Rationale

 ICRA has taken a consolidated view of the business and financial risk profiles of APL Apollo Tubes Limited (AATL), its whollyowned subsidiaries, including Apollo Metalex Private Limited (AMPL) and APL Apollo Building Products Private Limited (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. The rating action reflects ICRA’s expectation of healthy volume growth in the near to medium term, driven by the ramp-up of the recently commissioned Raipur capacity and the incremental volumes from the upcoming manufacturing facilities over the next two fiscals. The volume increase is expected to support the Group’s sustained healthy operating performance, financial risk profile and comfortable liquidity position, owing to its low working capital intensity. The Group is expected to sustain its revenue growth momentum in the medium term, following a robust 12.1% YoY revenue growth (on the back of 15% volume growth) reported in FY2024. ICRA notes that the group reported interim pressure on profitability in Q2 FY2025, due to inventory losses , mainly on account of falling HRC prices. . The company reported an OPBITDA of ~Rs. 138 crore in Q2 FY2025 vis-à-vis ~Rs. 302 crore in Q1 FY2025. Nonetheless, the profitability is likely to improve in H2 FY2025, resulting in comfortable debt protection metrics for the full fiscal. In addition, the margins are expected to remain healthy over the medium term with expected OPBITDA/tonne of Rs.4,000-4,500, 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 on a sustained basis in the medium term, owing to higher cash flow generation (resulting from increased scale of operations and sustained profitability), scheduled amortisation of debt and no major debt funded 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 6.9 times in H1 FY2025 (interest cover of 10.5 times and DSCR of 3.7 times in FY2024) and no debt funded capex plans envisaged over the medium term. 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, with the commissioning of the capacity in Raipur (Chhattisgarh) in FY2023, Group’s total domestic capacity to ~4.15 MTPA from ~2.65 MTPA earlier, enhancing its leadership position in the industry.

Despite its 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. The Stable outlook on the long-term rating reflects ICRA’s expectation that the company would maintain its leadership position in the organised sector in the ERW pipe segment with increasing focus on value-added products.