Apollo Tyres lines up capital expenditure of Rs 2,600 cr for FY21, FY22

The company said that the demand is good and it is bullish about Q3 & Q4

Apollo Tyres is planning for a capital expenditure of around Rs 2,600 crore for the current and next fiscal year.

The company said demand continued to be positive and remained bullish about the third and fourth quarters as its factories were running at between 85 per cent and 90 per cent utilisation.

During an investors’ call, the company said it had invested around Rs 600 crore during the first half of 2020-21. European capex should be around €25 million to  € 30 million a year, they said.

Neeraj Kanwar, the company’s vice-chairman and managing director, said: “We are towards the end of our current capex cycle. Going forward, the focus would be on sweating the assets and de-leveraging the balance sheet. We expect the capex intensity to come down in the next few years, which, coupled with recovery in demand, should help us generate positive free cash flows and further de-leverage our balance sheet.”

Kanwar said the company was cognizant of the fact that capex in the past few years had been high and that coupled with current demand softness impacted the return ratios. “We are focused on getting the return ratios back to a healthy level and expect this to happen over the next few years,” he said.

Demand recovery, he said, continued to be positive. Both replacement and the original equipment markets have seen growth. Reduction in raw material cost and fixed costs (by around 15 per cent) and overall manufacturing costs have further helped the company.

“We reported our best volumes in the truck-bus replacement and passenger car radial segment in September. In October, we are seeing a very strong demand momentum and expect the top line growth to continue in near-to-medium term,” said Kanwar.

Gaurav Kumar, chief financial officer of Apollo Tyres, said the sales for the quarter grew 5 per cent at Rs 2,900 crore over the same period last year and 66 per cent on a sequential basis.

“The top line for the quarter was driven by volume growth in the replacement segment, but we also saw recovery in OEM demand towards the end of the quarter. In September, the sales for this year were higher year-on-year (YoY). Almost all product categories posted double-digit growth on YoY in the replacement segment and even in OEM, as I mentioned, we saw growth in September 2020,” Kumar said.

Kanwar claimed Apollo gained about 500 basis points in market share in passenger car radials and aAgri segment and more than 350 basis points in TBR according to the company's internal estimates.

On network expansion, Kanwar said Apollo added more than 350 dealers during the first half and rural touchpoints increased to around 4,000 touchpoints. Most are multi-product dealers in the rural markets, where the demand is for the entire product category.