Apollo Tyres to invest €200m in Budapest plant

Apollo Tyre has announced its FY08 results. The company's consolidated net profit was at Rs 269.7 crore versus Rs 117 crore. Its FY08 consolidated sales were up at Rs 4691.20 crore from Rs 4229.20 crore

Neeraj Kanwar, COO, Apollo Tyres said the company plans to increase its production facilities in Baroda. The company also plans to set up a new greenfeld plant for tyres in the passenger car segment and would be investing around 200million euros there. He added the company would invest about Rs 1,000 crore in the new capacities. 

Excerpts from CNBC-TV18’s exclusive interview with Neeraj Kanwar:

Q: With the natural rubber prices going up significantly, some reports have suggested that with a 5% increase in prices, it would impact your margins by 1% or 1.5%. So on the pricing threshold, can you warrant further price increases or will margins come under pressure in the coming quarters?

A: The board has approved a 50% dividend (up 5%) and the company has done well in FY07-08. We have done a consolidated revenue of Rs 4700 crore with a profitability of about Rs 270 crore. It is up by around 125%.

As far as raw material is concerned, since January we have seen crude and oil going up to an all-time  high of USD 126/bbl and also natural rubber today is costly. So we as a company are increasing our efficiencies and trying to see how we can manage our profits and come out with flying colors. There is tremendous pressure on the bottomline and we have to try and see how well we can utilize our plans, decrease overheads and try and see that we come out with better and healthier margins.

Q: Is there any exceptional item that you have accounted for in this quarter around for your net profit of Rs 59 crore?

A: No, there is nothing of that sort.

Q: What have the margins been in this quarter and what are the margins that you are working in your estimates for FY09?

A: This Q4 has seen margins come down by around a percent over Q3, but higher and much higher than Q4 of last year, with around 11.5% to 12% increase in India, around 12.5% to 13% in South Africa. Margins have come under pressure as raw material prices have gone up. Currently we are seeing raw materials go up by 15% to 20%, so we are trying to see how we can come out with a better product mix and margin. We are also looking at ways to see how we can come out with new products on the technology side. A lot of cost savings are happening on the cost of productions. We are trying to reduce the weights of our tyres and come out with better margins.

Q: Is volume growth a concern for FY09 given the kind of topline performance you have shown this time and if bottomline has been bolstered by lower interest costs and a lower tax rate impact?

A: On the revenue side we have grown around 12.5% in India and around 8% in South Africa. I see a double digit growth happening again in the coming years on the revenue side. We find we are the leaders in the commercial segment. We had a 30% to 35% increase in the passenger car radial segment. Today we would be amongst the leaders in the passenger car segment with an ever-growing brand. Today Apollo is making huge investments. We have just got an approval of close to Rs 1,000 crore to be laid out in India in the next one or two years. We are increasing our production facilities in Baroda and making investments in truck-bus radial tyres in Baroda and also upping our passenger car radial production. We are setting up a new greenfield plant for tyres in the passenger car segment.

Q: How much capital expenditure will all this entail?

A: As I mentioned, close to Rs 1,000 crore is going to be in the next 2 years. On top of that, as you know we have announced a greenfeld facility in Budapest, Hungary. Close to a 200 million euros investment will made in that plant over the next three years.

Q: And you are well funded for it?

A: Yes, both internal accruals and long term debt would be looking after the funding.