APL Apollo – Quarterly result

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New Delhi, August 12, 2019: APL Apollo Tubes Limited (APL Apollo), India’s leading branded steel tubes manufacturer, marked a strong start to the new fiscal year 2020. The sales volume, excluding Coil & Scrap, posted a robust growth of 29% to 3.89 lakh MTPA in Q1 FY20. The growth was driven by a healthy uptick in the demand environment, both in the domestic and overseas markets. Strong contribution from the Company’s value-added product categories of Hollow sections, DFT pipes, and GP pipes among others assisted the overall volume growth during the quarter. The total revenues during the quarter stood at Rs. 2,071.6 crore, registering a robust increase of 24% YoY. This includes, contribution from Apollo Tricoat for 13 days of operations i.e, from June 17 to June 30, 2019.

With regards to the profitability, EBITDA in Q1 FY20 stood at Rs. 129.5 crore, higher by 15% Y-o-Y. EBITDA per ton during the quarter stood at Rs. 3,334.5. Given the Company’s focus on volume growth, the EBITDA per ton was within a healthy range. The increased spends on Brand development and marketing activities, stamp duty expenses on Shankara acquisition and inventory valuations during the quarter impacted profitability performance. However, from a longer-term perspective, the Company expects that increasing contribution from its higher margin value-added branded products and better utilization levels will positively impact profitability going forward. Depreciation during the quarter stood at Rs. 20.2 crore, higher by 33% YoY, due to commissioning of new capacities and establishment of a new warehouse in Dubai. Interest costs, during the quarter, were higher by 7% YoY to Rs. 28.3 crore. However, the Interest Cost as a % of Sales came in lower by 20 bps YoY to 1.4% in Q1 FY20 led by improvement in working capital cycle. During the quarter, PAT stood at Rs. 52.1 crore, higher by 11%.

On the balance sheet front, the Company’s total debt stood at Rs. 886 crore. The increase in debt was mainly due to the acquisition of Shankara’s manufacturing unit in Bengaluru, investments in Apollo Tricoat and capital infusion of Rs. 97 crore. The Company’s working capital cycle improved with debtor days at 19 days, inventory days at 34 days and creditor days at 25 days

 

Commenting on the Company’s performance for Q1FY2020, Mr. Sanjay Gupta, Chairman, APL Apollo, said,

 “We are pleased to announce that we have begun the fiscal on a strong note despite an uncertain and subdued macro-environment. During the quarter, our sales volume witnessed a robust growth of 29%, marking healthy growth across the topline and profitability. The overall growth during the quarter was driven by strong contribution from Hollow Sections, DFT Pipes and Pre-Galvanized Tubes among others.

Operationally as well, we have seen a string of positive developments during the quarter. Our wholly-owned subsidiary, SLMUL, has concluded the acquisition of a ~50.6% stake in Apollo TriCoat Tubes in June 2019. I am pleased to share that Tricoat delivered an encouraging performance in Q1 FY20 – its first quarter of full manufacturing operations. There is a strong build-up of demand for Tricoat’s existing high-margin product categories, namely the ILG pipes, DG Pipes and more recently, the Door Frames product segment. We believe, increased production of these products will help provide a strong momentum to volume and sales performance for Apollo Tricoat, going forward.

I am also happy to share that APL Apollo, during the quarter, set-up its maiden international warehouse in Dubai. The strategically-located warehouse will help address the growing demands from international customers and will further enable us to strengthen our brand visibility in global markets, thereby boosting export performance in the longer term. 

As we look ahead, we are seeing a healthy uptick in demand for all our product categories in the domestic as well as in the export markets and we remain confident of delivering a sales volume growth of 20% CAGR in FY20 & FY21. Our focus remains strong on improving our cash flows and profitability in the years ahead, which should enable us to create further value for all our stakeholders.”

Key Developments

  • Began the new fiscal on a strong note with robust sales volume growth of 29% YoY

o   The Company registered a strong sales volume** of 388,511 MTPA in Q1 FY20, higher by 29% Y-o-Y from 302,054 MTPA in Q1 FY19

o   The growth was led by strong demand in the Hollow Sections segment, DFT pipes and Pre-Galvanized Tubes (GP) among others

o   Despite uncertainty in the broader market, the Company is witnessing healthy demand in volumes across product categories and remains confident of delivering a sales volume growth CAGR of 20% in FY20 & FY21

Note:

**Sales volume excluding Apollo Tricoat Volumes

 

  • Established its first-ever International warehousing facility in Dubai

o   APL Apollo will operate its first-ever international warehousing facility, under a wholly owned subsidiary “APL Apollo Tubes FZE”, incorporated at the Jebel Ali Free zone in Dubai

o   The warehouse is strategically-located close to a major market, which should enable improved cost efficiencies, higher speed to market and increased brand visibility

o   The facility will help bring in business synergies and enable APL Apollo to augment its international sales across the high-potential Middle East market, while also complementing its strategy to boost exports in the coming years

