Apollo Tyres eyes double-digit FY17 sales growth in India biz

Apollo Tyres' domestic business revenues are likely to grow in double-digits this year according to VC & MD Neeraj Kanwar. Although input prices are now inching higher, the company hopes to maintain margin around 18 percent this fiscal, Kanwar said in an interview to CNBC-TV18.He noted Chinese tyre imports are ballooning and pose a serious threat to domestic market and there is immediate need to take some corrective measures like imposing an anti-dumping duty. Below is the verbatim transcript of Neeraj Kanwar's interview to Ronojoy Banerjee on CNBC-TV18.Q: FY16 was largely a tough year for Apollo Tyres. We have seen your overall topline whether it is India which de-grew, Europe de-grew. Are you more optimistic now about FY17? A: I am very optimistic. The first quarter has been very good. Volumes, we have had a very good growth in India. We have had a 9 percent growth in truck bias tyres. We had around 4 percent growth in truck radial where we are clearly the leader. We have had a very good growth in passenger cars which is close to 30 percent in volume -- these are all volume numbers. In farm which has already picked up, last year farm agriculture sector went through a very rough patch, where we have seen a upsurge in last quarter of nearly 80 percent volumes have gone up for Apollo in India.On the other hand, Europe is doing very good now and they have come out of their issues that they had last year. Q: Last year overall your topline was down by about 15 percent?A: No, 2-3 percent. Q: Overall, for the full year.A: For the full year. So, first quarter in Europe we have seen slight growth of 3-4 percent which is good and we are today coming out with new products, new products for the European market which are standing at top podium positions in test results in Europe. So, that itself is given boost to the European operations. So, we are very optimistic going forward. There was a little lull in July just because of, I guess we had a very good quarter, but as original equipment (OEs) also July has been a slow month. We are seeing now the surge coming back up because good monsoons are there. All-in-all, I think the beginning of this year has been very good for Apollo. Q: Let's talk about India once again, because clearly we are seeing the overall auto sales going up, it seems to be a really good year anticipated. Maruti has forecasted above double-digit growth. We have seen commercial vehicle makers now have hit back their old highs that they had before the slowdown. So give us a growth forecast for your domestic business for this financial year?A: As you know I am a very optimistic guy, I believe we will have a double-digit growth for the full year for India and I can say that because on the back of a good quarter that has gone by. A 9 percent increase in truck volumes for bias and a 4 percent increase in truck radial is a good growth.I am a bit cautious going forward because, yes we have had a good run in the first quarter, we are having a good monsoon and therefore I am seeing a very optimistic second half of the year. I am a bit cautious about Chinese imports that is coming into our country; that is a big problem that we have. Today those Chinese imports have gone from a lakh coming in every month to 140,000. So it is only going up and up and up. So now today they own totally around 32-34 percent of the truck radial market, so the government has to put some duties on this which is coming in.If we are selling at a 100, Chinese tyres are coming at 50, they are killing the Indian manufacturing industry. The Make in India brand, we want to create more facilities, we want to create more jobs but if truck imports are coming in the way they are coming, and which are not best quality so safety is another issue that truckers are going to face or we as consumers are going to face because we are driving on the same highways with not good quality tyres that are coming onto the roads on heavy trucks. So, I think the government has to see that in order to create jobs, they have to give us some rescue from this Chinese imports that is happening. Q: Government has done that with respect to the steel industry, so they have actually come up with a minimum import price (MIP) and in fact today the MIP expires and perhaps the government will do something about it. So are you disappointed that the government has not sort of shown the same alacrity that they have shown to the steel sector to safeguard the domestic tyre industry?A: We have been taking it up for 2 years now and I have been telling you time and again. The Chamber of Tyre Association is taking up very strongly. The positive sign is that they have started investigation so we are hopeful of getting a positive order.We don’t know what is going to happen but it has been two years and why have you let the Chinese come in and take 35 percent of your market share.Q: Are you seeing that even in your domestic investment plans are getting impacted because of this especially when you are talking of the Chinese imports having increased 40 percent. So, is that also inhibiting companies like yours to sort of go a little slower, be more cautious about your domestic investment because a lot of that market has been eaten up by the imports.A: As far as Apollo is concerned we have taken a aggressive outlook where we are increasing our capacity in Chennai from 6000 to 12000 truck radials per day. It is at some level affecting us but it really eats into the truck bias production because it comes at that price level. Though it is a truck radial - the Chinese - but it is killing the truck bias not truck radials. So, clearly we standing at the top with 28-30 percent market share in truck radials, we don't get affected so much by the Chinese because quality is also something and a trucker wants a good quality truck tyre. However I am talking as India, I am talking as a tyre industry expert, I am talking for creating jobs and for making Prime Minister's vision come true.Q: It is going to impact jobs in the long run if nothing is done.A: I want to give you another dimension to this, it is not only our tyre industry, if I start cutting down production that means I am buying less natural rubber, what happens to the natural rubber growers? I am cutting their jobs, I am cutting their supplies. So, it is a 360 degree of approach. If you are affecting me, you are affecting my suppliers, you are affecting my raw material supplies, it is not only the tyre industries jobs, it is jobs all across. That is what the Indian government needs to understand and protect us.Q: Have you heard anything from the government, because now that as you said that they have started investigation at least, that's a step perhaps from the tyre manufacturers’ perspective a step in the right direction? Have you heard anything since, when was the last time the industry had some sort of a consultation with the government?A: We are still waiting to hear, I am very positive given what we have seen in steel. I am positive that hopefully that the government will see the dent that it is making and hurting the tyre industry and they will make some positive changes in near future.Q: You said that you are doubling your capacity at Chennai, because currently your Chennai capacity is completely stretched. When do we see the enhanced capacity kicking in?A: We are hopeful that by October of this year the enhanced capacity starts coming in and it will go all the way into 2017 end of 2017, so 12,000 will start coming out towards the end of 2017.Q: Initially in October then how much do you see?A: It is a ramp up so it will go first 9,000, 10,000, 11,000 upwards slowly.Q: Tell me little bit about the margins as well because commodity prices have been going up. Last year, we saw you benefitted because overall commodity prices were on the lower side, but now that cycle seems to be changing, so in that sense is there now concern that going forward it will be difficult for you to maintain the margins that you had?A: I don’t think for Apollo it is going to be such a problem. Yes, it is a challenge commodity prices have not gone up to that extent, but Apollo itself has taken a lot of corrective measures within our operations, may it be in terms of reducing overhead costs, reducing manufacturing costs, we are using alternate power sources. So all in all costs have started coming down from a manufacturing perspective. Also one critical thing is product cost itself, so using different raw materials, substituting different raw materials. All those technical enhancements, advancements to the product are coming in now, so that’s the way we will keep up with our margins. I am very bullish, margins are looking good.Q: 18 percent is I think what you had last financial year?A: Last year it was around 18.5 percent.Q: Which was good again because of the lower commodity prices, will that be a challenge to hold that around 18 percent despite all the technological improvements you may do?A: I don’t want to future forecast, but I am hopeful we will remain within the same margin. For full interview, watch accompanying videos...