Apollo Tyres Ltd is hopeful of volume growth bouncing back to pre-pandemic levels by the end of this fiscal backed by a steady demand both from OEM and the replacement market. The company is also bullish about the growing demand for electric vehicles and has put in place a “roadmap” to tap into the segment.
According to Satish Sharma, President (APMEA) and whole-time Director, Apollo Tyres, there has been more value growth than volume growth in the past few quarters. However, volume growth is expected to be good during H2 FY23.
“CVs (commercial vehicles) are saying that they are going to do better in H2 than H1. Even in the replacement market, there are many reasons (that could contribute to good demand), real estate is up, so is steel, and cement is upbeat. Infrastructure work is also expected to take more steam in H2 than H1. So many of the signals suggest that H2 will be better than H1, now how much better is something we need to see. If all factors remain favourable then volume growth should be back to pre-pandemic levels,” Sharma told businessline during a recent visit to Guwahati to see a rubber plantation project in the northeast organized by ATMA (Automotive Tyre Manufacturers’ Association).
The demand for cars is holding up; however, that for tractors is softening as rural India is impacted more than urban India.
The rise in crude prices could push the process of electrification leading to greater adoption of EVs. There has also been an improvement in associated infrastructure, including batteries and charging stations to support the growth in the segment.
“All the debates around air pollution and the bulk of it being contributed by transportation and mobility suggest electrification is one of the solutions. One is the economics behind it and the second is citizens to realize it is needed. We have a roadmap, which gets married to this scenario since we have strong European operations, so our game plan is in place,” he said explaining the preparedness of the company to tap into the demand from the segment.
Replacement market, which accounts for nearly 70 per cent of the company’s total revenues, did well during Q1 FY23. However, July and August were a “bit stressed” due to delayed and then, heavy monsoons.
“September we had good recovery, now we have to see how things look moving forward,” he said.
Margins to improve
Apollo Tyres, which has taken close to 23-24 per cent price hike in phases over the past 24 months, expects margins to improve as inflation softens and raw material prices come down.
The increase in raw material prices pushed up the cost for tyre manufacturers and the total cost-push is close to 35 per cent from December 2020 to till date. However, the company has managed to pass on only around 23-24 per cent during the said time period.
For the year ended March 31, 2022, the company’s operating profit margin (OPM) dropped to 10.62 per cent (18.28 per cent) and net profit margin came down to 1.78 per cent (6.16 per cent).
“The cost went up much earlier but the market does not allow you to pass on entirely, so there is a lag. Now, there is some softening (of raw material prices) so we cannot increase prices now. We have to stay where we are. But there are signs of greater pricing power in the industry so we expect margins to improve if we are able to maintain (the prices) where we are,” he said.