Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facilities of Apollo Pipes Ltd (APL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL A’. Short term rating has been reaffirmed at ‘CRISIL A1’.

 

The revision in outlook reflects the strengthening business risk profile of APL, driven by revenue growth and improvement in operating profitability, and sustenance of the company’s strong financial risk profile. The revenue growth will be supported by the company’s acquisition of Kisan Mouldings Ltd (KML) and its ongoing capacity expansion, which will improve geographical penetration, especially in west and south India.

 

The operating income rose to Rs 991 crore in fiscal 2024 from Rs 916 crore in fiscal 2023, driven by volume growth of 20% which was partly offset by lower realisations due to on-year decline in polyvinyl chloride (PVC) resin prices. The volume growth is expected to remain healthy over the medium term, supported by increase in capacity as well as the additional volume from the acquisition of KML. APL increased its standalone capacity to 156,000 tonne per annum (TPA) as on March 31, 2024, from 136,000 TPA in fiscal 2023. The capacity is expected to increase to over 200,000 TPA by fiscal 2026.

 

In March 2024, APL acquired 54% stake in KML, a PVC pipes company with capacity of ~60,000 TPA. The acquisition for Rs 118 crore was funded through equity and internal accrual, and its benefits will be reflected from fiscal 2025.

 

The volume growth will be supported by APL’s focus on product diversification (with the launch of new products such as O-PVC pipes, bathroom fittings, and PVC windows and doors) and increasing geographical reach in western and southern India.

 

The company’s operating profitability improved to 10% in fiscal 2024 from 7.4% in fiscal 2023 with no significant inventory loss in fiscal 2024. The operating margin was subdued in fiscal 2023 due to significant correction in PVC resin prices. It is expected to improve to 11-12% with better operating leverage, increase in share of value-added products and improvement in the profitability of KML. However, APL’s ability to ramp up the new capacity and turn KML around will remain monitorable.

 

The financial risk profile remains strong, backed by robust capital structure reflected in gearing of less than 1 time and healthy debt coverage reflected in interest coverage of more than 8 times in the past five years. The ratios are expected to remain healthy over the medium term as APL plans to fund its ongoing capital expenditure (capex) through equity/internal accrual. The capex includes setting up a 30,000 TPA plant in Varanasi and O-PVC lines. The company has issued share warrants of Rs 260 crore, of which Rs 147 crore have been received and the balance Rs 113 crore will be received in fiscal 2025.

 

The ratings continue to reflect APL’s established market position in the PVC pipes industry, increasing geographical diversity and strong financial risk profile. These strengths are partially offset by exposure to intense competition and susceptibility to fluctuations in raw material prices and foreign exchange (forex) rates.

Analytical Approach

For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of APL and its wholly owned subsidiaries on account of their operational and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position: The promoters have experience of around two decades in the PVC pipes industry. Their expertise has helped the company navigate business cycles and establish the APL Apollo brand, which it shares with the APL Apollo group and is used by the flagship company, APL Apollo Tubes Ltd (‘CRISIL AA/Positive/CRISIL A1+’). APL has over 600 dealers and distributors across India. The product portfolio is diverse and includes column pipes, unplasticised PVC and chlorinated PVC plumbing pipes and fittings, domestic and sewage pipes, and water tanks. Launch of new products (O-PVC, PVC windows and door frames, bathroom fittings) will strengthen the product portfolio.

 

The company has been focusing on increasing its manufacturing capacity across India and increased its capacity from 136,000 TPA in fiscal 2023 to 156,000 TPA in fiscal 2024. KML’s capacity of 60,000 TPA has increased APL’s overall capacity to 216,000 TPA. The manufacturing plants in north and central India and KML’s plant in Maharashtra will improve APL’s geographical presence and market position.

 

The company will be adding capacity of ~25,000 TPA in the Varanasi plant this fiscal.

 

• Strong financial risk profile: Adjusted gearing was 0.10 time as on March 31, 2024. Debt protection metrics will be comfortable, with interest coverage and net cash accrual to total debt ratios expected above 20 times and 1.15 times, respectively, in fiscal 2025, along with no major debt-funded capex. The company has funded the recent acquisition of KML and its capacity expansion entirely through funds raised through warrants and internal accrual.

 

Weaknesses:

• Susceptibility of profitability to fluctuations in raw material prices and forex rates: APL is vulnerable to volatility in forex rates as it imports part of its raw material requirement and has negligible exports. Also, the price of resin is volatile and susceptible to changes in global prices and regional demand-supply dynamics. The company is also susceptible to cyclicality in the PVC industry. That said, the company has maintained its operating profitability, except in fiscal 2023, when profitability dipped due to steep decline in PVC resin prices.

 

• Exposure to intense competition: The company is under intense competitive pressure because of low product differentiation and high price sensitivity. Furthermore, it faces competition from both large, established players as well as the unorganised segment. Intense competition constrains scalability, bargaining power and profitability. However, APL has increased its market presence over time as reflected in compound annual growth rate of over 22% in revenue over the past five years.

Liquidity: Strong

Cash accrual is expected at Rs 120-160 crore against nil term debt obligation over the medium term. Cash and equivalents were healthy at Rs 56 crore as on March 31, 2024. Utilisation of fund-based limit was moderate at 2% on average during the six months through March 2024. Capex will be funded through internal accrual and equity infusion of Rs 260 crore.

Outlook: Positive

CRISIL Ratings believes APL will continue to benefit from increasing capacity, strengthening geographical presence and diversified product profile while maintaining a healthy financial risk profile.

Rating Sensitivity factors

Upward factors:

• Improved business risk profile with sustained volume growth of more than 20% aided by additional capacity, better geographical diversity and increased capacity utilisation, while maintaining healthy profitability
• Healthy ramp-up of the KML acquisition
• Further strengthening of the financial risk profile

 

Downward factors:

• Operating margin below 8% on a sustained basis
• Weakening financial risk profile because of large, debt-funded capex or significant acquisition or stretched working capital cycle

About the Company

APL was incorporated in 2000 as Apollo Poly Pipes Pvt Ltd by Mr Sameer Gupta and Mr Vinay Gupta. The company was reconstituted as a public limited company with the current name in April 2009. APL manufactures pressure pipes (PVC, ring-fit and self-fit pipes), column pipes, casing pipes, plumbing pipes, soil-waste-rainwater pipes, fittings, and water tanks. It is a part of the Sudesh group. Through a reverse merger with its holding company in November 2017, APL got listed on the Bombay Stock Exchange and the National Stock Exchange.

 

For the three months ended June 30, 2024, net profit was Rs 14 crore on income of Rs 308 crore, compared with Rs 14 crore and Rs 260 crore, respectively, for the corresponding period of the previous fiscal.

Key Financial Indicators

As on/for the period ended March 31	Unit	2024#*	2023
Revenue	Rs crore	991	916
Profit After Tax (PAT)	Rs crore	43	24
PAT Margin	%	4.3	2.6
Adjusted debt/adjusted networth	Times	0.1	0.1
Interest coverage	Times	19.69	7.9

*Based on abridged financials

#consolidated financials

Any other information: Not Applicable

Annexure - Details of Instrument(s)

*Fully Interchangeable with Non Fund based facility to the extent of Rs 31 crores