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APL Apollo Tubes Ltd

| 3Q FY26 Results Conference Call

BULLISH SENTIMENT

Report Source

⬤27th Jan 26

Summary : APL Apollo is aggressively expanding capacity to 8 million tons, targeting higher EBITDA of INR5,500 per ton, and aiming for a liability-free balance sheet by leveraging strong brand equity and strategic diversification into specialty tubes, driven by robust construction demand.

Management Perspective positive : Management repeatedly used phrases like 'stupendous performance', 'very confident', 'very, very promising', and 'very bullish' when discussing current results and future outlook, indicating strong optimism despite challenges.

Concall Report Analysis & Insights

Business Overview

  1. Achieved stupendous performance in 3QFY26 despite macro headwinds and falling raw material prices.
  2. 9-month sales volume increased 11% YoY, within 10-15% guidance range.
  3. EBITDA per ton surpassed INR5,000, exceeding initial guidance.
  4. Successfully tested 5 million ton capacity, achieving 90% utilization in December 2025.
  5. Pricing premiumization strategy for APL Apollo brand and SG brand for base category proved effective.

Future Growth Prospects

  1. Upgrading sales volume growth guidance to 20% for 4QFY26 and FY27.
  2. EBITDA guidance upgraded to almost INR5,500 per ton.
  3. Aggressively pursuing capacity expansion to 8 million tons in next 2 years from current 5 million tons.
  4. Vision to reach 10 million tons by 2030, with 2 million tons in super specialty segments.
  5. Targeting ROCE expansion to sub-40% levels by FY27.

Management Insights

  1. Our pricing premiumization strategy leveraging the APL Apollo brand has worked excellently.
  2. We are very confident this momentum will continue, upgrading sales volume and EBITDA guidance.
  3. Aggressively pursuing capacity expansion to 8 million tons, funded by internal cash flows.
  4. We are on the verge of becoming a liability-free company with strong cash flow generation.
  5. We are very bullish on construction and infrastructure spending for the next 3-4 years.

Signs of Skepticism

  1. Analyst questioned the ambitious 20% volume growth for FY27, which management reiterated.
  2. Analyst asked if INR3,000 crores EBITDA was greedy, management confirmed INR5,500/ton EBITDA is certain.
  3. Analyst inquired about market tailwinds supporting the 20% volume growth, management affirmed confidence.

Risk Factors

  1. Subdued macro construction ban in Delhi NCR impacted performance.
  2. Falling raw material prices presented headwinds.
  3. Potential for sharp, sustained commodity price increases/decreases.
  4. Competition is also planning for capacity additions.

Good To Know

  1. Surplus cash on balance sheet is INR5.6 billion, targeting INR1,500 crores by Q4.
  2. Inventory days expected to reduce from 30+ to 20-day range.
  3. Increased dividend payout policy to a minimum of 25%.
  4. HRC price changes are a pass-through to customers, with a 5-8 day lag.
  5. Targeting a 20% consolidated tax rate by FY28 due to tax benefits from Dubai and Raipur plants.

Key Drivers

  1. Aggressive capacity expansion to 8M tons.
  2. Entry into high-margin specialty tubes.
  3. Achieving INR5,500 per ton EBITDA.
  4. Becoming a liability-free company.

Key Analyst Discussions

Competitive Environment

  1. APL Apollo maintains over 60% market share post-COVID, up from 40% pre-COVID.
  2. Competition's capacity additions are small and not expected to significantly impact APL Apollo.
  3. The company is H1 and L1 in its market segment, not facing volume growth pressure.

Market Trends & Consumer Behavior

  1. Demand for structural steel tubing is linked to construction, with strong tailwinds expected from government infrastructure spending.
  2. Management is very bullish on construction and infrastructure spending over the next 3-4 years.
  3. Minor restocking demand is observed, awaiting more clarity on price behavior.

Financial Highlights

  1. Management confirmed 20% volume growth for Q4 and FY27, driven by strategy and reduced fixed costs.
  2. EBITDA per ton guidance increased to INR5,500 due to volume growth, freight cost reduction, and brand leverage.
  3. ROCE is currently 33%, targeting sub-40% by FY27 with strong free cash flow generation.
  4. Interest costs increased due to rate movements and bank charges, but expected to reduce to zero by Q1 FY27.
  5. Consolidated tax rate is expected to be around 20% by FY28, benefiting from Dubai and Raipur plants.

Product Composition

  1. Specialty tubes are projected to have EBITDA spreads of INR10,000-INR15,000 per ton.
  2. SG premium volumes were 60,000-70,000 tons in Q3, representing under 10% of total volume.
  3. New capacity is for new areas, fully utilized existing products, and value-added roofing products.

Strategic Considerations

  1. Capacity expansion to 8 million tons includes 4 greenfield, 1 brownfield, and 1 million ton debottlenecking.
  2. Total investment for 5M to 8M tons expansion is INR1,500 crores, funded by internal cash flows.
  3. Beyond 8 million tons, 2 million tons will be in super specialty segments like EV, aerospace, and petrochem.
  4. Partnerships with global players are sought for fast-tracking super-specialty product development.