Captains Speak     

Published: November 15, 2024
Updated: November 15, 2024

APL Apollo Tubes

Tailwinds expected from steel demand

Though the current performance of APL Apollo Tubes is far from satisfactory, the prospects for the company going ahead are highly encouraging.

Maintaining this at a conference call organized to discuss the company’s performance during Q2FY25, Sanjay Gupta, Chairman and Managing Director, added that EBITDA for Q3FY25 is expected to be around Rs 4,500/4,700 per tonne and for Q4 FY25 Rs 4,700/5,000 per tonne. The company will be focusing on better EBITDA margins along with increasing volumes, going forward.

According to Mr Gupta, the company expects demand to be good and robust going forward. HRC prices are likely to remain at the same level as at present. APL does not expect inventory losses going forward. It will also get tailwinds from a rise in structural steel demand. The company is now targeting 10% growth (QoQ) in terms of sales volume as it has capacity. It has rolled back the discounts given to dealers in October, which will be the margins going forward. And APL will again be net cash positive by the end of FY25. The company has given residual capex guidance for FY25 in the range of Rs 3-4 billion.

MIXED RESULTS

The performance of the company during Q2FY25 reveal a mixed performance. While the topline saw a modest increase of 3.1% YoY, profits took a significant hit, plummeting by 73.48% compared to the same period last year. In a QoQ comparison, the results were even more concerning, with revenue declining by 4.03% and profits decreasing by 72.14%. This indicates ongoing challenges in maintaining growth momentum amidst a tough market environment.

According to Mr Gupta, sales volume (in mt) came at 0.758 vs QoQ 0.721, YoY 0.675 (+5% QoQ, +12% YoY). (The company has achieved the highest-ever quarterly sales volume during the quarter as it gained marketshare against low- grade sponge iron patra pipes.) Realisations (Rs/tonne) came at 62,980.21 vs QoQ 68,991.68, YoY 68,595.52 (-8.71% QoQ, -8.19% YoY). (Realisations were down on account of lower steel prices during the quarter.) EBITDA/tonne (Rs/ tonne) came at 1,821.90 vs QoQ 4,183.08, YoY 4814.81 (-56.45% QoQ, -62.16% YoY). (EBITDA/tonne was down so sharply on account of lower realisations and inventory losses during the quarter.)

The gap between Apollo pipes and low-grade sponge iron patra pipes is just 5-6% today. So, it is helping the company to encash its marketshare.

FY25 GUIDANCE

APL has maintained its full year FY25 sales volume guidance at 3.2 mt and is confident of achieving the same. It has launched innovative new products during the quarter for the solar industry. The solar industry could be the next growth opportunity for the company going forward. The company has given the following guidance: Sales Volume: FY26 = 4 mt; FY27 = 5 mt EBITDA/tonne: 1st phase = Rs 4,000-5,000/tonne = normalized EBITDA per tonne = will be achieved during the next 2-3 quarters.

2nd phase = Rs 5,000-6,000/tonne = a little longterm and it will be achieved in FY26, and this level of EBITDA/tonne will be maintained throughout FY26 on a QoQ basis.