APOLLOTYRENSEQ2 FY23November 22, 2022

Apollo Tyres Limited

6,085words

94turns

10analyst exchanges

0executives

Key numbers — 40 extracted

25%

ing carbon-neutral by 2050, aligning with the European Green Deal. We are committed to a target of 25% renewable energy by 2026. This will translate to 25% reduction in Scope 2 intensity for the compan

INR 60 billion

rd. Moving on to the financial results. The consolidated revenue for the quarter stood at almost INR 60 billion, a growth of 17% over the same quarter last year, though flattish on a sequential basis. The conso

17%

cial results. The consolidated revenue for the quarter stood at almost INR 60 billion, a growth of 17% over the same quarter last year, though flattish on a sequential basis. The consolidated EBITDA fo

INR 7 billion

ar, though flattish on a sequential basis. The consolidated EBITDA for the quarter was upwards of INR 7 billion, a margin of 12% compared to 12.6% for the same period last year, but an improvement sequentially,

12%

equential basis. The consolidated EBITDA for the quarter was upwards of INR 7 billion, a margin of 12% compared to 12.6% for the same period last year, but an improvement sequentially, which was 11.6%

12.6%

The consolidated EBITDA for the quarter was upwards of INR 7 billion, a margin of 12% compared to 12.6% for the same period last year, but an improvement sequentially, which was 11.6% in the last quart

11.6%

of 12% compared to 12.6% for the same period last year, but an improvement sequentially, which was 11.6% in the last quarter. Coming to the balance sheet. We've been able to maintain our leverage rati

INR 42.5 billion

was under 2, in line with our vision target. In Indian Operations, the revenue for the quarter was INR 42.5 billion, a growth of 17% over the same quarter last year. This growth was largely driven by improvements

en by improvements in mix and the price increase taken. Sequentially, the revenue was a decline of 4%. The EBITDA for the quarter stood at INR 4.4 billion, a margin of 1

INR 4.4 billion

increase taken. Sequentially, the revenue was a decline of 4%. The EBITDA for the quarter stood at INR 4.4 billion, a margin of 10.3%, which was same as what was reported for last ye

10.3%

%. The EBITDA for the quarter stood at INR 4.4 billion, a margin of 10.3%, which was same as what was reported for last year and an improvement from the sequential quarter,

9.7%

same as what was reported for last year and an improvement from the sequential quarter, which was 9.7%. Moving on to European Operations. The revenue for the quarter was EUR 181 million, up a signifi

Guidance — 20 items

Gaurav Kumar

opening

“We are committed to a target of 25% renewable energy by 2026.”

Gaurav Kumar

opening

“This will translate to 25% reduction in Scope 2 intensity for the company in FY26.”

Gaurav Kumar

opening

“We are also committed to target 25% reduction in water-withdrawal intensity by 2026.”

Gaurav Kumar

opening

“Given the recent corrections in commodities and our continued focus on price and profitable growth, we expect revenue growth and recovery in operating margins going forward.”

Gaurav Kumar

opening

“In terms of outlook, as Neeraj mentioned, we expect the demand in India to pick up in the replacement segment and a growth in volumes and revenues going forward.”

Gaurav Kumar

opening

“The net debt-to- EBITDA for the consolidated operations, was under 2, in line with our vision target.”

Ashutosh Tiwari

“So how should one look at European profitability, say, for next year?”

Ashutosh Tiwari

“And so going forward, we'll continue with the same trend.”

Gaurav Kumar

“Similarly, on the CapEx front, we were significantly under, let's say, 50% of the overall guidance.”

Neeraj Kanwar

“So, for us, the whole mantra has been profitable growth, while we will be looking at gaining market shares.”

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Risks & concerns — 8 flagged

However, more importantly, we were able to take pricing actions during the quarter linked to our mantra of profitable growth, which helped us negate the impact of higher raw material costs and also partially impact the sequential drop in revenues.

— Gaurav Kumar

European market is beginning to show some signs of slowdown.

— Gaurav Kumar

Sequentially, the revenue was a decline of 4%.

— Gaurav Kumar

The replacement volumes, overall, though you would appreciate that across product categories, it becomes difficult.

— Gaurav Kumar

So that's the impact of inventory that you see.

— Gaurav Kumar

So, there are signs of slowdown in Europe, given the overall environment and until now, winter has been mild.

— Neeraj Kanwar

But on a year-on-year basis, the price impact of the price increases taken over the last 12 months will still come into play.

— Gaurav Kumar

Difficult to say as of now as to where in FY24, which is even the start of that is 6 months out, as to finally where we will end.

— Gaurav Kumar

Q&A — 10 exchanges

So firstly, on India side, the entire growth Y-o-Y is driven by only pricing. Was there any volume growth as well? If we can break up it in OEM and Replacement as well?

Gaurav Kumar

So, the volume growth, Ashutosh, was very minimal under 1%. And hence, it was largely price and mix. Okay. But any color on replacement and OEM breakup? Just a minute. The replacement volumes, overall, though you would appreciate that across product categories, it becomes difficult. It was down mid-single digits. And the OEM and exports grew into double digits. Even exports are growing in double digits as of now? Yes, for the last quarter, yes. Okay. And we did very well in Europe. Can you highlight like which markets or countries are doing very well for us? But 10% in this environment is pret

Sir, first, on this replacement truck demand outlook. Q2 has been soft. We understand, especially it's a seasonally soft quarter as well, but some color on how you are looking at growth in the current quarter and going ahead? How is the growth outlook? And in case -- I mean we know that you have been slightly ahead of the curve in taking price hikes, and there has been some market share loss as well. So, if you can comment how you are looking at growth versus market share now in the coming few quarters?

