APL Apollo Tubes Ltd Management Discussions

Indian Economy

Post-pandemic India is poised to become one of the fastest-growing economies in the world despite geopolitical turmoil, global deceleration of demand and tightening of monetary policy across the world. World Bank report suggests that in FY23 Indian economy grew by an estimated 6.9%, although with some moderation.

Revival of private consumption and strong capital formation seems to be the key growth drivers, but effective credit disbursal and capital investment cycle also played a crucial role. Further, increasing capex thrust by the Central Government is also a significant contributor to this resurgence.

However, inflation remained high all through the year. At the beginning of the FY23 fiscal, inflation measured by CPI (consumer price index) reached 7.79%. Here, core inflation and food prices played a major role which continued to be on the higher side throughout the financial year.

RBI raised its benchmark repo rate by 250 basis points until March 2023. Borrowing costs for retail and other loans got higher. Banks passed on the increasing costs to borrowers by hiking interest rates on multiple loans. By the end of March 2023, inflation eased to 5.66%, which is considered ‘elevated, though within the range of RBIs tolerance limit.

IIP (Index for Industrial Production) data released by NSO (National Statistical Office) estimates a growth of 5.56% in the first 11 months of FY23, showing signs of recovery in manufacturing.

Government data reveals that gross GST collection for FY23 exceeded C18 lakh crore with over 22% year-on-year growth. It indicates the buoyant spirit of the Indian economy despite adverse global macroeconomic conditions.

Outlook: World Bank says the Indian economy will remain robust in FY24 amidst slow consumption growth and challenging external factors. It predicts a 6.3% growth in GDP for the financial year 2023-24 in the face of rising borrowing costs and slow income growth, which will weigh on private consumption.

Inflation is likely to come down even further with the reduction in commodity prices and increasing stability in domestic demand. The Central Government is anticipated to hit the fiscal deficit target of 5.9% in FY24. And just like last financial year, a strong capex push by the Government is expected to be the main growth driver. At the same time, an improved labour market and robust revenue collection are most likely to impact the economy positively.

Indian Structural Steel space

Structural steel has many applications, but it is widely regarded as a construction material worldwide due to its reliability, versatility, low production cost, high strength, sustainability and availability.

This steel can be customized into different shapes with its compositional properties and standards. Structural steel has applications in bridges, railways, railway station structures, buildings, stairs, railings, skyscrapers and the like.

But despite the advent of structural steel, RCC (reinforced cement concrete) remains the mainstay as a construction material. RCC is very good with compressive stresses, but it cant take care of tensile stresses. To improve tensile strength, some form of steel bar is used in the RCC construction.

Compared to RCC, structural steel is very lightweight with high strength and strength-to-weight ratio. These kinds of structures can be easily fabricated and replaced, assembled or dismantled easily. Because it is lightweight, it can be transported and handled with ease. Also, structure erection time is significantly lesser than with RCC.

The structural steel industry is one of the vital contributors to Indias rapid infrastructure development. Furthermore, with the Indian Government targeting a US$ 5 trillion economy by 2025 fiscal, the fortune of this industry looks incredibly bright.

However, the Indian structural steel market is not mature yet, leaving much potential for industry growth. A large part of this growth would come from Governments continuous infrastructure push. The development of railway stations and metro services all over the country and new aviation infrastructure like airports and new logistics hubs are some of the growth areas expected to drive the growth in the structural steel market in the next few years.

Additionally, the domestic real estate market surge, especially with the verticalisation theme emerging predominantly for residential and commercial buildings, is expected to drive the demand for structural steel. Further, the rising trend of pre-engineered buildings and design changes in urban housing will augur well for structural steel demand in the long run.

The global structural steel market is valued at US$ 101.85 billion in 2022 and is projected to grow at a CAGR of 5% until 2030. The Indian structural steel market is expected to grow faster than the world at a CAGR of 5.5% over the next few years. structural steel tube potential.

About the Company

APL Apollo is the leading player and market creator in the structural steel tube market in India. The Company is well-known in the structural steel space for its ingenuity and innovative spirit. It maintains a very diverse product portfolio to cater to different segments of end-user industries. It holds several IP comprising trademarks and designs and has almost 1500 SKUs in its portfolio.

The Company has 11 state-of-the-art manufacturing facilities that manufacture commoditised products and niche solutions.

In Its effort to reach customers across India, the Company has created a comprehensive and entrenched distribution network of more than 800 dealers across India. To create awareness of its products and solutions, the Company engages with key decision influencers: architects, construction consultants, and fabricators.

APL Apollo exports its products to 20+ nations. Headquartered in Delhi-NCR, India, the Company is spearheaded by Shri Sanjay Gupta as the Chairman and Managing Director. A team of experienced and enthusiastic professionals ably supports him. The Companys equity is listed on the BSE and NSE.

Our operational performance

The Companys operational efficiency climbed a few notches higher, recording the highest production of more than 2.2 Mn tonnes. This increase was owing to improved productivity in the manufacturing facilities, de-bottlenecking at some facilities and the partial commissioning of the Companys greenfield Raipur facility.

