financial. Please go ahead.

Achal Lohade — JM Financial — Analyst

Yes, thank you for the opportunity sir. Congratulations for the great numbers. My first question is in terms of agri versus non-agri, could you give some color on that? Is there any agri mix for us. And if yes, what is that mix?

Sameer Gupta — Managing Director

No, I could not understand. What is — what you…

Achal Lohade — JM Financial — Analyst

The agriculture, agri pipes fittings, for us is — Yes, what is the revenue contribution?

Sameer Gupta — Managing Director

Okay. The revenue — the break-up is almost the same. We are working almost on the same, you can see a little bit of decline in that current quarter is there on the agriculture pipes because of that, you can say, high prices and some impact because of this extra inventory with the dealers and distributors. But I can say, the percent is almost same with the last quarter.

Achal Lohade — JM Financial — Analyst

Could you please help with the number sir? Sorry, I don’t have the number in front of me. Would you have that number, agri, what is the mix, revenue mix or volume mix?

Sameer Gupta — Managing Director

It will be difficult for us to disclose this thing.

Achal Lohade — JM Financial — Analyst

Okay. But you said, the agri — the channel inventory was higher in agri. And that’s why less of primary sales in the quarter. Is that what you said, sir?

Sameer Gupta — Managing Director

Yes, it is also impacting, along with that high prices. Because of high prices, a bit of demand is being deferred. So that is also impacting. Both the things are, you can say, hampering the demand.

Achal Lohade — JM Financial — Analyst

Understood. And in terms of the cPVC, possible for you to share how much — how large is cPVC for us in terms of the mix?

Sameer Gupta — Managing Director

Yes, cPVC, again growing — it’s on the growing side. And all the — you can say that, if you see that the growth of our company quarter-on-quarter basis is roughly around 30% — sorry year-on-year basis is roughly around 28%. So you can see that the major contribution is there from fittings and cPVC.

Achal Lohade — JM Financial — Analyst

Understood. Understood. And you mentioned that 7% is the volume growth for us and that would be — industry should be similar volume growth at the aggregate level. So how do we tally this unorganized to organized shift if the industry growth is 7% only for the quarter?

Sameer Gupta — Managing Director

I don’t know actually because the — we cannot right now, because just the quarter has ended and we don’t have the figures from other competitors and other, you can say players. So we don’t have, what exactly the industry has performed. Going forward, we will have the figures from other players, then only we will be able to calculate that how exactly the industry has performed. But right now as per our assumptions, the industry should be in this line only.

Achal Lohade — JM Financial — Analyst

Understood. And just last question if I may, in terms of the competitive intensity from the large players, has that gone up or gone down or remained similar?

Sameer Gupta — Managing Director

It is right now for Apollo, it is almost similar as you can say as the last quarter it was. The competition was almost similar.

Achal Lohade — JM Financial — Analyst

Right. And given the agri season is coming up, have you started seeing more inquiries or things are as they were in the last quarter in terms of agri given the high PVC prices?

Sameer Gupta — Managing Director

No, there should be inquiries because last week, you can say, first or second week was more festivals in the Western and Southern India because of Pongal and other festivals there. And North because it was a bit impacted because of extreme cold. So going forward, we are very much optimistic regarding the demand and you can say sales for agri pipes.

Achal Lohade — JM Financial — Analyst

Got it. This is very helpful, sir. Thank you so much.

Ajay Kumar Jain — Chief Financial Officer

Achal, on that agri building material mix, please note that, we have been giving our revenue wise break-up till first half of FY ’21. So you can look at our last quarter presentation, you will have some idea for the split between agri and building material.

Achal Lohade — JM Financial — Analyst

Sure, I’ll do that sir. That’s helpful. Thank you.

Operator

Thank you. The next question is from the line of Karan Bhatelia from Asian Markets Securities. Please go ahead.

Karan Bhatelia — Asian Markets Securities — Analyst

Hi, sir. Thank you for the opportunity. Contribution from metros was very dull when we talk of first half of FY ’21. So for the quarter, have we seen like good recovery from the metro side or are we still back on a Y-o-Y basis?

