Apollo Tyres doubles FY20 capex to Rs 3,000 crore

Apollo Tyres, the country's second-largest tyre manufacturer by tonnage, has lined up capital expenditure of Rs 2,500-3,000 crore for coming financial year.

This will be nearly double the capex of Rs 1,000-1,500 crore that the Delhi-based company expects in the current year, a senior executive of the company said.

Apollo Tyres’ seventh global manufacturing factory coming up in Andhra Pradesh will see an initial investment of Rs 1,800 crore. This plant will initially see the production of passenger car radials before graduating to truck tyres being commissioned in the last quarter of FY20.

“We have begun work on the Andhra plant. Next year would be a big capex. This year has been still significantly muted. We will probably end the year with a capex of somewhere between Rs 1,000 to 1,500 crores. But next year the capex would be somewhere between Rs 2,500‐3,000 crores. Next year spending would primarily be on Andhra Pradesh greenfield plant,” said Gaurav Kumar, Chief Financial Officer, Apollo Tyres.

A rise in commodity prices dented margins for the tyre maker during the December quarter when it reported a fall of 19 percent in net profit to Rs 198 crore. The dip was in line with the slide seen across Apollo’s rivals such as Ceat and MRF. Apollo has cautioned about a downward revision in margins going ahead.

“By the end of the year, we expect to have a capacity of 12,000 tyres per day on the passenger car. Production of course would be determined by sales demand. I would caution that due to a mix of OEM and replacement, even in a few years we would probably still be lower than our margins a few years ago at 16 percent. We are now looking at retaining margins to levels of 13‐14 percent,” added Kumar.

Apollo was one of the companies that announced price cuts in January following reduction in commodity prices including prices of natural rubber. Supplies to original equipment (OEM) manufacturers dipped during the last few months due to sluggish demand.

About 60 percent of Apollo’s revenue comes from the replacement market while 30 percent is to OEMs. The balance of 10 percent is to exports. The company is the market leader in the commercial vehicle (CV) segment.

About 62 percent of its revenues come from CV, 18 percent from passenger vehicles and 8 percent from light trucks. The balance is from the farm, two-wheeler and industrial segments.