December 29, 2023

Apollo Metalex Private Limited: Ratings reaffirmed; Outlook revised to Positive

Summary of rating action

Previous Rated Current Rated
Instrument* Amount Amount Rating Action
(Rs. crore) (Rs. crore)
Fund based limits – Working capital [ICRA]AA (Positive); Rating reaffirmed and
117.00 115.00
facilities outlook revised to Positive from Stable
Short term Non-fund-based facilities 66.00 68.00 [ICRA]A1+; Rating reaffirmed
Total 183.0 183.0
*Instrument details are provided in Annexure-1

Rationale
ICRA has taken a consolidated view of the business and financial risk profiles of APL Apollo Tubes Limited (AATL), its wholly-
owned subsidiaries, including Apollo Metalex Private Limited (AMPL) and APL Apollo Building Products (ABPPL) to arrive at the
ratings. Collectively referred to as the Group/APL/company, these entities are in the similar lines of businesses and have
significant operational and financial linkages. Details of various entities operating under the Group, which have been
consolidated, are given in Annexure II.

The revision in the outlook on the Group’s long-term rating to Positive from Stable reflects ICRA’s expectation of healthy
volume growth in the near-to-medium term, driven by ramp-up of the recently commissioned Raipur capacity. The volume
increase is expected to support the Group’s sustained healthy operating performance, financial risk profile and a comfortable
liquidity position, owing to its low working capital intensity. The Group is expected to report more than 20% revenue growth
in the current fiscal, following a robust 24% YoY revenue growth (on the back of 30% volume growth) reported in FY2023.
Further, the Group’s profitability is likely to remain healthy over the medium term with expected OPBITDA/tonne of Rs.4,500-
5,000, supported by the likely increase in the proportion of value-added products and better operational efficiency arising
from higher scale. ICRA expects the Group’s financial risk profile to improve further owing to higher cash flow generation
(resulting from increased scale of operations and sustained profitability), scheduled amortisation of debt and no major capex
plans in the upcoming fiscals. Besides, the Group has been able to sustain its low gross working capital cycle in the recent
fiscals on the back of an efficient working capital management, which has supported its cash flow generation. ICRA expects
the Group to continue to report robust debt coverage metrics, as corroborated by an interest cover of more than ~11 times
and DSCR of more than ~4 times likely in FY2024. The rating also reflects the Group’s leadership position in the domestic
electric resistance welded (ERW) pipes segment, corroborated by its sizeable steel tube/pipes making capacity across its
geographically diversified manufacturing base in India and a large network of more than 800 dealers across the country. In
addition, the Group’s recently commissioned capacities in Raipur (Chhattisgarh) have increased the Group’s total domestic
capacity to ~4.1 MTPA from ~2.65 MTPA earlier, enhancing its leadership position in the industry.

Despite the Group’s established position in the steel tubes and pipes industry, the ratings are constrained by the intense
competition in the industry due to the presence of a large number of both organised and unorganised players. This moderates
the Group’s pricing power, making it more vulnerable to the volatility in steel prices. In addition, the Group’s ability to ramp
up the Raipur capacity to optimal levels in the near-to-medium term remains a key rating monitorable.

Key rating drivers and their description

Credit strengths

Healthy growth in revenues and volumes in FY2023; momentum likely to continue in the current fiscal – The Group reported
a sustained growth in performance in FY2023, recording its highest ever sales volume of 2.28 mtpa, which was 30% higher on

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 a YoY basis. It also recorded the highest ever revenues of Rs. 16,166 crore (consolidated) in FY2023, a YoY growth of 24%.
Similarly, the Group reported a robust growth in the current fiscal, reporting sales volume of 1.34 mtpa (a YoY growth of 30%)
and revenues of Rs.9,175 crore in H1 FY2024. The growth has largely been driven by the continued pick-up in sales volumes
from ABPPL. The Group continues to report a robust improvement in the return on capital employed (RoCE) from the previous
years (~36% in H1 FY2024 and 31% in FY2023 against ~28% in FY2021) on the back of its sustained healthy performance in the
last few fiscals. With a steady ramp-up of the Raipur facility to its full potential, the RoCE is expected to remain healthy in the
medium term.

Market leadership in ERW pipes segment with regular enhancement in capacities and extensive distribution network – The
Group has a well-established position in the domestic ERW pipes segment and controls a substantial market share. The Group
has been able to consistently expand its manufacturing capacities over the years to keep pace with the market growth and is
now one of the largest structural steel tubes and pipes players, globally having capacity of 4.4 mtpa (including Dubai).
Additionally, the Group has established a large network of more than 800 dealer distributors and over 50,000 retailers across
the country over three decades of its existence.

