Slowdown In Tyre Sector May Check Apollo Net

A slowdown in the tyre market and rubber procurement at high prices in the first half of 1996/97 (April-March) will keep the net profit of Apollo Tyres Ltd from growing for the year, analysts said on Monday. Apollo, one of India's largest tyre manufacturers, is due to announce its 1996/97 results today.

"Apollo made bulk purchases of rubber at high prices in the first half of 1996/97. Rubber prices fell later in the year, but Apollo had to carry inventory leading to high interest costs," said automotive sector analyst Rohit Rana at SocGen Crosby. Rana said that the slowdown in the economy had kept the demand for truck tyres, particularly in the replacement market, down. "The replacement market has been flat for truck tyres. Since 70 percent of the tyre market is truck tyres, slow growth in this segment hits companies like Apollo hard," he said. Analysts said they expected Apollo's net profit to stay around the Rs 36 crore ($10 million) mark for 1996/97. The company made a net profit of Rs 36 crore in 1995/96. The sales of the company are expected to cross Rs 1,400 crore for 1996/97, said analysts. Apollo's sales for 1995/96 were Rs 1,240 crore.

"Apollo's sales volume increased by 11 per cent for 1996/97. But due to the low margins on which tyre companies function, a small change in demand affects profits," said K N Srinivasan, automobile analyst at Jardine Fleming. The latest figures from the Association of Indian Automobile Manufacturers reveal a total of 14,245 trucks were sold in April 1997, as compared to 19,193 in April 1996. "Apollo has been hit by inventories doubling. A month's inventory is normally held by the manufacturer and dealers

. The present levels being held are close to two months inventory," said Sandeep Dhingra, tyre analyst at SS Kantilal Ishwarlal. Analysts say that the fortunes of Apollo should look up in 1997/98. "We expect a recovery in the economy by the second half of 1997/98. If that happens, the volumes of Apollo could grow by up to 18 percent," said Jardine Fleming's Srinivasan. Analysts expect Apollo's net profit for 1997/98 to rise to an average Rs 50 crore, with sales increasing to Rs 1,550 crore.