Like any other company worldwide, Apollo Tyres was also impacted during the lockdown. But it took some early calls of bifurcating its expenses into ‘good costs’ and ‘bad costs’. Over the last few months, the company registered highest-ever sales and now plans to invest more than ₹1,600 crore in its greenfield plant in Andhra Pradesh and maintenance activities. In an interview with BusinessLine , Onkar Kanwar, Chairman, Apollo Tyres, said the company is also looking at launching its European brand, Vredestein, in Indiasoon. Excerpts:

Has the business returned to pre-Covid levels? What are the challenges that you faced, or are still facing?

Our business has very much returned to pre-Covid levels, and in some categories, we have even registered highest-ever sales in the past few months. With increase in demand from all three market segments — replacement, original equipment manufacturers (OEMs) and exports — our manufacturing units are back to healthy utilisation levels. In terms of challenges, what we faced and overcame, was mostly on the cost front. We took an early call of bifurcating our expenses into ‘good costs’ and ‘bad costs’. We decided to do away with the bad costs as much as possible. Investments in R&D, brand building and on employees, along with their training, were classified as good costs and we continued with them. Unnecessary infrastructure, large-scale product launches and facility inaugurations and business travel was grouped into bad costs, and we avoided them to the extent possible.

How is the ban on tyre imports helping the tyre industry in India?

We have seen positive impact of the tyres being put under restrictive import category. While the imposition of anti-dumping duty on truck-bus tyres has been ongoing for few years now, the recent order, has been positive for us in the passenger car tyre category as well. We are also looking at launching our European brand, Vredestein, in India soon, especially for the high-end cars. With the government restricting the imports of tyres, we are looking at capitalising on this opportunity by bringing in the Vredestein brand.

What are the current capacity utilisation levels across your plants in India, and which product segment is having good traction?

While the plants in Kerala, where the Covid cases are significantly higher, would be at 80-85 per cent utilisation levels, others would be doing above 90 per cent. We have seen extremely good traction in the passenger car tyres, truck bus tyres and the highest in the farm tyre segment. In some of the categories, we have witnessed record sales in the replacement market few months this fiscal. There is also a strong revival in the OE segment from last quarter onwards. According to our estimates, we have gained market share in most of the product segments in India this fiscal.

While you have been witnessing double-digit growth in the replacement demand in the past few months, will this continue in the next one or two quarters as well, considering the second wave of Covid being witnessed in some States?

We have been witnessing a strong demand for our products in all categories in the last few months, with some segments recording best-ever sales in the replacement market. While the demand, across categories, has been robust in the past two quarters, and we are bullish about the demand being at similar levels in fourth quarter as well, difficult to provide an outlook beyond that, due to the uncertain environment.

Apollo Tyres has been a recent entrant into the two-wheeler tyre space. How do you evaluate the company’s performance in this segment?

Being a late entrant into the two-wheeler tyre space, we wanted to create an impact in the market. In under four years, we have built an entire range for Indian market, grown at a CAGR of 35 per cent, catered to market with a new last mile distributor model and built a grounds-up connect with the biking community through our multiple brand initiatives. While we are supplying to the mass market segment, our focus is clearly to have a strong foothold in the high-value, highly profitable premium motorcycle tyre market in India, with our portfolio of high-end bias and steel radial tyres for two-wheelers, which is being produced at our recently inaugurated highly advanced and futuristic facility housed within our plant in Vadodara, Gujarat.

What are your plans for the US market?

We have recently launched a comprehensive brand offering in North America, backed by a full range of Vredestein tyres explicitly designed for and developed for this market. While the focus has been on the complete line up of ultra high performance tyres for the passenger cars and SUVs, we are soon looking at entering the commercial vehicle tyre space as well.

What is your view on Govt’s scrappage policy, and how is it going to help you?

While we are waiting for the details on the policy, this could be a big demand driver for the tyre industry in the near to medium term.

What are your investment plans for the next one or two years?

Our capex for the next fiscal would be ₹1,600 crore, which would mostly be towards completion of phase-I of Andhra Pradesh greenfield facility and regular maintenance activities. Our focus now is on having a stronger balance sheet, since heavy capital allocation has already happened in the past three to four years. The strategy is to sweat our assets and get our utilisation levels to reach 90-95 per cent in all our plants. We will continue to focus on controlled capital allocation to ensure free cash flow and balance sheet leveraging at reasonable levels. This increased sweating of our existing assets and expanded capacity will ensure that we drive up our return on capital employed in the mid-term.

 

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