Apollo Tyres sees faster demand pick-up in replacement market

G Balachandar Chennai | Updated on May 22, 2020

Apollo Tyres Ltd announces Q4 results on Thursday.   -  Bloomberg

Cuts FY21 capex by ₹400 crore

Apollo Tyres expects replacement demand to pick up gradually in the coming weeks, as the leading tyre-maker has already seen some uptick in demand post the partial lockdown relaxations by the government.

March 2020 saw a significant decline in auto sales and April saw zero car sales due to the Covid-19 pandemic and the subsequent lockdown. Thus, the shutdown of operations resulted in short supply of spare parts including tyres.

Apollo Tyres has pegged its losses at about ₹500 crore in sales for March alone on account of the Covid-19 lockdown.

However, the demand environment has been gradually picking up after government granted resumption of business activities post-April 20. Though the lockdown continued, industries and businesses were allowed to resume partial operations with safety norms. Most of the OEMs have restarted operations and production is gradually picking up.

“While OEM demand will remain under pressure, the company expects a faster recovery in replacement demand with some positive signs in the initial weeks after the government’s partial relaxations,” the company management told the Q4 analysts’ conference call.

Gradual improvement

The management indicated that since a significant portion of its business comes from the replacement market, and with initial positive signs, Apollo Tyres hopes to reach 50 per cent capacity utilisation by this month and a further improvement in June.

The company derives about 65 per cent of its domestic revenues from the replacement segment. The replacement share is higher in TBR (truck and bus radial) at about 75 per cent.

While signs of an initial uptick in replacement market are positive, its high exposure to the CV market, which is the worst affected segment this slowdown phase, will be an area of concern. Barring some cargo flow from the agri segment and food distribution programmes, weak freight demand has led to lower fleet utilisation levels for truckers. However, this is expected to see a gradual increase with more relaxations. Improvement in fleet utilisation levels will augur well for the company by way of better replacement demand.

Due to Covid-19 impact, the company has cut its capex by ₹400 crore and the revised capex is estimated at ₹1000-1100 crore for this fiscal.

Apollo Tyres sees some respite on the cost front due to softening of commodity prices. Overall, it is targeting about 20 per cent reduction in its fixed costs for this fiscal through various measures that include freezing of hiring, wage hike and travel, among others.


Published on May 22, 2020

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