Detailed Rationale

Crisil Ratings has upgraded its rating on the long term bank facilities of APL Apollo Tubes Ltd (APL Apollo) to ‘Crisil AA+/Stable’ from ‘Crisil AA/Positive’ and has reaffirmed its ‘Crisil A1+’ rating on the short-term bank facilities.

 

The upgrade factors in APL’s strong and improving business risk profile driven by dominant market position in the ERW segment, established brand presence across different geographies and growing scale of operations, while maintaining healthy profitability with continuously increasing share of value-added products. The company has recorded healthy volume growth with CAGR of 22% over the past 3 years. With increase in capacities and sustained demand in end user markets, company is expected to sustain its volume growth over the near to medium term.  The upgrade also factors in APL’s strong financial risk position driven by negative working capital cycle, strong liquidity with net debt free position and absence of any debt funded capex plans. These strengths are partially offset by exposure to intense competition and to volatility in the prices of raw material as well as finished goods.

 

APL Apollo’s revenues grew by 14% to Rs 20,702 crores in fiscal 2025 from Rs 18,127 crores in fiscal 2024 despite decline in steel prices supported by volume growth of 21%. In Q1 fiscal 2026, revenues grew by 4% y-o-y to Rs 5170 crores supported by volume growth. The company has been focusing on increasing share of value-added products which has remained at 58-60% with ramp up of Raipur plant operations.

 

APL Apollo’s operating profitability moderated slightly to ~5.9% during fiscal 2025 as against 6.7% in fiscal 2024. This was primarily owing to sharp decline in steel prices in Q2FY25 leading to inventory losses. Excluding this impact EBITDA/tonne remained healthy at ~Rs. 4,000-4,500/tonne. The company is expected to sustain its EBIDTA/tonne at ~Rs.4,500-5,000 driven by focus on value added products and benefits of economies of scale from ramp up of Raipur operations.  ROCE has also continued to remain strong at over 20% despite continued capex in the past and is expected to remain at similar levels in medium term.

 

Financial risk profile remained strong, backed by healthy capital structure as indicated by gearing of 0.15 time for fiscal 2025 as against 0.33 times in fiscal 2025. Since fiscal 2024, the company has negative net debt and expects to maintain net debt free position in medium term with no major debt plans. Debt metrics are expected to improve further with gearing expected below 0.1 times supported by debt repayment and absence of any debt funded capex plans

Analytical Approach

Crisil Ratings has taken a consolidated approach and combined the operating and financial performance of all the subsidiaries with APL Apollo. This is because the entities are in the same business, share a common brand, benefit from central sourcing policy and there is fungibility of cash flows amongst them. Also, majority debt of all these entities is guaranteed by APL Apollo.

 

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

Key Rating Drivers: Strengths 

• Leadership position in the ERW pipes industry: With a total production capacity of 45 lakhs tonne per annum (ltpa) as of March 31, 2025, APL Apollo has the largest capacity in domestic ERW steel pipes market. It has undertaken timely capacity ramp up to cater to the growing demand. Along with increase in capacity, company has also augmented infrastructure for value added products. In fiscal 2024, company expanded capacities in Raipur to cater to the coated and heavy segment.

 

It has established presence across India, with plants set up across the northern, southern, eastern, and western regions. It also set up facility in Dubai to cater to international demand. APL Apollo is further in the process of increasing its capacity to 68 lacs per annum. Large scale enables the company to enjoy economies of scale with regards to procuring raw materials and better fixed-cost absorption.

 

• Diversified geographical presence, product profile and end-user industries: Diverse clientele spread across residential, commercial, and industrial construction, infrastructure; and industrial and agricultural applications. Furthermore, the company has gradually reduced its dependence on the traditional ERW pipes segment (used for irrigation and fluid transportation) that typically fetches lowest margin; and has increased focus on structural products used in the construction segments (residential and commercial) that have significantly better margins.

 

APL Apollo has diversified manufacturing presence with ten plants in India and one in Dubai. It is also setting up plants in Gorakhpur and Kolkata to cater to the eastern and northeastern markets and is expanding its existing capacities in South India (Malur plant) to cater to the growing demand. It is also setting up capacity of 0.3 MMTPA in Bhuj to cater to the export market in middle east.

 

Business risk profile also benefits from geographical diversity and product mix, thereby safeguarding against cyclicality and event-based risks and leading to the healthy operating profit per tonne among ERW pipe manufacturers.

 

• Improvement in operating performance: Product volumes have registered a compound annual growth rate (CAGR) of ~22% during fiscals 2022-2025. This growth has been achieved through continuous efforts to improve market share by demand creation in infrastructure industry, widening distribution networks, and focusing more on product branding. APL Apollo has tie-ups with around 1,000 dealers.

 

Furthermore, increasing focus on enhancing sale of value-added products has improved profitability: blended Ebitda per tonne has remained over Rs 4,000 since fiscal 2022, which has increased from Rs 3,000 in fiscal 2020 with share of value-added products increasing to 58% in fiscal 2025 from 45% in fiscal 2020. APL Apollo’s EBITDA per tonne is expected to sustain above ~Rs.4500-5,000 per tonne in medium term driven by focus on value added products.

 

Favourable industry dynamics and increasing share of value-added products are expected to keep operating performance healthy over the medium term. Planned brownfield expansion in Raipur and Dubai plant is also expected to support operating profitability through higher operating leverage.