Sameer Gupta — Managing Director

No, if we see our recoveries from metro side, there has been now you can say good demand from the metros, along with the rural areas also. So put together, I think the demand is recovering, if we see that. And along with that, we are also focusing however, you can increase our — in our SKUs of our product portfolio. That is also helping us a lot in increasing our sales.

Karan Bhatelia — Asian Markets Securities — Analyst

Right. And sir, we keep hearing that the plastic piping segment is seeing a lot of market consolidation. So have we seen a good dealer addition in last six to nine months?

Sameer Gupta — Managing Director

So we can — yes, of course, because of that thing, we are definitely seeing, you can say, addition of — good number of addition of dealers, you can say, distributor networks. But right now, we are not able to comment upon this, because we don’t know how, you can say, regular they will be or how long they will be running. Once they are regularized and we will definitely add there in our number.

Karan Bhatelia — Asian Markets Securities — Analyst

Got it. And sir, last question if I could proceed. Sir if you can give us plant-wise utilization levels, what at Dadri, at Ahmedabad and what levels at Tumkur?

Sameer Gupta — Managing Director

Tumkur, we are seeing good utilizations. But it is amongst all the plant, it is roughly running between 50% to 60% from all the plants.

Karan Bhatelia — Asian Markets Securities — Analyst

Okay. Thank you, sir. That’s it from my end.

Operator

Thank you. The next question is from the line of Dhiral Shah from Phillip Capital. Please go ahead.

Dhiral Shah — Phillip Capital — Analyst

Yes, good afternoon, sir. And thanks for the opportunity. Sir, what kind of fitting growth we have seen in this quarter?

Sameer Gupta — Managing Director

It is roughly around you can say 30% to 40%.

Dhiral Shah — Phillip Capital — Analyst

Okay. And sir, when you say that cPVC, HDPE and value-added segment have grown, so is it a pent-up demand still in the system or are we also seeing a fresh buying?

Sameer Gupta — Managing Director

No, it was not pent-up demand, it was regular buyings from all the, you can say, dealers and we are working across increasing the distributor network along with the geographies also. So altogether, it has helped us in increasing our sales for these products.

Dhiral Shah — Phillip Capital — Analyst

Okay. And sir how much dealer distribution network we have added in this quarter or maybe nine-month FY ’21?

Sameer Gupta — Managing Director

That’s what I told in the last to Karan also that, we have been increased — we have been getting good inquiries and increased our sales to new dealers and distributors. But we don’t know how long they will sustain. So going forward, we are — right now we are working on yearly basis at how much, how many exactly or sustained numbers we have added so that the figures don’t go up and down every quarter. So we will be disclosing this number every — working on this number every year so that the — there should be some, you can say, base of those numbers for the investors and others you can say.

Dhiral Shah — Phillip Capital — Analyst

Okay. And sir lastly, when you say that, maybe by March ’21 we are looking for a 125,000 ton kind of a capacity. So where we are exactly adding this capacity, which facility sir. And for which product?

Sameer Gupta — Managing Director

Yes, we are adding capacities across, you can say, across all the locations. And mainly we are focusing on water storage tanks and these fittings. Along with that, the pipes is also being added. So all the products and all the, you can say, segments we are adding the capacities.

Dhiral Shah — Phillip Capital — Analyst

But this will be purely for Dadri or we are looking at even Bangalore and Gujarat also sir?

Sameer Gupta — Managing Director

Right now we are not, you can say, putting too much, you can say, focus on Gujarat. Other than Gujarat, we are investing on Dadri and Bangalore and Sikandarabad, along with new plant coming up in Raipur.

Dhiral Shah — Phillip Capital — Analyst

Okay. Thank you so much, sir. That’s it from my side.

Operator

Thank you. The next question is from the line of Aasim Bharde from DAM Capital. Please go ahead.

Aasim Bharde — DAM Capital — Analyst

Yes, hi. Sir just wanted your view on agri pipe growth in an environment of high PVC prices. Sir, you are optimistic you mentioned, but how does a farmer react to high PVC prices. Does it lead to continued deferment which in this case could mean the entire season that could be lost and demand getting pushed to the next season post October?

