Apollo Pipes Ltd (APOLLOPIPE) Q4 FY23 Earnings Concall Transcript

Apollo Pipes Ltd (NSE:APOLLOPIPE) Q4 FY23 Earnings Concall dated May. 09, 2023.

Corporate Participants:

Sameer Gupta — Chairman and MD

Anubhav Gupta — Group Chief Strategy Officer

Arun Agarwal — Joint MD

Ajay Kumar Jain — Chief Financial Officer

Analysts:

Manish Mahawar — Senior Vice President – Institutional Equities, Antique Stock Broking Limited

Bhargav Buddhadev — Kotak Mutual Funds — Analyst

Piyush Khandelwal — Bank of India — Analyst

Keshav Lahoti — HDFC Securities — Analyst

Pritesh Chheda — Lucky Investment — Analyst

Ankit Gupta — Bamboo Capital. — Analyst

Udit Gajiwala — YES Securities — Analyst

Ritesh Shah — Investec — Analyst

Dhiral — PhillipCapital — Analyst

Sandesh Barmecha — Haitong. — Analyst

Jenish Karia — MD Stock Broking — Analyst

Pritesh Cerro — Lucky Investment — Analyst

Vignesh Iyer — Sequent Investment — Analyst

Rahul Agarwal — InCred Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Apollo Pipes Limited Q4 FY ’23 Conference Call hosted by Antique Stock Broking. As a reminder, all participant lines will be in the listen-only mode, and 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. Manish Mahawar from Antique Stock Broking. Thank you, and over to you, sir.

Manish Mahawar — Senior Vice President – Institutional Equities, Antique Stock Broking Limited

Thank you, Deepak. A warm welcome to all the participants on the 4Q FY 2023 earnings call of Apollo Pipes. From the management, we have Mr. Sameer Gupta, Chairman and MD; Mr. Arun Agarwal, Joint MD; Mr. Anubhav Gupta, Group Chief Strategy Officer; and Mr. Ajay Kumar Jain, CFO on the call.

Without further ado, I would like to hand over the call to Mr. Sameer Gupta for opening remarks, post which, we will open the floor for Q&A. Thank you, and over to Mr. Gupta.

Sameer Gupta — Chairman and MD

Thank you. And thank you for joining us on Q4 FY 2023 earnings call to discuss the operating and financial performance. I’m sure you all have the opportunity to go through our results presentation, which provides details of our operational and financial performance for the fourth quarter and year ended 31st March 2023.

We just concluded an eventful year, which was full of roller-coaster ride. It started on a low note as PVC resin collapsed by 39% from the beginning of the financial year to December 2022. The industry went through that cycle. This led to inventory write-downs and channel destocking across industries.

However, things got stabilized during Q4 FY 2023 as resin prices declined by finally as I stated, I’m glad to share that we reported our best-ever sales volume of 18,685 metric tons for the quarter in Q4.

Revenue was highest ever as well despite lower PVC prices. This suggests that we are now hitting 6,000 tons of monthly sales volume quite comparably. Our — share gains and strong sales growth in a difficult year as given us enough confidence to expand our boundaries. That’s why we have decided to double our capacity to 286,000 metric tons in the next three to four years.

We believe that industry growth of 10% to 12% gives enough opportunity for a player of our size to grow at this pace. In order to prepare ourselves for this commitment, we worked on three-pronged strategy; – strengthened the team with the content of x numbers of professionals in the last two years, and latest being Mr. Arun Agarwal, ex-COO of our group company, APL Apollo Tubs. Allow me to welcome him Board.

We are confident that his expertise in scaling up the steel business will help Apollo pipe in the long run. As we are expanding — second point, as we are expanding our capacity, we are mindful of the fact that the capex needs to be funded without tax. That’s why the company has got commitment for equity increase of INR260 crores, balance capex of INR240 crores can be funded from internal cash flows.

In our capacity expansion program, we have ensured that there is no cannibalization of existing business. Our target to expansion is for value-added products comprising of profiting CPVC and SGP sites. Our new proposed greenfield plants will were our flagship Sarin plant with the investment of INR135 crores each. This will help us scale up as the good fate similar to our not performance.

We believe that this shall provide enough ammunition tool that team Apollo Pipes to accelerate revenue growth to 35% CAGR for the next four years. We are also confident of hitting 25% to 30% of ROCE despite this proposed investments supported by working capital efficiencies. This is from our side, and we are now like to take questions. Thank you.

Questions and Answers:

Operator

Our first question is from the line of Bhargav Buddhadev from Kotak Mutual Funds. Please go ahead.

Bhargav Buddhadev — Kotak Mutual Funds — Analyst

Yes. Good afternoon, team and thank you for the opportunity. My first question is, in your opening remarks, you mentioned that you are targeting capacity of about 286,000 tonnes and you will not be cannibalizing this. So is it possible to highlight, which areas you are looking at setting up a greenfield plant using this capex?

Anubhav Gupta — Group Chief Strategy Officer

Hi, Bhargav. This is Anubhav Gupta. So if you look at our expansion plan, okay, right now, 70% of our capacity is in North India, right? And we are capping to taking West and Southern markets with very small plants. So one being in Gujarat and second being, which we acquired from Kisan in Tumkur, Bangalore.Okay? So now these plants are reaching to their utilization levels, which were possible.

And now we feel that we have and if we have to grow the scale similar to what we have in North. So we need to have a similar kind of plant set up, right, in West and South. So in West, we are looking somewhere around Maharashtra because Maharashtra offers a very strong opportunity for a brand like Apollo Pipes to grow sales. Similarly, in South, we are considering between Hyderbad and Bangalore range, right, where we can get the whole of South.

And these also being equally important, right? We have a small facility in Raipur. We tested the waters. We are glad with the performance of that plant, right? So now we have — now we have to move forward with much aggression. And if you look at the government spendings which have been announced over the last two, three years, they start from Eastern UP and go towards Bihar, Orissa and further east, right? So it is very important to have an infrastructure to cater to these six, seven states. right, and have equal stronger plant what we have in North India.