 

  • Strong focus on Branding & Marketing Initiatives through Sports Sponsorship

o   Over the last year, the Company has undertaken a string of branding and marketing initiatives through its association with Indian sports to help maximise APL Apollo’s brand reach and visibility across a diverse domestic market

o   The Company has been progressively investing behind this brand building initiative and believes that Indian sporting events are a giant platform, offering maximum reach and generating a strong mass connect and visibility

o   During the quarter, APL Apollo became the principal sponsor of Haryana Steelers for the 7th season of the Pro Kabbadi League

  • The Company has signed a one-year association with the Haryana Steelers and will see ‘APL Apollo’ brand featuring as the Principal Sponsors across various platforms, including the Official Playing Kits and the front of the official team jersey

o   In Q1 FY20, the Company also became a sponsor for the ongoing ‘India versus West Indies’ cricket series. Through this association, the ‘APL Apollo’ logo will feature on India’s official jersey

o   APL Apollo’s aim through these associations is to reach out to the millions of sport fans to make the ‘APL Apollo’ brand reach and visibility more impactful

 

  • The Company concluded the acquisition of production unit located at Hyderabad, one of the unit of Taurus Value Steel & Pipes, a subsidiary of Shankara Building Products

o   The acquired manufacturing unit at Hyderabad has a production capacity of ~2,00,000 tons per annum and includes manufacturing lines for GI pipes and GP pipes, which are APL Apollo’s high margin and value-added product segments

o   The acquisition will enable APL Apollo to add further capacities at attractive valuations, given the strong demand outlook over the next few years

o   With an attractive payback of less than 3 years, the Company anticipates a quick turnaround of the acquired facility in South India

 

  • Entity belonging to promoter category concludes infusion of Rs. 97 crore in APL Apollo through preferential allotment of equity and convertible warrants

o   During the quarter, the infusion of Rs. 97 crore by an entity belonging to promoter category in APL Apollo has been concluded through preferential allotment of equity and convertible warrants. The details of the allotment are as follows

  • Allotment of 400,000 Equity shares on preferential basis at Rs. 1,800 per equity share to entity belonging to promoter category and allotment of 500,000 fully convertible warrants of the Company at Rs. 2,000 per warrant to entity belonging to promoter category

o   Post the allotment of Equity shares, the paid up capital of the Company stands Increased from Rs. 23,85,03,810/- (2,38,50,381 Equity Shares of Rs.10/- each) to Rs. 24,25,03,810/- (2,42,50,381 Shares of Rs.10/- each).

 

  • Shri Lakshmi Metal Udyog, APL Apollo Tubes’ wholly owned subsidiary, has concluded the acquisition of Apollo Tricoat in June 2019

o   In October 2018, Shri Lakshmi Metal Udyog Limited (SLMUL), wholly owned subsidiary of APL Apollo Tubes, had announced the acquisition of 8 mn shares and subscribed to 4.3 million warrants of Apollo Tricoat Tubes Ltd, thereby constituting ~ 40.4% (diluted basis) of the shareholding of Apollo Tricoat.

  • The 4.3 million warrants has been fully converted in to equal number of equity shares

o   Subsequently, by way of open offer and market purchases (during the open offer) SLMUL also acquired ~10.2% of Apollo Tricoat in January 2019

o   On a consolidated basis, as on June 30, 2019, SLMUL owns ~50.6% stake in Apollo Tricoat

 

  • Q1 FY20 – Apollo Tricoat’s 1st Quarter of full manufacturing operations

o   In Q1 FY20, Apollo Tricoat started commercial production of its first two product categories namely, the In-line Galvanized (ILG) pipes and Designer Galvanized (DG) Pipes at the existing Greenfield plant at Malur, Bengaluru

  • The manufacturing unit has a production capacity of 150,000 tons per annum

o   In the month of July 2019, Apollo Tricoat commenced commercial production of Door Frames at its greenfield manufacturing facility at Dujana, Dadri

  • The manufacturing line for the newly launched product segment has a total installed capacity of 50,000 MTPA

o   All three launched product segments are higher margin value-added products, given their niche product applications in India. The Company is also on track to launch the other innovative products category of Narrow Sections by September 2019

o   An improved portfolio of all the four value-added segments is expected to broaden the product mix and should enable the Company to deliver robust financial and operational performance going forward

 

  • The Board approves appointment of E&Y India as Internal Auditors of the Company

o   The Board of Directors have approved the appointment of Ernst & Young LLP, India (a member of the global network firm of Ernst & Young) to perform internal audit and strengthen internal controls for APL Apollo Tubes

o   The appointment of Ernst & Young LLP, India will ensure that the Company continues to maintain rigorous internal financial and accounting standards and procedures

o   This was also help strengthen the Company’s corporate governance policies and financial reporting processes, in line with international best practices