APL Apollo Tubes Q1 FY27 Earnings Call: EBITDA Outperforms Expectations Despite Volume Challenges

What Happened ?

Management described Q1 FY27 as a quarter where profitability outperformed expectations despite weaker sales volumes. Lower demand was attributed to geopolitical disruptions in the Middle East, weaker SG Premium product sales due to competition from secondary steel, temporary weakness in roofing products because of the energy crisis, and slower construction activity caused by elevated steel prices.

Rather than chasing volumes, the company focused on protecting profitability through disciplined pricing, resulting in improved gross profit per tonne and stable EBITDA margins. Management expects demand to improve from Q2 onwards as market conditions normalize. 

key details

Profitability Remained Strong:

• Q1 sales volume stood at 745,000 tonnes.
• Gross profit per tonne improved by approximately ₹1,000 QoQ.
• EBITDA per tonne remained above ₹5,500 despite lower operating leverage.
• Management chose to prioritize profitability instead of aggressive volume growth.
• Pricing discipline helped offset higher steel costs.

Note:

• Management believes APL Apollo’s strong brand positioning enabled it to increase product prices slightly above the increase in steel prices, supporting profitability during a challenging quarter. 

Reasons Behind Lower Volumes:

Management identified four major factors affecting Q1 volumes:

• UAE operations lost approximately 25,000 tonnes because of geopolitical disruptions.
• SG Premium products faced pressure from cheaper secondary steel.
• Energy shortages affected roofing and rust-proof pipe demand.
• Higher steel prices slowed construction activity, leading to inventory destocking across dealers and project delays by EPC contractors.

Note:

• Management expects most of these temporary factors to ease during the coming quarters. 

Capacity Expansion Continues:

• Gorakhpur Plant: 200,000 TPA, expected to commence during Q2 FY27.
• Siliguri Plant: 300,000 TPA.
• New Malur Plant: 1 million TPA.
• Additional 500,000 TPA capacity planned in Maharashtra or North Karnataka.
• Around 1 million TPA additional capacity through debottlenecking existing plants.

Note:

• Total incremental capacity of nearly 3 million tonnes over the next few years is expected to significantly increase the contribution of value-added products. 

Product Mix Becoming More Value-Added:

• Value-added products currently contribute approximately 65% of the portfolio.
• Management expects this share to increase to 75–80% over the next few years.
• Continued product premiumisation is expected to reduce earnings volatility from steel price fluctuations.
• Higher value-added mix should improve long-term margins.

Note:

• The company continues focusing on de-commoditising its product portfolio to strengthen pricing power. 

UAE Operations Recovering:

• UAE volumes had temporarily fallen to 5,000–6,000 tonnes per month.
• July volumes recovered to 10,000–12,000 tonnes.
• Management targets:
  • 16,000–17,000 tonnes in August.
  • 24,000–25,000 tonnes by September.
• Local demand remains healthy despite logistics disruptions.

Note:

• Management expects UAE operations to normalize gradually as shipping routes stabilize and inventories are replenished. 

Management Outlook:

Management reaffirmed:

• 20% EBITDA growth guidance for FY27.
• Volume growth target of 15–20% remains achievable.
• Q2 volumes are expected to improve sequentially.
• H2 FY27 should outperform H1 due to improving macro conditions.
• New capacities are expected to accelerate growth between FY28 and FY30.

Note:

• Management remains confident that improving demand, recovering UAE operations and new production capacities will support stronger financial performance during the remainder of FY27. 

Risk Analysis

Summary:

• Although APL Apollo maintains strong pricing power and a healthy balance sheet, near-term performance remains sensitive to steel price volatility, construction demand, geopolitical disruptions and execution of capacity expansion projects.

Key Risks:

• Volatility in steel prices.
• Competition from secondary steel products.
• Weak construction and infrastructure demand.
• Geopolitical disruptions affecting UAE operations.
• Delays in commissioning new manufacturing facilities.
• Commodity inflation impacting customer demand.

Worst Case:

• If steel prices remain elevated, construction activity weakens further and geopolitical disruptions continue, volume recovery could be delayed despite strong pricing power and new capacity additions.

Risk Level: Medium

Company Statement

• Profitability remained stronger than internal expectations despite lower volumes.
• FY27 guidance remains unchanged.New manufacturing facilities will support future growth.
• UAE operations are gradually recovering.
• Product mix continues shifting toward higher-margin value-added products.
• Management remains focused on maintaining pricing discipline and improving operating leverage.