So these are the three belts, which we are evaluating. Right now, we are doing around INR200 crores. INR300 crores top line from these geographies. So that’s why we feel that we are not going to cannibalize the existing sales, all the new plants will contribute incremental top line for the company.

Bhargav Buddhadev — Kotak Mutual Funds — Analyst

Okay. Okay. Thanks for this detailed explanation. The second question is, is it possible to share what is the share of HDPE pipes now in our overall volume mix? And is there any geographical consultation in terms of sale of HDPE pipes?

Sameer Gupta — Chairman and MD

So HDPE pipe moves around like late single digit or double digit, right? That’s the contribution right? And since this mainly belongs to water infrastructure projects, which government is undertaking across India. So our capacity right now is more skewed towards north, right? So that’s what we are selling, right? And we see good visibility. That’s why the — greenfield expansion also consists of new HDPE lines, right? So right now, the focus is more towards North India, but — but with all the new plants, which will come up, they will also have HDPE lines.

Bhargav Buddhadev — Kotak Mutual Funds — Analyst

And is this good in terms of margins on this product

Manish Mahawar — Senior Vice President – Institutional Equities, Antique Stock Broking Limited

So margin — so margin, if you see like in Q4, we reported INR17 per kg at EBITDA level, right? So that’s our normal business EBITDA, right? Therefore, we were doing in FY’21, right, FY ’22, of course, because FY ’22, I mean, FY ’23 was, of course, depressed because of inventory write-downs, but our normal business EBITDA is around INR17 a kg, so which gives us around 12% to 13% margin, right? So HDPE pipe will be like just hitting 10%, 8% to 10% kind of based on like what orders have come, what our distributors get, what kind of orders. So it ranges from 8% to 10%.

Bhargav Buddhadev — Kotak Mutual Funds — Analyst

Okay. And my last question is with this geographical expansion. Do you see an improvement in terms of your turnaround time in terms of reaching the distributor and what kind of working capital efficiency are you expecting post this geographical expansion maybe in the next three to four years? And that would be my last question.

Anubhav Gupta — Group Chief Strategy Officer

Right. So see, I mean — so it’s been like it’s been 40, 45 days Arunji joined our team, right? So — so that’s been the point of deliberation that we need to have a large-scale plants, right, in all the major markets, which are spread across India, right, so that we are able to service all the potential clients in a much efficient way, right? It becomes at some — like to achieve INR200 crore, INR300 crore top line, it is all right to have a small plant in south and feed high value products from Northern plant, right? But we can’t scale it up to INR1,000 crores, right, that market. For that, we need an investment of INR200 crores INR300 crores in that geography, which takes care of the whole market access, right?

Why I said that it doesn’t make sense to grow your sales beyond small 100 tickets — INR100 crores ticket size because the freight factor comes into play, right? So it becomes very important, right? I mean, the brand which APL APOLLO now has become in the building materials space, right? It becomes very important for us to present across India, right, with the same aggression what we are having in North India. And the results are also evident with like 6%, 7% market share, what we are having in North India, right? So we are super confident that the same kind of market share can be achieved in the other geographies as well.

Bhargav Buddhadev — Kotak Mutual Funds — Analyst

Okay. Thank you, very much for your answer and all the very best.

Operator

Thank you. Our next question is from the line of Piyush Khandelwal from Bank of India Mutual Funds. Please go ahead.

Piyush Khandelwal — Bank of India — Analyst

So I mean, just wanted to understand because Sameer sir highlighted in the opening remarks about this working capital efficiency and hence, maintaining the ROC. So I mean, Anubhav if you can explain, I mean, what kind of business that we are taking to improve the working capital efficiency and even if I look at, let’s say, by 23 numbers, our working capital has improved, which is mainly led by increase in the payable days. I’m taking everything on sales. I mean, it does improve from 247 days. So, if you can highlight, I mean, which are those leases that we are taking and why payable days has increased 2023?

Anubhav Gupta — Group Chief Strategy Officer

Right. So Piyush, see, I mean if you look at my payable days, right, there were 63 in FY ’22, right? So that was very high compared to the industry average, right? Now, payable day is around 45%. Now we have come at par with industry, okay? All industry may have even further higher payable days. So the reason is that in FY ’22, my scale was like to INR700 crore, INR800 crore top line, right? So I was buying, say, for example, INR600 crores worth of raw material, right from my suppliers. So the payment terms, right, the negotiation power, the bargaining power that was limited to the size of INR700 crores, INR800 crores, right? Now I’m touching like INR250 crores, INR260 crores top line on a quarterly basis, right? And I have visibility to grow my top line to INR1,200 crores, INR1,300 crores in the next 12 months, right? So my bargaining my negotiation, my payment terms, everything improves, right, with my suppliers, right? And also last two years have been like so volatile in terms of the commodity prices, right? So sometimes I’m trying to stop more so that my plants don’t run out of raw material, I have to ensure that correct. And that’s what we also see the need of having like similar large plants across India, what we have in North that to have better inventory management, right? We should work with larger size plants, right, to achieve all the aspired revenue CAGR, what we are having, right?

So one is that creditor days will continue to increase, right, as my scale goes up, right, my suppliers are ready to offer the same terms, which they are offering to my competitors. And second, towards receivables, right, that is, we are confident that in North India, we have started cash and carry model with some of our top clients, right? And the response has been very encouraging. So that will bring down the overall debtor days as well. So we are confident that intimately, we will have our net WC getting stabilized around 35, 40 days right on a sustainable manner.

Piyush Khandelwal — Bank of India — Analyst

Understood. Understood. Sir, just one thing on the payable days. I mean on — once you allied that with scale, you get the bargaining power. So it’s a question of whether — I mean, getting higher payable days or getting product at a lower cost. I mean, what would you — I mean make a trade of better, for example, let’s say, something you’re buying, let’s say, at INR10, maybe at a lower scale, you might get at 8.5% or 9% with a better margins.

Arun Agarwal — Joint MD

So Piyush, I understand what you’re going to ask me. It’s about like what return, I’m getting, right? So if — of course, my supplier offers the credit, right, it will come at some cost, right?

But that cost is equal to the discount, which he gives as cash discount, right to me. So whatever is better for me, I’m going after that. So as per our evaluation, this is better that we take material on credit, if he’s ready to offer to me. Before that, he was not ready to offer to me. That was the problem.

