Apollo Tyres reported a firm set of Q1 first quarter earnings with profit growth of 10.6 per cent at ₹315 crore. Total sales grew by 15.9 per cent to ₹3,280 crore. Both Indian and European markets have registered good growth in volume. However, rise in the prices of raw materials such as natural rubber and oil is crimping margins of tyre makers.

Speaking to BTVI , Apollo Tyres Vice-Chairman and MD Neeraj Kanwar says margins have shrunk to 9.5 per cent in Q1 of FY17 from 10 per cent a year ago. However, the company expects good growth in the replacement segment with a good monsoon reviving demand in rural India.

The company, which has forayed in two-wheeler tyres, has been able to rope in close to 50,000 distributors to sell the new product. The company is getting good response due to the acceptability of the Apollo brand and superior product quality, he says. Excerpts:

Apollo’s Q1 earnings look quite healthy. What are the key drivers of the robust sales and profits?

In terms of volume growth in India, truck radial tyres grew nearly 3 per cent, tractor tyres 32 per cent and passenger car tyres 16 per cent. As far as Europe is concerned, we have seen a volume increase of nearly 7 per cent in passenger-car radials. Both markets have done well in volume growth as well as market share.

What’s the latest news on your Hungarian plant?

We are going as per our plans. We have invested nearly €475 million in Hungary. We hope to start commercial production by January 2017.

The government is contemplating anti-dumping duties on cheaper imported tyres that are , which is hurting the domestic industry. In this back drop, how is the price scenario looking like? What is the outlook on margins? Do you think you will be able to maintain it?

As of now, the government has not given us any indications on the anti-dumping duty. They have started doing some investigation, but we are still waiting to hear from the government.

As far as margins are concerned, our margins have come down from 10 per cent in Q1 of FY16 to 9.5 per cent in Q1 of FY17. On a trend where raw material prices have started going up, right from natural rubber to oil prices, margins are under pressure and are going to be challenging. Let’s see how the rest of the year pans out.

With margins likely to come under pressure, how is the replacement market looking right now?

The replacement market in India has been positive in Q1. But the trend has become a little bit sluggish in July and August. Going forward, the numbers could be good in second half (H2). Given that we have a good monsoon in India, we are very positive on the H2 business.

You have tapped a very-high growth segment by foraying into the two-wheeler business. How much will it contribute to the overall revenues?

It is a very early stage for the two-wheeler business. We launched it just four months ago. We are a very small player.

We entered this segment after 40 years. Our competition has an edge over time and they have a huge market share. We are still in the process of getting dealers enrolled. We have got close to 50,000 distributors who are dealing with our products.

The good news is that the acceptability of our brand and our product quality is very high. We are getting good demand coming in from the customers. We are pretty bullish. I will be able to tell you more about the two-wheeler tyres after a year of journey.

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