Geographically diversified manufacturing presence and product profile – The Group has an established manufacturing base
with 11 plants in 10 locations across the country through organic as well as inorganic expansions. The company has also been
strengthening its product portfolio from standard MS Black, GI and GP pipes to new value-added products such as large-
diameter pipes (500x500 mm), color-coated pipes and products, patented products for building material applications as well
as products to cater to the retail requirements in the home décor segment like door frame, staircase steps, furniture, plank,
designer tubes etc. Besides facilitating better margins due to higher OPBITDA/tonne from value-added products, the
diversification allows the company to be better placed to serve new market segments. This apart, the Group has set up a 0.3-
mtpa ERW pipe plant in Dubai in the current fiscal to diversify globally and enter new markets.

Sustained low working capital intensity – The Group has been able to consistently maintain low working capital intensity, as
corroborated by its net working capital, which stood at ~2% of its operating income (NWC/OI), over the last three fiscals. This
has been achieved on the back of a fall in its gross working capital cycle by reducing its receivable as well as inventory turnover
period over the past three fiscals. The Group’s receivable days have remained at less than 10 from FY2021 from ~30 days in
the prior fiscals, led by its strategic shift to the cash-and-carry model. Further, the inventory turnover period has also come
down in the recent fiscals and stood at 30 days in H1 FY2024 and 37 days in FY2023, from more than 40 days in the prior fiscals
on the back of better planning and management.

Strong financial risk profile – The Group has a strong financial risk profile, characterised by a conservative capital structure
(debt/net worth of 0.4 times as on September 30, 2023 [provisional/unaudited] and total debt/OPBDITA of 0.9 times in H1
FY2024 [provisional/unaudited]) and healthy coverage metrics (interest cover and DSCR of ~12 times and ~6 times in H1 FY2024
, respectively [provisional/unaudited]). A healthy growth in turnover along with improved profitability and prudent working
capital management enabled the company to generate robust free cash flows. Owing to the incremental debt drawn for the
ongoing capex in Raipur, the Group’s debt level increased in the current fiscal. However, expectations of healthy cash flow
from operations and sustained profitability in the medium term are likely to reduce the company’s reliance on debt with
ongoing scheduled repayments. Its capitalisation and coverage metrics are likely to remain healthy.

Credit challenges

Vulnerability of operating profitability to raw material price movement – The Group, being a steel convertor, is exposed to
the volatility in steel prices on account of a lag in price adjustments following fluctuations in the price of hot-rolled coils, in
addition to inventory maintenance. Hence, prudent working capital management is crucial to safeguard against any significant
price movement. The company’s focus on working capital management and increasing the proportion of value-added products
in the revenue mix mitigate the risk to some extent. Nevertheless, in case of an adverse demand-supply scenario, inability to
pass on the raw material price hike to its buyers could adversely impact the profitability.

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 Intense competition from organised as well as unorganised players – The ERW pipes market is inherently competitive with
the presence of several established players. As ERW pipe manufacturing is not a capital-intensive process, the entry barriers
are low and hence, the industry has many unorganised players.

Risks associated with additional capacities and scaling up of volume under the subsidiary – Although with the commissioning
of ABPPL’s capacities, the Group’s consolidated operational profile is expected to strengthen, it is exposed to execution and
stabilisation risks in the near term, given the sizeable addition to capacities (~55% addition to the Group’s earlier 2.65-mtpa
capacity). Therefore, the Group’s ability to steadily ramp up production and ensure healthy scale-up of operations, will remain
crucial for its return and coverage metrics, going forward. However, ICRA draws comfort from the Group’s demonstrated track
record of successful implementation and ramp-up of the past capacity expansion/acquisitions.

Liquidity position: Strong

The Group’s liquidity position is strong, corroborated by free cash and bank balances and liquid investments (including FDs of
more than 12 months) of ~Rs.812 crore as on September 30, 2023. With no major capex plans in the upcoming fiscals, ICRA
expects the company’s cash flow from operations to be adequate to meet the scheduled debt repayment obligations in the
upcoming fiscals. The liquidity profile is also supported by adequate cushion in the form of undrawn working capital limits,
averaging ~Rs. 276 crore against the drawing power in the six-month period ended in November 2023. The scheduled
repayment obligations are expected to be ~Rs.77 crore in H2 FY2024 and ~Rs.149 crore in FY2025.

Rating sensitivities

Positive factors – ICRA could upgrade the company’s rating if it demonstrates a sustained robust growth in its operating income
while maintaining healthy profitability, along with strong liquidity profile and coverage metrics.

Negative factors – A rating downgrade is unlikely in near term, given the Positive outlook. However, downward pressure on
the rating could emerge in case of a sustained deterioration in profitability and cash accruals, or if any sizeable debt-funded
capex/ investment/ acquisition results in an increase in total debt/OPBDITA to more than 1.0 times on a sustained basis.