Piyush Khandelwal — Bank of India — Analyst

All right. All right. Understood. So these working capital days will be maintained in the range of 40, 45 days, as you said.

Arun Agarwal — Joint MD

They will come down below 40%. What we are saying is we can do this business around 35 to 40 days of WC.

Piyush Khandelwal — Bank of India — Analyst

All right, understood. I understood. Sir, another question is on the targets that Sameer sir has mentioned at about 35% kind of growth, so this, if you can just give me a ballpark breakup.

Obviously, I mean, previous year as well, you have highlighted about the change in mix towards the building that they had some materialization this major growth will be led by volume? Or will it be led by realizations as well?

Because this quarter, we reported INR135 per kg of realization, and this is where the PVC prices are hovering somewhere around 85 to 90 per kg prices stabilize at same level, let’s say, 80, 100, how will our realization will look like going forward with the change in mix?

Arun Agarwal — Joint MD

Yeah, Piyush. So if we look at our business model, right, which we have formed up, right, in the last 40 days, it is with the consideration that PVC prices are not going to go up, right? So whatever, NSR improvement will come, it will come from the value-added products, right?

So we have kept the base PVC resin same, what we are today, right? So to get 35% revenue growth, will get 28% to 30% volume growth and 4% to 5% owing to the sales mix improvement, right? We are not factoring any decline or increase in PVC prices from the current levels.

Piyush Khandelwal — Bank of India — Analyst

All right. All right. I understood. And what would be our Agri mix as of now?

Arun Agarwal — Joint MD

Right now, Agri is like slightly below 50% of the overall sales mix, okay? Every year, it is going down, right? And with the capacity what we have right now, with the capacity, which will come in Agri too and some brownfield expansion we are doing, right? Plus the new greenfield plant, what we’re going to setup over the next two to three years, this Agri sales mix will drop down to 25% of the total sales.

Piyush Khandelwal — Bank of India — Analyst

Got it. Got it. And just one last question on this margin profile as well. So this quarter, we reported, I mean, around 16 per kg of EBITDA. So going forward as well, will there be increase that you’re looking at EBITDA per kg or you are comfortable with same kind of numbers?

Arun Agarwal — Joint MD

So see, my gross margin will expand Piyush, right? But it may not visible in EBITDA per ton immediately, because as I’m going to put up new plants, new capacity, the front cost will go up, right?

So for me to show like INR1 million, INR1.5 million, INR2 million EBITDA per tonne, it may not be possible, right? Once the plants are stabilized, then definitely, right? And as we have to go very aggressively in the market, right, we are offering cash discounts to go to cash and carry also, right?

So there will be gross margin improvement, yes, gross profit improvement. But for the next two, three years, we are comfortable with like INR500 crore to INR750 per ton improvement in EBITDA.

Piyush Khandelwal — Bank of India — Analyst

Got it. Got it. Thank you. Thanks a lot.

Operator

Thank you. Our next question is from the line of Keshav Lahoti from HDFC Securities. Please go ahead.

Keshav Lahoti — HDFC Securities — Analyst

Hi, sir. I just want to understand whether in this quarter, do we have any sort of inventory gain?

Sameer Gupta — Chairman and MD

This quarter, there was no inventory gain, no inventory loss. This is our actual business performance.

Keshav Lahoti — HDFC Securities — Analyst

Okay. And what sort of capex we should build in in this year and next year?

Sameer Gupta — Chairman and MD

So we have factored in INR500 crores of capex, right, over the next three to four years, INR100 crores is from the ongoing projects. One is Dadri, one brownfield. Second is Dadri to UP. These two projects sum up to around INR100 crores, and then INR400 crores is for three 3 plants, right? So that will be put up in next three to four years. So I think FY ’24, ’25, ’26 and maybe like some FY ’27, so we should be like 150, 150, 150 and 50, right? So that’s the number what we have in our mind. But of course, I mean, if required, we may go for 20 in one year, right, and maybe slightly slowing in the following year. It will depend on what kind of plans get finalized. But we are comfortable with INR150 crores to INR200 crores of annual investment based on the equity infusion, which is coming, plus the operating cash flow is what company is going to get.

Keshav Lahoti — HDFC Securities — Analyst

Okay. Got it. Can you share your plant wise capacity of 136?

Sameer Gupta — Chairman and MD

Yes, sure. Just a second. So very broad-based numbers, we can share, right? So right now, North India, which is mix of Dadri and Sikandarabad, they are around 90, right, then South India is around 25, 30, right? And then rest is Raipur. And about a split like equally between Ahmedabad and Raipur.

Keshav Lahoti — HDFC Securities — Analyst

Okay. Got it. One last question from my side. As you are currently working in the right direction, you said, 20% to 25%, so 25%, you’re talking in terms of volume or revenue? And lastly, how is your margin, let’s say, agri versus value-added versus plumbing some broader sense would be great?

Sameer Gupta — Chairman and MD

So when we say sales mix, it is on value terms, right? Second, on margin profile for different products. So like at compatible EBITD turn of INR17,000 right, which gives us a margin of 12% at EBITDA level, right? So our product range starts from 6%, 7%, right, for super commoditized agree products and it goes up to 25%, 30% for super high value-added products for marketing, etc, right? So that’s our product profile starting from 7% towards agri and goes up to 25%, 30% for building materials products.

Keshav Lahoti — HDFC Securities — Analyst

Okay. Got it. Thank you. That’s it from my side.

Operator

Our next question is from the line of Mr. Pritesh Chheda from Lucky Investment Managers. Please go ahead.

Pritesh Chheda — Lucky Investment — Analyst

Yes, hi. Anubhav, just one question. I couldn’t understand the answer it was asked. So at the current PVC prices, let’s say, whatever, INR80 or INR90 a kg, whatever it is, — what kind of realizations should be assumed for that current price? And what is the margin assume?

Anubhav Gupta — Group Chief Strategy Officer

So Pritesh, at current PVC price of say, INR85, right? Our NSR for Q4 was around 135, right? So we have factored in like same PVC prices, right, for next four years in our business plan. And this NSR can go up by like INR6, INR7, right, every year based on INR4, INR5 based on our volume mix improvement, sales volume mix improvement.

