Apollo Pipes Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Apollo Pipes Ltd (APOLLOPIPE) Q3 FY22 Earnings Concall

Management Update:

• The company reported a stable performance during the quarter. Over the next few quarters, the company expects its current sales performance trend to strengthen, led by an improving demand environment, expansion in addressable markets and a sustained uptick in utilization levels.

• APOLLOPIPE commented that any new capex will be majorly funded from internal cash flows without stretching its balance sheet.

Q&A Highlights:

• Madhav Marda from Fidelity International asked how the company achieved better volume deliveries compared to peers and what the impact of channel destocking in plastic pipes is. Anubhav Gupta CSO said that the value added product category contributed well to the volume growth. On destocking, the company said it did impact the overall volumes as PVC resin prices were volatile in 3Q22.

• Madhav Marda from Fidelity International asked an additional question about the volume growth for building material category. Anubhav Gupta CSO answered that in CPVC realization have been stable and the growth pertains to volume growth. In fitting solutions, it was 25-30% volume growth, while value growth was a bit higher.

• Madhav Marda from Fidelity International also asked a question in terms of volume growth and margins. Anubhav Gupta CSO answered that in the starting of FY22, the company gave revenue guidance of INR1,000 crores by FY23, which remains the same. The company expects Q4 to be strong and is on track to achieve the revenue guidance. The company also added that it won’t spend more than 30% of its EBITDA towards capacity expansion spends.

• Madhav Marda from Fidelity International asked about guidance for volumes on a metric tonne basis and margins on a per tonne basis. Anubhav Gupta CSO said that on an EBITDA per tonne basis the company should stabilize at INR17,000-18,000 range and as the volume mix keeps improving APOLLOPIPE should inch towards INR18,000-19,000 per tonne.

• Udit Gajiwala from Yes Securities enquired about the utilization level for Q322 and Q321. Anubhav Gupta CSO answered that the volume the company did in 3Q22 was about 13,000-14,000 tonne on a capacity of 125,000 tonne. Taking seasonality into factor, the company expects to be able to do 80,000, 90,000 tonne of annualized volume on the existing capacity. Therefore, 52,000 tonnes on an annualized basis on a capacity of 80,000, 90,000 tonnes, which should be a 55% utilization levels.

• Udit Gajiwala from Yes Securities also asked about the discount the company is offering as compared to leading players in PVC and CPVC. Anubhav Gupta CSO said the discount is 3-4% across category.

• Bhargav Buddhadev from Kotak asked on EBITDA per kg, comparing to leading players, the company’s EBITDA per kg is about 40-50% lower and when does it expect this gap to narrow down. Anubhav Gupta CSO commented that today the company is utilizing 50-55% of its capacity. Therefore, once the utilization level inches up there will be improved EBITDA spread. Also added that the discounts given to the distributors are impacting the gap.

• Bhargav Buddhadev from Kotak also asked about the contribution from tanks and bath fitting as a percentage of revenue. Anubhav Gupta CSO replied that in total it should be around 5-6% and the next year target is to take it to 10%.

• Kushal Jajodia of Kushal Jajodia & Associates asked about the expenditure incurred on the two brand ambassadors that were added in Q3. Anubhav Gupta CSO answered that so far the company has spent around 1.5% of its sales value on branding which is within budget. In terms of value, the company has spent about INR7-8 crore so far, with a run rate of about INR2-2.5 crores on a quarterly basis. Next year, APOLLOPIPE might hit a bit higher, about 2% of total revenue as TV commercials will be launched.

• Anika Mittal asked about the reason for the fall in operating margin of about 9% YoY. Anubhav Gupta CSO said that due to high volatility in the PVC pricing, channel destocking took place in Q3. Therefore, to push sales, the company offered extra discounts to the distributors which resulted in better sales volume and value, but resulting in the fall in operating margin.

• Ritesh Shah from Investec Capital queried about the sourcing numbers for PVC and CPVC. Anubhav Gupta CSO answered that the company has shifted its buying strategy from import to local sources. The company added that currently it is buying about 40% of its purchases from domestic sources compared to 20-25% last year and 60% from imports. CPVC is 100% import.

• Praveen Sahay from Edelweiss Financial asked about where does the company see itself in the next 3-5 years and if it is seeing like a doubling of market share to 2-5% or reaching at 10%. Anubhav Gupta CSO said that as a company, the next target is INR1,000 crore turnover, a INR250 crore quarterly revenue run rate, that’s expected to achieve in FY23. From there, the next plan is to touch INR2,000 crore revenue in 3 years.

• Amit Zade from Antique Stock Broking asked what kind of dealer additions would be required to reach the INR1,000 crore turnover in FY23. Anubhav Gupta CSO said that to reach the turnover target, the company will have to work towards expanding the distribution network. So far 60-65% of the turnover is still coming from North India. Over the next 12 months, the company’s target is to increase its distribution base by at least 5-10%, mainly in the southern and western geographies.