The strategy going forward is really to sweat our assets and get our utilisation levels to reach 90-95% in all our plants, said Kanwar
Onkar Kanwar, Chairman, Apollo Tyres
Apollo Tyres has experienced a smooth drive over the last few months against the backdrop of demand recovery. Onkar Kanwar, chairman, Apollo Tyres spoke to T E Narasimhan on demand recovery, the company’s recent initiatives to become more agile and the demand outlook. Excerpts:
Has the business returned to pre-Covid levels?
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. The demand, across categories, has been robust in the past two quarters, and we are bullish about the demand being at similar levels going forward as well.
How is the slowdown in Passenger Vehicle (PV) sales impacting the company? How are the other segments doing?
PV sales have been showing an upward trend for the last few months, and proportionately, we have also been getting good traction from the passenger car tyre segment, both in OEs and the replacement market.
Both, OEs and the replacement segment are growing at a rapid pace, and we have seen extremely good traction in the passenger car tyres, truck bus tyres, and the highest in the farm tyre segment. In some categories, we have witnessed record sales in the last few months.
According to our estimates, we have gained market share in most of the product segments in India in this fiscal.
In the two-wheeler tyre space (which the company entered four years ago) we have built an entire range for the Indian market, grown at a CAGR of 35%, catered to the market with a new last mile distributor model. While we are supplying to the mass market segment, our aim is to have a strong foothold in the high-value, highly profitable premium motorcycle tyre market in India.
How is the capacity utilisation? Are you planning to invest further?
Currently, almost all the plants/product categories are above 90% utilisation levels. Next fiscal’s capex for Indian operations would be around Rs 1,800 crore, primarily for the ramp-up of the Andhra Pradesh plant and maintenance of other plants.
Our focus at present is on having a stronger balance sheet, since heavy capital allocation has already happened in the past 3-4 years. The strategy going forward is really to sweat our assets and get our utilisation levels to reach 90-95% in all our plants.
We have made significant progress on strengthening our balance sheet in the current fiscal.
With the second wave coming, will the demand sustain?
We expect the demand momentum in the replacement market to remain strong in the near to medium-term and a sustained demand recovery in the OEM segment. Given the strong recovery, we are making sure that within the guidelines, our plants are able to produce enough tyres and the supply chain is able to deliver them across the country to service the customers.
What changes has Apollo made to its operations to make the company more agile and for achieving better sustainability?
A year of the Covid-19 pandemic changed the way we worked. Our focus on cost and cash flows led to the company managing with lower levels of inventory, and liquidation of ageing stocks. A strong focus on controlling costs by bifurcating them into good and bad costs, helped us ride the pandemic.
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, facility inaugurations and business travel was grouped into bad costs, and we avoided them to the extent possible.
The company saved around 15% of fixed cost during the year and hopes to continue to save around 50% to 65% of the savings going ahead
There was a clear focus on digitisation, which helped enhance productivity and efficiency while helping significantly in our journey to become a paperless company. We will continue to increase our capabilities in digitisation and further streamline our processes to become agile. We created several new touchpoints, especially in the rural areas during the pandemic, which helped drive our volumes in all product categories.
During the pandemic, when we had to cut down on our production levels, due to lesser number of employees on the shopfloor, in line with Covid-19 protocols, we focused on making high margin products and delivering them to markets with better and quicker returns.
How are raw material prices impacting the company’s bottom line?
We are witnessing an increase in raw material cost and expect the trend to continue in the near-term. We took some pricing actions in both OEM and replacement segments, and are continuously monitoring the environment. Further price increases would be needed to negate the cost push on account of raw materials.
How are your global operations performing?
Apollo and Vredestein brand of tyres are sold in more than 100 countries. In addition to the Dutch facility, that was acquired in 2009, we have established a major greenfield facility in Hungary.
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 lineup of ultra-high-performance tyres for passenger cars and SUVs, we are looking at entering the commercial vehicle tyre space as well in the US market.
International operations would account for nearly 40% of our consolidated revenues. Going forward, I see the contributions at the same level, as we would be growing both domestically, as well as in international markets.