Pritesh Chheda — Lucky Investment — Analyst

Okay. And you are saying that you are back to the original margin of, let’s say, what 17-18, right? Now, there’s a big variation in your margin as the company has progressed. Now this margin I saw back in quarter two FY ’22, and that was a time also where there was some inflation element on account or benefit on account of inventory. And it continued for a few quarters and then tapered off in FY ’23. So because FY ’22 was a year where you guys gained a lot on the inventory part, right? So still you believe that the 17, 18 is what you should look at? Or what is the change in your business model between FY ’22 and FY ’24, let’s say, or let’s say, FY ’22 and quarter four FY ’23?

Anubhav Gupta — Group Chief Strategy Officer

So Pritesh, I think it will be better to compare, if you look at our January of EBITDA spread improvement, right, it started from FY ’20, right. Even in FY ’20, like, we touched like INR10,000 or INR10,400 per ton, right? And then it jumped to, say, INR15,000 per ton in FY ’21, right? So there was like some element of inventory gains, of course, right? But majority of that came from the fact that our CPVC and the basketing sales mix, right, it started contributing in a significant manner, okay? So that’s the reason that why our EBITDA per ton increased significantly, right? And then it sustained for full of FY ’22, yes, I mean, 2,000 per ton improvement in spreads from FY ’21 to ’22, you can ascribe some to some two inventory gains. But then again, my sales mix continued to improve, right? And then FY ’23 starting like Q1, okay?

Pritesh Chheda — Lucky Investment — Analyst

We know that there is a massive inventory fall off.

Anubhav Gupta — Group Chief Strategy Officer

So what you should look at that whether you look at quarterly, right, from Q1 FY ’22 to FY ’22, we were opening around 16,700 per ton to INR17,800 per ton, okay? So I would say my base — my base EBITDA spread was 16,000, 16,500 threats you could have described to some like soft inventory games, okay?

Pritesh Chheda — Lucky Investment — Analyst

For FY ’22?

Anubhav Gupta — Group Chief Strategy Officer

For FY ’22, yes, the quarterly spread, if you see, 16.5% to 17.5%, that’s what they have moved, right?

Pritesh Chheda — Lucky Investment — Analyst

I’ll ask the other way around. Let’s say, the annual number for FY 2020 is about INR9 to INR10 a kg — FY 2022. FY 2021 is about INR13 to INR14 a kg. FY 2022 is about INR18 plus a kg and FY ’23, if you adjust the raw material inventory loss for FY 2023, what will be your number?

Ajay Kumar Jain — Chief Financial Officer

16,500

Pritesh Chheda — Lucky Investment — Analyst

Okay 16,500. If I adjust the entire inventory, right?

Ajay Kumar Jain — Chief Financial Officer

Of course, yes.

Pritesh Chheda — Lucky Investment — Analyst

Okay. Done. Thank you very much, guys. Thank you. Our next question is from the line of Ankit Gupta from Bamboo Capital. Please go ahead.

Ankit Gupta — Bamboo Capital. — Analyst

Yes, thanks for the opportunity. Anubhav, if you can please talk about how has been the demand on the agri side now again right sizing taking challenges for the past 2, 3 years. So how has been the demand in Q4 and Q1 being a big season for agri pipes, how the demand in Q1 as well till now?

Anubhav Gupta — Group Chief Strategy Officer

So Q4, the agri demand has started improving and Q1 and Q2 normally being seasonal for agri demand. So as of now, we are currently seeing good traction in agri demand.

Ankit Gupta — Bamboo Capital. — Analyst

Like how much would have been our volume growth on the agri side of fetuare.

Anubhav Gupta — Group Chief Strategy Officer

So if you see like for Q4, our overall volume increase, right, if you look at Y-o-Y. So agri would like wouldn’t match that, okay? Because our whole focus is towards building the housing numbering portfolio, right? All our distributors right now are focusing on pushing that product.

Agri, yes. I mean we’ve been in the market for many years, we having very strong SKU range for the agri products. Our brand is popular, right? So that will continue to happen as per the market growth rate as per the market sentiment or the markets move. But beyond a point, we don’t put extra efforts, right, to get that growth. Our whole efforts are going towards and getting the market share from the housing plumbing side.

Ankit Gupta — Bamboo Capital. — Analyst

Sure, sir. And on the PVC pricing side, we are seeing a decline in prices in April and May in Q1. So can we expect some inventory loss during Q1?

Anubhav Gupta — Group Chief Strategy Officer

So the Ankit, the other angle to this is that normally, the inventory gains or losses will come if the volatility is like 20% — 25%, right, in a short span of time. PVC prices at INR89 a kilo, INR5, INR10 here and there, right? That’s a normal industry. I would say, business practice cycle, right, which takes place and which has been taking place for years, right? It’s just that if PVC prices go from INR80 per kilo to INR180 a kilo or they drop from 180 per kilo to INR70 a kilo, right? That’s the time when the industry faces these issues. INR10 to INR15, INR5 to INR10 fluctuation. I don’t think it is going to impact any much at the order point.

Ankit Gupta — Bamboo Capital. — Analyst

Sure, sure, sir. And my last question was on the lets say you fixed the funding for the capex this INR60 crores that we plan to fund capex from equity infusion. So this will be raising the security in the near term?

Ajay Kumar Jain — Chief Financial Officer

Right. So as and when the need comes, right, the commitment is already there. So it’s not — although it’s in form of warrants. It’s not that the money has to come within — like at the last month, which is like in year 2024. But if the company needs money tomorrow, the money will flow.

Operator

Our next question is from the line of Udit Gajiwala from YES Securities. Please go ahead.

Udit Gajiwala — YES Securities — Analyst

For taking on my questions. And sir, firstly, what gives us the confidence of achieving the 3%, 5% compounded growth where we are seeing industry will grow at 10% to 12% say, for example, volume will grow at 8% to 10%. So this outperformance and the confidence that we have of gaining my shares. Could you please elaborate on the thing?