Analytical approach

Analytical Approach Comments

Applicable Rating Methodologies Corporate Credit Rating Methodology
Parent/Group Support Not Applicable
For arriving at the ratings, ICRA has combined the business and financial profiles of various
Consolidation/Standalone Group entities (as mentioned in Annexure-2), given the close business, financial and
managerial linkages among these.

About the company

Apollo Metalex Private Limited (AMPL) is a 100% subsidiary of APL Apollo Tubes Limited (AATL). The company was acquired by
APL Apollo in FY2007 and owns a pipe manufacturing unit in Sikandarabad (Uttar Pradesh) with an installed capacity of 350,000
MTPA.

APL Apollo Tubes Limited (AATL) was incorporated in February 1986 as Bihar Tubes Private Limited with its headquarters in
Delhi-NCR. AATL is among the largest ERW pipe/ structural steel tube manufacturer in India. The company operates 11
manufacturing facilities across India with a total installed capacity of 4.1 mtpa. The Group’s product offerings include 1,100+
varieties for structural steel applications. These tubes have a wide spectrum of usages in urban infrastructure and real estate,

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 rural housing, commercial construction, greenhouse structures and engineering applications. The Group has also established
a large pan-India distribution network of more than 800 dealer distributors and over 50,000 retailers over the years.

Key financial indicators (audited)

Consolidated FY2022 FY2023 H1 FY2024*

Operating Income (Rs. crore) 13,063 16,166 9,175

PAT (Rs. crore) 619 642 398

OPBDIT/OI (%) 7.2% 6.3% 6.9%

PAT/OI (%) 4.7% 4.0% 4.3%

Total Outside Liabilities/Tangible Net Worth (times) 0.9 0.9 0.9

Total Debt/OPBDIT (times) 0.6 0.9 0.9
Interest Coverage (times) 21.3 15.2 11.8
PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation *Unaudited

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Current rating (FY2024) Chronology of rating history for the past 3 years
Amount
outstandin Date & rating Date & rating in Date & rating in Date & rating in
Instrument Amount
g (Rs. in FY2024 FY2023 FY2022 FY2021
Type rated
crore)*
(Rs. crore)
Mar 30, Nov 17, Mar 08 Dec 31,
Nov 18, 2021
Dec 29, 2023 2023 2022 2021 2020
Fund based
Long [ICRA]AA [ICRA]AA [ICRA]AA [ICRA]AA [ICRA]AA- [ICRA]AA-
1 limits – Working 115.0 -
Term (Positive) (Stable) (Stable) (Stable) (Positive) (Positive)
capital facilities
Long [ICRA]AA [ICRA]AA- [ICRA]AA-
2 Term Loans - - - - -
Term (Stable) (Positive) (Positive)
Short term Non-
Short [ICRA]A1 [ICRA]A1 [ICRA]A1
3 fund-based 68.0 - [ICRA]A1+ [ICRA]A1+ [ICRA]A1+
Term + + +
facilities
[ICRA]AA
Long/
(Stable)/
4 Unallocated Short - - - - - - -
[ICRA]A1
Term
+

*Outstanding as on September 30, 2023

Complexity level of the rated instrument

Instrument Complexity Indicator

Fund based limits – Working capital facilities Simple
Short term Non-fund-based facilities Very Simple

The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or

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 complexity related to the structural, transactional, or legal aspects. Details on the complexity levels of the instruments, are
available on ICRA’s website: Click Here

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 Annexure-1: Instrument details

Bank Date of Issuance Coupon Maturity Amount Rated Current Rating and
Instrument Name
Name / Sanction Rate Date (Rs. crore) Outlook
Fund based limits – Working
NA NA NA NA 115.0 [ICRA]AA (Positive)
capital facilities
Short term Non-fund-based
NA NA NA NA 68.0 [ICRA]A1+
facilities
Source: Company and Group Financials

Please click here to view the lender wise details rated by ICRA

Annexure-2: List of entities considered for consolidated analysis

Company Name Ownership Consolidation Approach

APL Apollo Tubes Limited 100.00% Full Consolidation

Apollo Metalex Private Limited 100.00% Full Consolidation
Blue Ocean Projects Private Limited 100.00% Full Consolidation
APL Apollo Building Products Private Limited 100.00% Full Consolidation
APL Apollo Tubes FZE. 100.00% Full Consolidation
APL Apollo Mart Limited 100.00% Full Consolidation
APL Apollo Tubes Company LLC 100.00% Full Consolidation
Source: Company and Group Financials
Note: ICRA has taken a consolidated view of the parent (AATL), its subsidiaries and step-subsidiaries while assigning the ratings

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 ANALYST CONTACTS

Jayanta Roy Kaushik Das

+91 33 7150 1100 +91 33 7150 1104
[email protected] [email protected]

Gaurav Singla Devanshu Gupta

+91 124 4545321 +91 124 4545321
[email protected] [email protected]

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

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