Sameer Gupta — Managing Director

The demand — if you talk about demand from the farmer side, they are a little bit, you can say, cautious and the finance is also a problem for them. But if you see that the options are not too much available with them for this product. If they have to use this PVC pipes, then they have to go for this product only. They don’t — they cannot go for steel or you can say, any other polymer or any other cement pipes for water transportation or borewells.

So there is only one you can say material available for them for this borewell, or you can say for water transmission level. So they can only defer the plant and that is also, you can say, they do — can do to some level. They cannot defer it forever. So I don’t see that there will be too much, you can say, delay in the demand from the farmer side. They have to go for this product. And you can say that, because of this COVID and other things that prices had gone up really high.

But right now, it has been a little bit stabilized, the premium has been stabilized by, you can say, almost 10% in the last, you can say, one month. So a little bit of, you can say, relaxation is also there in their mind. And I don’t think that there should be any good, you can say, there should be any hamper on the demand and there should be good demand in the coming quarters from them.

Aasim Bharde — DAM Capital — Analyst

So you don’t anticipate too much of a demand destruction, if I can call it that, for this particular season? There should be some decent agri demand from…

Sameer Gupta — Managing Director

Yes, because the inventory levels are also very down, so there is no much, you can say, scope left at their end to work on the demand side because they have to take the material if the demand is there from the dealers or retailers. And the farmers, if they have to do farming, they have to go for pipes only.

Aasim Bharde — DAM Capital — Analyst

Okay. Sure sir. Thanks a lot.

Sameer Gupta — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Amit Soni from PwC. Please go ahead.

Amit Soni — PwC India — Analyst

Hello, sir.

Sameer Gupta — Managing Director

Hello.

Amit Soni — PwC India — Analyst

Yes. Sir I wanted to ask about the different cost optimization measures which you have put in place. In the presentation said that, improved margin is because of one growth of value-added products, and second because of raw material. And third because of different cost optimization measures.

Sameer Gupta — Managing Director

Yes, the optimization level, we are continuously working on the capacity utilizations of the machines and increasing the productivity of the machines along with low scrap rate. So because of that thing, we have been, you can say, getting good, you can say, results. And going forward, we will be seeing some more, you can say, good results on this front from our plants.

Amit Soni — PwC India — Analyst

Okay. Thank you, sir.

Operator

Thank you…

Amit Soni — PwC India — Analyst

And products, which are planned sir?

Sameer Gupta — Managing Director

Pardon?

Amit Soni — PwC India — Analyst

Any new products which are planned?

Sameer Gupta — Managing Director

Right now we are only increasing the SKUs of our already running segments. We are not adding up new segment. But many you can say new SKUs are being added on continuous basis for all those segments.

Amit Soni — PwC India — Analyst

Okay, thank you sir.

Operator

Thank you. The next question is from the line of Ajay Sharma from Maybank. Please go ahead.

Ajay Sharma — Maybank — Analyst

Yes, I just wanted to check your return equity numbers are still on the lower side. So what is the company’s strategy or plan to really try and boost the return numbers for next few years?

Sameer Gupta — Managing Director

So Ajay, if you see that, the first parameter what we look at is return on capital employed, which is in — if we utilize all our capacity over the next two years, we should be touching 25%, 30%. As far as the ROE is concerned, it is slightly low because of our inflated network because the Company had — promoters had put in funds, they had infused new equity 1.5 years ago. So as we touch 25%, 30% ROCE, we should be touching ROE of 20%, which we believe is good. And given that all the future capex will be funded from internal cash flows, there won’t be any requirement of new equity infusion. You will see that ROE also improving to 20% to 25% levels in the longer run. But we are quite satisfied with the kind of ROCE which the business is generating which is upward of 20%, 25%.

Ajay Sharma — Maybank — Analyst

And what will be your annual capex basically for next few years?