Ajay Kumar Jain — Chief Financial Officer

The basic ideology of growth is coming from our geographical expansion plan. So as of now, we are mainly focused only on the northern markets. We don’t have any major, say, capacity to fuel the market in the other geographies. We have already tested — done some pilot products from our existing plants and tested the waters there. And we’ll see good, say, response from those markets, which has led to the expansion plan as a whole. So this will improve overall service time in those markets improve — give me some scale advantage, some great advantages to service those markets. And we are planning state-of-the-art facilities in all our future expansions.

Sameer Gupta — Chairman and MD

So Udit, just to add to it, right now, as per you, what will be the current PVC industry market size in India

Udit Gajiwala — YES Securities — Analyst

Sir, close to INR35,000-odd crores INR30,000 INR35,000 varies

Sameer Gupta — Chairman and MD

INR35,000. And what kind of growth you would ascribe to the industry on an annual basis?

Udit Gajiwala — YES Securities — Analyst

Value terms compound, it could be 9% to 10%?

Sameer Gupta — Chairman and MD

So that means INR3,500 crores of incremental industry should increase every year, right, to say, — and what will be the asset turnover you think companies get in this industry. Asset turnover?

Udit Gajiwala — YES Securities — Analyst

2.5, to three

Sameer Gupta — Chairman and MD

So if it is 2.5 times, that means industry needs to add INR1,400 crores worth of new assets fixated every year.

Udit Gajiwala — YES Securities — Analyst

Agreed. Yes

Sameer Gupta — Chairman and MD

Right? So we are just trying to be part of that.

Udit Gajiwala — YES Securities — Analyst

Got it. Got it. So do we have any such plans or some target in terms of number of dealers are distributed, how do you put it? And what would be our ’23 ending and say in the next three, four years, I mean, what number could we be at, given the geographic expansion are coming into play?

Ajay Kumar Jain — Chief Financial Officer

So Udit, right now, we are at like 600 direct channel partners right out of these like 70%, 80% of course, business coming from North, right? So, to achieve 286,000 tonne of sales volume, whenever it comes in three, four years, right, we must be having at least 1,500 to 2,000 direct channel partners across India, who will give us this kind of top line. So that’s the number we have in our mind.

Udit Gajiwala — YES Securities — Analyst

Got it. And just last, if I could squeeze in, what would be the channel level inventory that we are holding given that the prices are coming down for PVC?

Anubhav Gupta — Group Chief Strategy Officer

You mean the channel partners?

Udit Gajiwala — YES Securities — Analyst

Yes, the dealer inventory level currently, how many days would be the storing right now?

Anubhav Gupta — Group Chief Strategy Officer

Right now, the asset prices have stabled down and it is almost near to the bottom. So I don’t think they carry too low inventory or too high nets. This would be normal inventory. This should vary from 30 to 60 days depending on channel partners to sell what volumes they are doing and what — how much scale of business they are doing. It’s totally dependent on that. So it should be varying from 30 days to 60 days of inventory for channel partner.

Udit Gajiwala — YES Securities — Analyst

Thank you. Thank you, so much.

Operator

Thank you. Our next question is from the line of Ritesh Shah from Investec. Please go ahead.

Ritesh Shah — Investec — Analyst

Hi sir. Couple of questions, sir. First, on working capital. Just wanted to understand how much is the resin sourcing locally versus imports? And how much was that in Q4 last year?

Anubhav Gupta — Group Chief Strategy Officer

So 70% imports and rest the local.

Ritesh Shah — Investec — Analyst

And how much was the same ratio last year?

Anubhav Gupta — Group Chief Strategy Officer

More or less same.

Ritesh Shah — Investec — Analyst

Okay. So payables doesn’t have any impact baring because of sourcing change in forcing pattern? Would that be fair?

Sameer Gupta — Chairman and MD

Look, this year, it is going to change because this year, we are targeting higher volumes. So we are trying to — whatever the increased volume, it is from the local, it should be from the loan.

Anubhav Gupta — Group Chief Strategy Officer

No, no. So Ritesh, this is one. This is one that the local sourcing will increase, right, and that will further help us improve our payable days. But also during the last 12 months, although the import proportion looks similar, but the terms with those suppliers, that’s what is helping us have higher payable days.

Ritesh Shah — Investec — Analyst

I would presume it would be the other way around, right? So if you are importing something, I think we have — we can aerate facilities and it can actually help working capital. So how are we saying that source more locally than it will help on working capital? Please correct me on my understanding.

Anubhav Gupta — Group Chief Strategy Officer

Ritesh, there is some background noise. Can you please repeat it?

Ritesh Shah — Investec — Analyst

Yes. Hello, am I audible.

Anubhav Gupta — Group Chief Strategy Officer

Better, yes.

Ritesh Shah — Investec — Analyst

Yes. I could not comprehend basically when we say that the local sourcing this year, it will aid about working capital. Shouldn’t it be the other way around when we are looking at payable days?

Anubhav Gupta — Group Chief Strategy Officer

No, no. So see, there are two parts to it. One, the first part of your question was that between FY ’22 and FY ’23, right? The mix of imports and local was kind of the same, right? 70% imports, 30% local, right? So our working — our payable days increased, right? So the answer to that question is that as we are sourcing more and more, right, almost 30%, 40% increase, right, in the sourcing during last 12 months, it helped us with the better payment terms. That is one.

Second, now that in FY ’24, right, the local sourcing will improve, say, we go to 40%, right? We go to of 45%. It’s not going to be like it will become 30-70 from 70-30, right? So that’s what I’m saying that the ultimate improvement in payables is coming from the fact that the sourcing power, right, of Apollo Pipes is improving every year. And you would see that not only for us, you could see that for all the other pipes companies you must be tracking, right or maybe outside the price industry, right?

Whenever the scale goes up, you get all the benefits. Apollo Tubes is one of the best examples. Today, with our power of sourcing in Apollo tubes, towards the steel side, right? We enjoy the benefits, which today, our larger peers are enjoying, right? But as we are moving up the chain, right those benefits do come for a company of our size also.

Ritesh Shah — Investec — Analyst

Sure. My second question was on receivables. Can do you see something on the exposure to HDPE Pipes. Are we already getting that benefit? What sort of benefit would you expect our receivable days going forward?