The marketing team worked diligently towards the market creation of the novel product coming out of the Raipur facility with considerable success.

Having completed the hospital projects leveraging the tubular technology, the Company bagged several new projects to deploy this contemporary technology. The Management is also conversing with several companies for more such projects, some of which should see the light of day in the current year (FY24).

The Company intensified its branding and awareness initiatives to enhance brand recall among decision-makers.

On the ESG front, the Company upped its DJSI ranking considerably. This is a recognition of the Companys efforts toward its social responsibility towards the Earth and marginalized communities residing on Earth.

Financial performance

(based on Consolidated Financial Statements)

Buoyed by the significant domestic demand and the untiring efforts of the team, APL Apollo reported an excellent all-round performance defying global headwinds.

Sales volumes registered an all-time high crossing the 2 mn tonne mark. The volume-drive enabled revenue from operations to scale from H130,633 million in FY22 to H161,660 million in FY23. Despite rising inflation, the Company remained hawk-eyed on cost, working untiringly to eliminate wastages and plugging gaps.

EBITDA increased from H9,452 million in FY22 to H10,215 million in FY23. While the EBITDA per tonne slid from H5,386 in FY22 to H4,481 in FY23 and the EBITDA margin dropped to 6.3% in FY23 against []% in FY22. This drop was owing to an increase in the sales of standard products in the first half of the fiscal and an increase in steel prices.

Net Profit for the year scaled to a new peak – it stood at H6,419 million in FY23 against H6,190 million FY22. Earnings per share (diluted) increased from H22.33 in FY22 to H23.14 in FY23.

The Companys Networth grew from H24,525 million as on March 31, 2022 to H30,056 million as on March 31, 2023. Correspondingly, the Book Value per share increased from H98 to H109 over the same time period. The Return on Equity dropped to 23.5% in FY23 from 28.9% in FY22.

The Company deployed majority its business liquidity into capacity augmentation and capability building initiatives. It invested H8,424 million in FY23 in capex projects. This has resulted in an increase in the Gross Block (from H20,388 million as on March 31, 2022 to H29,070 million as on March 31, 2023) and in the Capital Work-in-Progress from H5,037 million as on March 31, 2022 to H3,740 million as on March 31, 2023.

The overall debt position remained stable with the debt equity ratio at 0.1x in FY23.

The Company continued to monitor is working capital closely. Hence despite a significant increase in business operations, working capital remained stable. It could sustain its working cycle at 5 days. This is a new benchmark in the Indian structural tube space. This is also a reflection of the Companys product quality and brand position.

Particulars	2022-23	2021-22	Change (%)	Reason for change
Current ratio	1.2	1.3	-8.2	Marginally changed
Debt-equity ratio	0.1	0.1	0	Unchanged despite heavy capex
Interest coverage ratio	13.9	19.7	-29.7	Despite decline the ratio remains healthy
EBITDA Margin (%)	6.3	7.2	-92 bps	Decline in margin due to higher fixed cost at new Raipur plant
Net Profit Margin (%)	4.0	4.3	-29 bps	Owing to decline in EBITDA margin
Return on Net Worth (%)	23.5	28.8	-537 bps	Lower as investment into Raipur plant yet to yield results

Internal control & its adequacy

At APL Apollo, the internal control mechanism is designed to protect its assets and authorize, record, and correctly report all transactions on time. It conforms to the local statutory requirements and meets the highest global standards and practices to remain competitive in evolving business dynamics.

The internal control framework monitors and assesses all aspects of risks associated with current activities and corporate profiles, including scientific and development risks, partner interest risks, and commercial and financial risks.

While ensuring flawless competition of accounting and financial processes, the internal control mechanism reviews the manual and automated processes for transaction approval.

Human resource

APL Apollo has always believed in the power of its human capital and their invaluable contribution to the Companys journey toward sectoral dominance.

As always, the Companys focus has been on its employees well-being. Its people-centric policies have facilitated its team members professional and personal development. The Management has maintained a close connection with its people, increasing their sense of belonging to the organization.

Further, an intellectually stimulating environment has been maintained to enable all the employees to grow and learn at every step of their evolution which in turn becomes a key driver for the Companys growth.

Benefits like performance-linked incentives and regular training programs guarantee a low attrition rate, while most of them are spread across the length and breadth of the country.

As of March 31, 2023, the Company had 2,587 permanent employees.

Risk management

APL Apollo recognizes that Risk management is critical to overall profitability, competitive market positioning and long-term financial viability to meet the commitments to its clients and other stakeholders.

In keeping with this belief, it has created a comprehensive Risk Management Framework to anticipate, identify, prioritize and monitor risks; segregate these into Critical, NonCritical, Active and Dormant; and map further to mitigation measures and responsibilities.

The Company has created a Risk Register to identify and mitigate relevant risks on time, allowing the Management to sharpen its focus on profitability and project delivery.

The Companys focus has been on its employees well-being. Its people-centric policies have facilitated its team members professional and personal development.