Plant closures at Apollo Tyres and with rest of the industry had become a norm well before the lockdown
Apollo Tyres, India’s second-largest tyre producing company, took the lead and announced a partial resumption of operations at three of the six plants in April, even as the nation spends a couple of more weeks under lockdown.
While the domestic demand will not return well past mid-May as per projections, Apollo is working on a new set of guidelines pertaining to safety from coronavirus infection while readapting to its previous norm of ‘stop-n-go’ production.
Plant closures at Apollo Tyres and with the rest of the industry had become a norm well before the lockdown was announced by the Centre on March 25, a senior Apollo executive said in an exclusive interaction with Moneycontrol.
Satish Sharma, wholetime director and president (Asia Pacific, Middle East and Africa) - Apollo Tyres, said, “It is not that India’s economy was in the pink of health in the pre-COVID-19 days. We had to stop production for 3-4 days even in those days because sales of M&HCV trucks and cars had gone down substantially. It was a norm back then.”
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Sharma said that managing production at plants at very low utilization rates or shutting it before restarting it in a few days had become a way of life for Apollo. Therefore managing the lockdown and measures to be taken for restarting does not put the company in a grinding situation.
“We found out what the cost is if you run the plant at lower capacity in all 30 days as opposed to taking a block closure of three-four days where we produce only what is needed. Not only Apollo but the entire tyre industry was running like this. We have become adept at managing volatility in FY20,” added Sharma.
On April 25, Apollo declared that its two plants in Kerala and one in Gujarat had partially resumed operations by adhering to the standard operating procedures and guidelines for industrial units, prescribed by the respective state governments to prevent and contain the spread of COVID-19.
“This time around the issue is also to take into account the coronavirus factor. So we have to put into place how we disinfect the buses, thermal scanning, disinfect the work center. These are additional complications now. We have not started production yet. We have taken approval from the authorities to be able to start production as and when we need it. These are large manufacturing set ups and they take a long time to restart,” added Sharma.
Even though certain factories - based on their location - are allowed to operate, the companies are made to follow some strict guidelines handed out by the local authorities. Companies have been even warned about penal action if any COVID-19 positive case is found within their premises including a prison term for the factory head.
Apollo is also exploring options to limit social distancing among workers on the workfloor. Though exact details were not available but an estimated 3,000 people are employed at the Kerala plants of Apollo Tyres.
Typically a tyre maker sells 40 percent of its produce to vehicle makers and slightly more in the replacement market. But, while the replacement market is expected to be almost zero till May 17 (end of lockdown 3.0), tyre supplies can still be done for vehicles meant for exports. Further tyre companies will keen to resume exports too but overall production will remain subdued.“There are high overheads for any manufacturing industry. So if we run the plant 30-40 percent utilisation it is a loss. The plant won’t be scaled up to 80 percent suddenly. We will have to go through the pain of operating it at 30-40 percent. Unit cost of the product will be high to manufacture and it will still be sold at the old price, that is if there is not a price increase,” added Sharma.