Anubhav Gupta — Group Chief Strategy Officer

So Ritesh, if you see my March 23 receivable days were around 26, right? And my March 22 receivable days were 28. So there is hardly any change in lead receivable days, right? So I’m kind of maintaining that. So I don’t — so we don’t describe this change or marginal change in receivable days to any channel financing, right?

But yes, I mean, that product is available in the market, right? So if my distributor ask for that channel, you may go for it, but Apollo Pipes is not kind of getting into like to tell my distributor to buy from — to use HDFC Bank or some Fintech or an NBFC, Tier 2 banks, right? What we are telling our distributors in North India is that you please lift my material on cash and carry, right? And I will offer discount to you, okay?

Now to pay against that material, whether he brings his own capital, he takes help of HDFC Bank, he takes help of a Tier two banks, he takes help of some NBFC, he takes help of some ongoing like today, a lot of existing develop NBFCs or Fintech’s which are existing, right, we see funded or it is achieve themselves.

So I leave it to my distributor to decide which product he has to use from or which lender right? So as on like March 31st, 2023, there could be hardly INR Twp crore, INR Three crore, INR4 crores, INR Five crores kind of exposure from Fintech.

Ritesh Shah — Investec — Analyst

Perfect. And just last question, more of a clarification to what Bhargav asked earlier. HTP, you indicated it has a high single-digit on volume contribution. Did I hear that number right?

Anubhav Gupta — Group Chief Strategy Officer

Yeah, yeah. It’s around like between the quarters, it has ranged from 8% to 13%, right? So blended basis, it will like an 11%.

Ritesh Shah — Investec — Analyst

Okay. The reason I asked was this clarification is, I remember earlier, we had indicated this number to be upward of 20%. Can you please just clarify whether this number has trended down from 20% to, say, 10% to 12% or it has always been at 10% to 12%.

Anubhav Gupta — Group Chief Strategy Officer

No. The 20% could be like in one of the months, right, when there was like maybe execution of some large ongoing order, but if you look at the three months, or six months, or nine months or 12 months pattern, it won’t go beyond 12%, 13%.

Ritesh Shah — Investec — Analyst

Sure. Perfect. Sir, if I can just squeeze one, we have indicated incremental capex in new regions, can you just give some broad qualitative comments on the competitive intensity, say, hypothetically, if you are deciding to put up a plant in Maharashtra, we have a significant agri contribution right now, which we indicated that we intend to reduce it going forward. But there are formidable players in this region. In North, obviously, we call out the shops, but venturing into new regions, how do we look at competitive intensity, say, Maharashtra session.

Sameer Gupta — Chairman and MD

So Ritesh, see, I mean, how we are looking at these new markets is the way how we took market share away in the north market, right? So we are not trying to get into territories or we are not trying to get market share from the top five, six players who are like stronger than us, right? What — how we see this industry is like the players in the organized sector, which are below us, say, we today are ranked at number seven, right, being company, so from starting from rank eight to rank 25, right, in the organized space, there are like many players, right, who are facing a lot of issues last six, seven years, how they have been disruptive, right, right from 2016 started with and until 2022, the second, third wave from the COVID crisis, right? So we find a lot of opportunities, a lot of gaps, right, which have come up because of these players, right?

So my target is to take market share from this number one. Number two, then the unorganized space. I mean this industry is one of the great example that the unorganized contribution is still very high, right, versus other building retail companies.

Third, I mean, the third is we are buying this incremental INR3,000 crore, INR4,000 crores of industry size, right, which is going to get added every year, right? So even if you see that the kind of capex required right to — for the industry to grow 10%, right? We just want to be part of that incremental industry, right? So we’re not — we don’t think that we may need to bother stronger players too much to get this growth.

Operator

Our next question is from the line of Mr. Dhiral from PhillipCapital PCG. Please go ahead.

Dhiral — PhillipCapital — Analyst

Yes. Good afternoon, sir. Thanks for the opportunity. My question is, again, continue with the follow-up of the earlier question. So the future expansion of 125,000 tons that you are targeting across West, South and East will this be equally distributed like 40,000 tons on each of the nature or what are you planning for that?

Sameer Gupta — Chairman and MD

So I guess, yes, I mean, not necessarily right, not necessarily. But yes, I mean, broad-based, you could assume that the minimum plant what we’re going to set up at least 30,000 35,000 tons, right, catching the location. And we are already started mapping the markets, right? In the next two, three weeks, we will have already planned, right? What kind of capacity, what kind of line have to come across these three geographies.

Dhiral — PhillipCapital — Analyst

Okay. And sir, have we decided or have you bought any land for this? Or we are very in early stage?

Sameer Gupta — Chairman and MD

We are still evaluating the locations and other things. So we will give more updates on this in our next traction.

Dhiral — PhillipCapital — Analyst

Okay. So INR500 crores includes cement? Okay. Okay. Thank you so much.

Operator

Thank you. Our next question is from the line of Sandesh Barmecha from Haitong. Please go ahead.

Ajay Kumar Jain — Chief Financial Officer

Sandesh, sorry — just want to clarify on the previous question that the — that the greenfield capex is INR400 crores, right? INR100 crores is for the ongoing expansion. So INR400 crores, which we have allocated for three greenfield plants that in huge land also. Please Sandesh, sorry, please go ahead.

Sandesh Barmecha — Haitong. — Analyst

Okay. Thank you, sir anyway. Sir, we have clocked EBITDA of around 15.7 per kg in Q4, which is one of the best quarters for the industry. And the industry also saw benefit of PVC recent price during the March quarter. So what makes us so confident that blocking of INR70 to INR18 per EBITDA per unit going forward, sir?

Ajay Kumar Jain — Chief Financial Officer

So what we are guiding is INR16 to INR17, right, for the next two years, right, as we are going to expand capacity, right, there will be fixed cost, which will be coming upfront, right? We are moving to cash and carry, which may — which will require some cash discounts, extra cash discounts, right? So we are comfortable with INR16 to INR17 kind of EBITDA spreads, right? And once the new plant settling — our market share is higher, right? Then we will — then our EBITDA spreads will inch towards INR18, INR19, okay? So right now, our guidance is INR16 to INR17 over the next two to three years.

