Capitaline

Analyst Meet / AGM 12-Aug-11

Conference Call

Apollo Tyres

Expects revenue to grow by 30% in FY12

Apollo Tyres has come out with financial results for the quarter ended June 11 and conducted concall on 11 August 11 to discuss the financial performance and the prospects of the company. Gaurav Kumar – Group Head, Corporate Strategy and Finance, Rakesh Jain – Head Accounts and Ritu Jain – Divisional head, Corporate Strategy addressed the call.
Highlights of the call are:

The company has reported 55% increase in the consolidated total income from operations at Rs 2822.41 crore aided by 34% growth in volumes and 21% growth in the price and mix. Consolidated Volumes of production stood at 1.25 lakh Tons in quarter under review. However increase in Net Debt at Rs 28.4 billion on the back of capex and increase in working capital requirements have put pressure on the profitability.
Depending on domestic availability basis, the breakup of revenues of the company in various categories of tyres is as follows: T&B 27%, PCR 23%, LCV's 20%. At consolidated level, revenues breakup of the company stood at follows: Truck 48%, PCR 31%, Light Truck 8% etc.
The average raw material prices of the company for the quarter ended June 11 was as follows: Rubber 245 per kg, Carbon Black Rs 65 per Kg, and Nylon Tyre Cord Fabric Rs 245 per Kg.
The company has under taken 14% increase in the tyre prices across all baskets in replacement market and 10% in OEM's in Indian Operations. It has taken increase of 5% in March and 4% in June in European operations and 5% in April and 8% in June in South African operations.
Revenues from Indian operations increased by 75% to Rs 1960.78 crore and constituted major 65% of the total revenue. The company is facing demand slowdown from the Indian operation. The company has observed production cut in biased segment T&B tyres in July – September quarter. It has undertaken one time 6 days production cut in Baroda plant and 5 or 6 days a week production in Kerala plant.
Exports from Indian operations constituted 9% of the total revenues for the quarter. The company has exported 40 lakh PCR tyre units to Europe against 15 lakh tyre units in the corresponding previous year.
Revenues from European operations increased by 38% to Rs 603.52 crore and constituted 21% of the revenues. Outsourcing of tyres from Indian plant has increased in the quarter on the back of spike in the demand. The company has witnessed 15% increase in the volume growth during the quarter.
On the other hand, revenues from South African operations inched up by 5% to Rs 250.01 crore. The demand recovery was in line with GDP growth. With increase in the market share of imported tyres from China, the company has witnessed sharp decline in demand for the cross ply T&B tyres. It has shut down a line of cross ply T&B tyre production in Durban plans as it is not profitable.
The Indian government has removed anti dumping duty on radial tyres imported from China and Thailand on 11 August 11. Keeping in view the softness of replacement demand on T&B tyres, the above move will put direct pressure on the Indian tyre industry as they will face more competition from companies from China and Thailand.
The Chennai plant is ramping up with average production of 160 Mt per day in quarter under review. The company expects the plant to ramp up to 400-450 Mt per day by end of March 12.
The Inventory has increased in the quarter on the following reasons: (a) Normal build up of inventory in European business as it enters winter season (b) sales haven't picked up in line with production increase. In general, normal inventory in Indian operations is 3 weeks and that of other overseas operations is 1 quarter.
The company has also observed slackened demand on PCR tyres in the quarter under review. The growth in PCR has slipped to around 11-15% in quarter under review against 25-30% growth in the corresponding previous quarter. On the other hand, growth in the T&B demand remained flat in quarter under review.
The company has planned for backward integration of rubber plantation and has taken a land for rubber cultivation overseas. The management expects the first rubber output to come out in 2017.
Tax rate at consolidated level would be 26% for FY12.
The management expects the revenues to improve by 30% in FY12.

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