Sameer Gupta — Managing Director

So this year we are targeting around INR50 crores, INR60 crores, out of which 70% has already been spent for FY ’21. FY ’22-’23 we are expecting like, we should be spending 20%, 25% of our EBITDA towards the new capacity addition, towards new value-added products, high-margin products. So that’s what we have capped our capex spends at 20%, 25% of annual EBITDA.

Ajay Sharma — Maybank — Analyst

Okay. Great. Thank you.

Operator

Thank you. The next question is a follow-up from the line of Madhav Marda from Fidelity Investment. Please go ahead.

Madhav Marda — Fidelity Investment — Analyst

My question has been answered. Thank you.

Operator

Thank you. The next question is a follow-up from the line of Abhinav Sood from ZM Investment. Please go ahead.

Abhinav Sood — ZM investment — Analyst

Yes. Sir, just need a clarity on a point that by March ’21 will we be achieving 100,000 metric ton per annum or 125,000 metric tones per annum?

Sameer Gupta — Managing Director

With the Raipur plant, it will be 1.25 lakh tons.

Abhinav Sood — ZM investment — Analyst

Okay. With Raipur plant, it will be 1.25 lakh. Okay, thank you, sir. That’s it.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ajay Sharma from Maybank. Please go ahead.

Ajay Sharma — Maybank — Analyst

Yes, I just want to check on your guidance, I think somewhere in the presentation you mentioned that you will be targeting 25% CAGR and volumes over next three years. So — and what gives you that confidence considering your volumes which has been below that both in ’20 — FY ’20 as well as FY ’21?

Sameer Gupta — Managing Director

So, Ajay, if you see that, our current infrastructure which will be ready by March ’21, 125,000 tonne. We believe that this has potential to generate around INR1,000 crore — INR1,000 crore revenue. Okay, which shall come over the next 24 months. And it will have 12%, 13% EBITDA margin, that’s our business model we are working towards. And it will be mix of agricultural and building materials segments, which will be boosted by our water tank business and solvent business, which both are growing equally well. So all in all, we are confident that we could touch INR1,000 crore top line over the next two years.

Ajay Sharma — Maybank — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Yash from ICICI Bank. Please go ahead.

Yash Modi — ICICI Securities — Analyst

Hello. Good afternoon. Congratulations on a great set of numbers. Most of my questions have been answered. Just wanted to check on our ESOP policy, I see that you guys have given ESOPs for the first time to your employees this time. And the ESOP Trust had purchased share from the secondary market. And that is the — that is the model you’re following of giving these ESOPs. Just wanted your take on the ESOP policy going forward and how do you see the employee count and what will be your basically HR policy of the company going forward?

Sameer Gupta — Managing Director

Yes, Yash, like we have been growing and trying to increase the, you can say, capacity, sales and all the, you can say, across all the, you can say, business in our book. So going forward, we need to have a good set of people with our company who can trust on the company and work towards the growth of the company. Foreseeing that, we have introduced this policy of ESOP. And by adding this, we will be able to, you can say, join good people with our company. And going forward, it will help us in the growth level because it will also help the personal growth of those employees who are working for the company, and they will also see some benefit on their part because of the ESOP policy.

And going forward, there will be some more ESOP policies coming on in the coming years because if — because we are getting a good response from all the employees regarding — and they are also very much keen towards the growth of the company. So it should be, you can say, a good initiative from the company side to have this policy in our company. And it should give us good result in the coming days.

Yash Modi — ICICI Securities — Analyst

Sure sir. Thank you so much. All the best.

Operator

Thank you. As there are no further questions, I now hand the conference over to Mr. Ankit Gor from Systematix Institutional Equities for closing comments.

Ankit Gor — Systematic Institutional Equities — Analyst

Thank you, Sameer [Foreign Speech] and team at Apollo Pipes Limited. Any closing remarks, Sameer before we close the call? Thank you.

Sameer Gupta — Managing Director

Yes. I thank you to all the investors and the market research team. And hope we have been able to answer all your questions satisfactorily. Should you need any further clarification or you would like to know more about the company, please feel free to contact our team. Thank you once again for taking time to join us on this call.

Operator

[Operator Closing Remarks]