Sandesh Barmecha — Haitong. — Analyst

Okay. Great. Thank you so much, sir. Good day.

Operator

Thank you. Our next question is from the line of Jenish Karia from MD Stock Broking Limited. Please go ahead.

Jenish Karia — MD Stock Broking — Analyst

Yes. Thank you for the opportunity. Yes, so sir, in one of the earlier question, you answered that your targeting market share gains from smaller organized players and unorganized players and the capacity that we’re adding is more on CP value-added category, can you please help us with understanding that how much of the smaller organized players and unorganized players who have the cPVC and what is the target market size that they’re seeing in the value-add thing?

Ajay Kumar Jain — Chief Financial Officer

No, no. Jenish, there was like a lot of disturbance. Could you please speak closer to your mic?

Jenish Karia — MD Stock Broking — Analyst

Is this better, sir?

Ajay Kumar Jain — Chief Financial Officer

Yes, better.

Jenish Karia — MD Stock Broking — Analyst

Yes. So I was saying that we are targeting means from smaller organized players and unorganized players. And the capacity we are adding is more towards the value-add and cPVC category, where we want to increase our market share. So could you please let us understand how much of this cPVC and value-add capacity will the smaller organized players have that we are targeting?

Ajay Kumar Jain — Chief Financial Officer

No. So Jenish, the value-added products, which are coming right now, they are in Dadri two Okay. That is already part of our business plan, which we announced, right, 1.5 years ago. Okay? And why is that expansion? Because I had utilized my whole capacity for cPVC, which I put up in North India. I had already utilized my 100% capacity for baty fittings, which I put up in North India.

Then my HDPE pipe business was growing as the water infrastructure projects keep on coming from the government, okay? So that’s why we — that’s why we put up those brownfields — those greenfield lines in Dadri 2, near to our existing Dadri 1 plant. Now the greenfield expansion, what we are talking about in Northwest East, right? It’s not going to be like 100% value-added, right? It will also be consistent of the normal line for some line for agri, some lines for regular building materials, plumbing pipes. And then there will also be CBBC and STP and bath fittings, okay? So, it’s not that all my 250,000 — all my 150,000 ton of incremental capacity is coming in, in value-added products.

Jenish Karia — MD Stock Broking — Analyst

Understood. That’s helpful, sir. And so our pre-cost ranges between 2%, 2.5% of the revenues. So, with our plans being spread out pan-India, how much of the freight cost savings can we expect? Can you expect it around 1.5% of revenue or something like that? Or it will consistently be 2% or above?

Ajay Kumar Jain — Chief Financial Officer

So,, I mean, right now, it’s very limited sales limited products, which I sent from a north plant to feed these markets, okay? So, that proportion will be very small, right, nothing to make a note of it. But what is important is my incremental sales, right, after these new plants are out, then it will have regular freight cost, which right now might north market has, okay? So, there could be substantial cost savings. If I was feeding my south market from my north plant, which is like very, very small today, very small today.

Jenish Karia — MD Stock Broking — Analyst

Okay. I understand. And just one last thing, if you can just highlight on the ad spends going forward?

Ajay Kumar Jain — Chief Financial Officer

Add spends, if you see, there has already been an increase of 60%, right, from INR10 crores in FY 2022 to INR16 crores in FY 2023, okay. In terms of ad spends, right, despite pressure on sales because of market, right, we were aggressive in ad spend, right? So this came out to be around 1.75% of my total sales. So, I think FY 2024, our budget factors in around 2% of the topline as my ad spends. So, I think going forward, you should factor in like 1.75% to 2.25% as a percentage of topline.

Jenish Karia — MD Stock Broking — Analyst

Okay. I understood. Thank you and all the best for the future.

Operator

Thank you. Our next question is from the line of Mr. Pritesh Cerro from Lucky Investment Managers. Please go ahead.

Pritesh Cerro — Lucky Investment — Analyst

Yes sir, I have a follow-up. These plant stays on as they are rated 100% capacity.

Ajay Kumar Jain — Chief Financial Officer

No. 70%. If you look at industry average, Pritesh, it’s around 70%, 75%. So, we are also factored in that by putting 286,000 tons, okay, we may get sales volume of not more than like 25,000 tons.

Pritesh Cerro — Lucky Investment — Analyst

Okay. So, if they operate at 70%, 111 divide by 136. So, basically, you are out of your capacity in first half of FY 2025 on the current 136 million — so okay. You’re adding 136 million plus 25 million, right?

Ajay Kumar Jain — Chief Financial Officer

Yes.

Pritesh Cerro — Lucky Investment — Analyst

Okay. So that takes care of FY 2025. Now these greenfields, when do they start coming to your P&L? Or when they will — are they staggered operation where they will start coming?

Ajay Kumar Jain — Chief Financial Officer

So, first contribution will be coming within 15 months, Pritesh.

Pritesh Cerro — Lucky Investment — Analyst

So, it is FY 2025?

Ajay Kumar Jain — Chief Financial Officer

Q1 of FY 2025.

Pritesh Cerro — Lucky Investment — Analyst

15 months you’ve already started constructing or how it is?

Anubhav Gupta — Group Chief Strategy Officer

I mean mid Q2 FY 2025.

Pritesh Cerro — Lucky Investment — Analyst

Okay. And you mentioned that these plants will give some element of fixed cost once they get operational. Will all the plants come at one go for the entire INR400 crore, 125,000 tonnes?

Anubhav Gupta — Group Chief Strategy Officer

No, Pritesh, it won’t be like that. Okay? So right now our priority is west, right? So we have already started mapping the market we have — right and our project team is super active now looking for land, etc. Okay? Then the second priority is South and East, right? So, you could assume that if things go as per the plan. First plant will start in west after 15 months, then within 20 months, 24 months the eastern plant will start and then the South plant.

Pritesh Cerro — Lucky Investment — Analyst

So it’s basically 2025, 2026 and maybe 2027 that the entire capacity will come. And when you’re factoring, have you factored in the INR16, INR17 a kg EBITDA the fixed cost, which would come in once this capacity?