 

• Strong financial risk profile: Financial risk profile has remains strong with overall gearing remaining less than 1 times in the last 5 years, while interest coverage has improved from 4.70 times in fiscal 2020 to 9.7 times in fiscal 2025 (11.1 times in fiscal 2024). The company had availed debt to fund capex at its Raipur plant. However, the company has been focusing on deleveraging since fiscal 2024 and has become net debt negative. The company is expected to maintain net debt free position in medium term with no major debt funded capex plans.

 

Annual cash accrual remained comfortable at Rs 806 crore in fiscal 2025 and is expected to surpass Rs 1,000 crore in fiscal 2026 against repayment obligations of ~Rs 200 crores and capex plans of ~Rs 1500 crores between fiscal 2026-2028.

 

The strategic shift to a cash-and-carry model has resulted in lower receivables and reduced dependence on working capital debt. This is reflected in reduction in debtor days from 23 days in fiscal 2022 to 3-5 days since fiscal 2025.

Key Rating Drivers: Weaknesses 

• Exposure to intense competition: Fragmented industry structure due to low entry barrier has kept operating margin modest at 6-8%. The ERW industry is largely unorganised. Low margin, however, insulates the industry from imports. The company has the highest market share of ~55-60% in the structural steel tubes segment and has been able to sustain its reach even during the pandemic.

 

• Exposure to volatility in raw material prices: ERW pipe manufacturers are steel convertors and fluctuations in raw material prices are passed on to consumers, but with a lag. Accordingly, as seen in the past fiscals, operating margin is susceptible to fluctuations in the prices of steel (hot rolled coil). The same was witnessed in Q2 fiscal 2025 where the company’s profitability was impacted with decline in EBIDTA/tonne to Rs.1821 due to inventory loss. It was one-time impact with company’s profitability recovering to EBIDTA/tonne of above Rs.4000 in Q3 and Q4 fiscal 2025. However, the monthly pricing mechanism followed by the company and improved inventory management policy are expected to reduce the impact of any significant price movement.

Liquidity: Strong

Annual cash accrual is expected to be more than Rs 1,000 crore over the medium term against debt repayment obligations of Rs 200 crores and capex plans of Rs. 500 crore per annum (Rs 1500 crores between fiscal 2026-2028). Further, liquidity is also supported by cash and cash equivalent of ~Rs.941 crores as on March 31, 2025 (includes FDs of Rs.294 crores pledged against OD). Additionally, at a consolidated level, the group also has access to total working capital limit of over Rs 5700 crore, with average utilization of 30% during the last 12 months up to June 2025.

 

Environment, social and governance (ESG) profile

The ESG profile of APL Apollo supports its strong credit risk profile.

 

Steel pipe manufacturers have a high impact on the environment primarily driven by high power consumption done during their manufacturing process. The sector also has a significant social impact because of its large workforce across its own operations and value chain partners, and due to its nature of operations affecting the local community and health hazards involved. APL Apollo has been focusing on mitigating its environmental and social risks.

 

Key ESG highlights:

• The Company has target to reduce absolute Scope 1 and 2 greenhouse gas (GHG) emissions by 58.8% by FY2034, using FY2024 as the base year.
• Eight out of eleven of the facilities have effluent treatment plants (ETP) which helps in recycling water and using it in operations. Due to continued efforts, total water withdrawal decreased by 5.7% in FY25 compared to the previous year and 14.1% since FY22.
• Due to its employee-friendly policies, attrition rate is low at less than 5% in fiscal 2025.
• The governance structure is characterized by effectiveness in board functioning and enhancing shareholder wealth, presence of investor grievance redressal mechanism and extensive disclosures.
   

There is growing importance of ESG among investors and lenders. The commitment of APL Apollo to the ESG principle will play a key role in enhancing stakeholder confidence given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Outlook: Stable

Crisil Ratings believes the business risk profile of APL Apollo will benefit from sustained volume growth further aided by increase in capacities at Raipur, Bhuj and UAE which will also support overall operating margins. Further, the financial risk profile is expected to remain robust over the medium term with a healthy capital structure and strong debt protection metrics.

Rating sensitivity factors

Upward factors:

• Sustained increase in scale of operations driven by increasing market share, improving geographic diversification and growing share of value added products while maintaining EBITDA/tonne at over 5,000-5,500/tonne.
• Sustenance of ROCE at over 25%
• Sustenance of strong financial risk profile.
   

Downward factors:

• Larger-than-expected debt-funded capex or working capital debt leading to Debt/Ebitda exceeding 1.0 times
• Significant weakening of operating performance due to decline in volumes impacting the operating profitability.

About the Company

Established in 1986 in Delhi National Capital Region, APL Apollo is the largest and one of the fastest-growing ERW steel tubes/structural products manufacturers in India, with a current production capacity of 41 lakhs MTPA. The company is a part of the Sudesh group and is promoted by Mr Sanjay Gupta.
 

Currently, APL Apollo has 11 manufacturing facilities, with 3 plants in Sikandrabad (Uttar Pradesh); 1 each in Hosur (Tamil Nadu), Murbad (Maharashtra),  Hyderabad (Telangana),  UAE; and 2 plants in Bangalore (Karnataka) and Raipur (Chhattisgarh). It has also established a wide 3-tier distribution network with around 800+ dealers.

Any other information: Not applicable