Anubhav Gupta — Group Chief Strategy Officer

Yes. So INR16 is what we have factored yes.

Pritesh Cerro — Lucky Investment — Analyst

Thank you very much.

Operator

Thank you. Next question is from the line of Vignesh Iyer from Sequent Investment. Please go ahead.

Vignesh Iyer — Sequent Investment — Analyst

Hello, sir. And just on the margin, I mean, on the guidance front that you have given. Sir, if I’m not wrong you said 35% CAGR growth and you’re targeting around 25%. As per your presentation you are targeting around 25% for FY 2024, right?

Anubhav Gupta — Group Chief Strategy Officer

Could you please repeat, sorry?

Vignesh Iyer — Sequent Investment — Analyst

Yeah, yeah. So as per your presentation that you have put up, you are targeting around revenue growth of around 25% for FY 2024, I mean, as a focus area of — for FY 2024. And overall, you are targeting 35% CAGR for next four years. So, I just want to understand –?

Anubhav Gupta — Group Chief Strategy Officer

So presentation is like the growth, the long-term sustainable growth, right? So it’s not for 1 specific year. So today on call in opening remarks, which Sameer-ji gave, right, so he’s talking about 35% revenue CAGR for the next four years. By the time we will utilize this capacity of 286,000 tonnes.

Vignesh Iyer — Sequent Investment — Analyst

Right.

Anubhav Gupta — Group Chief Strategy Officer

Right. So you should assume — so our guidance is 35% revenue CAGR for the next four years.

Vignesh Iyer — Sequent Investment — Analyst

Okay, okay. And just if I missed, I’m sorry, this — your expansion in Dadri when it would kick in I mean, any time line for it? I mean the greenfield and the brownfield on Dadri?

Anubhav Gupta — Group Chief Strategy Officer

By Q4 of current financial year.

Vignesh Iyer — Sequent Investment — Analyst

Okay. Both the capacity will be kicking in by then?

Anubhav Gupta — Group Chief Strategy Officer

Yeah. Okay. Okay. That’s all from my side. All the best, sir. Thank you.

Operator

Thank you. Our next question is from the line of Mr. Rahul Agarwal from InCred Capital. Please go ahead.

Rahul Agarwal — InCred Capital — Analyst

Hi. Thank you. Good afternoon. Just one question on these value-added products. Could we highlight what’s the R&D focus of the company? Because my understanding is most value-added products we are talking about are essentially already available from larger national brands. And anyway, they’re also improving on that. So how do we excite the market with new offerings exclusive from Apollo? Could you talk just your thoughts on this, please? Thank you.

Arun Agarwal — Joint MD

So we are setting up our first R&D labs in our Dadri unit, and we have allocated around INR5 crores initially to fund that. So this is the first of its kind that Apollo Pipes is planning, and I think we’ll give more updates once we have some concrete shape to it. So in our budget plan, we have allocated INR5 crores to the R&D lab at our Dadri unit.

Rahul Agarwal — InCred Capital — Analyst

Yeah. I understand that, sir. But could you talk about just your thinking in terms of how do you excite market, and so what products you would offer? Because my understanding is the growth you’re talking about is more volumes. And, obviously, that will come more from getting market share from like smaller regional brands and lesser from national larger brands and correct me if I’m wrong. So my sense is that, obviously, volumes can be pushed by doing more PVC, but margins.

Sameer Gupta — Chairman and MD

Rahul, see, I mean, to excite the market, I have enough ammunition as of now. If you look at my cPVC sales contribution, if you look at my solvent sales contribution, you look at my water storage tank product contribution. You look at my bath fitting contribution, the new PPR product, which we launched three quarters back.

So all these five products, which will be contributing very small versus my larger peer, okay? So focus is to ramp up these products to the best possible manner over the next two, three years. And these four, five products will give me volume. At the same time, they will give me more profit of like, like I said, my gross margin, my gross profit per ton will continue to improve. You could very much verify my financials.

EBITDA per ton we are keeping like INR16,000, INR17,000 range because now we are getting into a hyper-growth phase, which will require a lot of capex, fixed costs will come upfront, aggressive sales force. So at no time, we feel that we don’t have something to excite the market. We have enough ammunition to excite the market.

With these products, my bath fitting, I mean there is this company in Coimbatore in bath fittings, investors, it is like a combination of some Sri Lankan company, some Malaysian company, and some local family from Coimbatore, and it’s up for sale by some private equity funds, people are going like crazy for that.

So this product, which has started, it is giving me 25%, 30% EBITDA spreads, EBITDA margin. So I think if I am able to ramp up this product to whatever business plan I have made, this could be a new different revenue stream for Apollo Pipe over the next three, four years.

So no where we feel that we don’t have enough ammunition where I have to do some — to do — to come up with some super R&D product. But like Arunji mentioned that we have taken the first step to set up the lab. We are INR100 crores odd EBITDA company, INR5 crore allocation is also very big amount for us. But if you look at the total industry, it is not. So we’ll take baby steps. And right now, our SKU range matches any other Tier 1, Tier 2 company, you may compare us with 2,000 SKUs, more than 2,000 SKUs, more than 1,500 fitting molds. So we are pretty much in race as per the SKU profile and enough products to excite ourselves and our clients and then consumer.

Rahul Agarwal — InCred Capital — Analyst

Perfect, sir. I get that. Just to conclude on this, should we see any exclusivity on new product launches from October?

Sameer Gupta — Chairman and MD

Not really as of now, like Arunji mentioned, in the next one, two quarters, we have more clarity on our R&D efforts where it is taking us. So we may have something out of us, but not today.

Rahul Agarwal — InCred Capital — Analyst

Perfect, sir, completely understand. Appreciate the answer. Thank you so much. All the best.

Operator

Thank you. Due to time constraint, that was the last question of the question-and-answer session. I would now like to hand the conference over to the management for closing comments.

Sameer Gupta — Chairman and MD

Right. Thank you, Antique, for hosting us, and thanks to all the investors who drop by. And if there is any question unanswered, I would request you to reach out to us, and we will be happy to address any questions. Thank you so much.

Operator

[Operator Closing Remarks]