Neeraj Kanwar

Sure. Okay. So, for us, the whole mantra has been profitable growth, while we will be looking at gaining market shares. But today, in India -- let me discuss India and Europe separately. In India, what has happened is we have increased prices over time. We are clearly the price leaders in truck and in passenger car. And every segment of the market, Apollo now has established its price premium, okay? And therefore, the gap between us and competition was huge in quarter 2. And, we did lose a little bit market share in truck-bus radial, but the company continues to introduce new SKUs, new product

Sir, on the commodity side, what was the inflation impact? How much did the RM costs go up in Q2? And what is the deflation impact you're expecting in Q3?

Gaurav Kumar

So, in Q2, Raghu, the RM cost went up by about 3%. And in Q3, we are expecting around a similar reduction. That's good to hear, sir. And can you also talk about, in terms of truck-and- bus segment, how do you see the volume improvement going ahead in replacement market? And broadly, what range of growth would you expect for the full year? We will look at a double-digit growth. We are already -- like I mentioned earlier, our order books are coming out to be full in this quarter and the coming quarter. So, we are pretty bullish about seeing a revival of the CV segment. Given all the infrastructu

First, a question on the India business and really a 2-part question. So, when I look at your product segmentation, like truck and bus has come down from 60% to 55% on a half-year basis. But when I look at your channel, the replacement is down only from 60% to 58%. So, would it be fair to say that your strategy of taking price hikes ahead of competition is impacting your replacement market share more on the TBR side rather than on the passenger vehicle side? Is that a correct understanding? Yes. it is the correct understanding. Our strategy is, as I mentioned to you, is on profitable growth. W

Amyn Pirani

And how is the underlying replacement market for TBR doing? I mean, obviously, we've heard these comments that OEM has been doing well from you and from other sources also that, but the replacement was a bit soft. But has that picked up materially? And what are the drivers of that? Like I mentioned to you earlier that basically the drivers are the government spending going into infrastructure and road transportation is really helping the CV cycle coming back. And that is going to make the CV cycle come, and TBR is now the main product category that is going to be taken by the truckers. OEMs to

So, wanted to check as since we are not increasing our prices anymore because raw material is coming down and the volume growth in this quarter was only 1%. So, going forward, how is the volume going to come? Because we do not have price growth and volume, you said it is more from the OEM level, right now, replacement is not that -- growing that fast. So how will be the volume growth? And in terms of realization and margins, because if we have more growth from OEM, the margins will get impacted. So, if you can share your views on the same.

Gaurav Kumar

So, Disha, the price increases that we have taken continue with the rollover effect vis-a-vis last year, while sequentially the growth in Q3, would be only volume-driven. But on a year-on-year basis, the price impact of the price increases taken over the last 12 months will still come into play. On your second point, we are seeing signs of pickup in replacement, and that's specifically the CV segment. On the passenger car segment, et cetera, that market was already strong, and we are a leader there. So, we believe that the operating margins will only improve going forward if the current market

Congrats on good set of numbers. My first question is on the replacement side, I just wanted to understand from an industry perspective, tyre quality is consistently improving across segments. So just wanted to hear your thoughts. Are you seeing some signs that replacement cycle is getting longer, which is having some impact on demand? So just wanted to understand what was the replacement growth in FY22 and first half FY23? And is it a reason why a replacement demand is a little bit subdued because tyre quality is increasing and the life of the tyre will probably would be going up? Your though

Neeraj Kanwar

I don't think life of the tyre is increasing. I think the infrastructure growth is actually taking the CV cycle up. The numbers, Gaurav, you can give him. But please understand, there is a recession all over the world. India is least affected today, when you compare economies, when you compare Europe or the U.S. or even for that matter, China. And India is the least affected because of the infrastructure spends that are going into the country. When infrastructure is going into the country, the first thing that is going to pick up is the CV, and that is what exactly what we are saying. Whether

Yes. So continuing on the energy-cost question for the European Operations. So can you give some context of what has been our average cost for energy in, say, for FY23 and where we are in terms of energy cost currently? And what proportion of our energy requirement would have been hedged for FY24?

Gaurav Kumar

So Jinesh, I would not have those details readily in terms of specific figures. And I don't think we can share them that readily. Broadly, we had hedged about close to 80% of our energy costs for FY23. As I said, FY24 is under constant review. So, there's not a fixed figure that I have as of now. Okay. Got it. And secondly, continuing on the European Operations, we are almost at 100% capacity currently. Can you throw light on what is our current capacity in Europe? And how do we see that going up in terms of ramp up in the next 12 months? So, the current capacity in Hungary is now getting clos

It's on the pricing. As you said that there has been some market share loss because of pricing. Now that commodity cost pressures are expected to come down, could there be a scenario where you either trim prices or maybe launch better tyres at the current price? So, could pricing action reverse over the coming months, given the commodity cost pressures are easing? That will be the first question. And second question, if I may just ask with this. Your

Neeraj Kanwar

numbers on reifencom revenue and EBITDA in euro terms. Those are my 2 questions. Pricing as far as India is concerned in the replacement market, I said, is well established. So, we don't see any reductions as far as replacement is concerned. But as far as OEs are concerned, we have a pricing formula with them. So, we do get a price increase when commodity prices go up, and then we do get a decrease when they come down. So that's based on a pricing formula. As far as Reifen is concerned, Gaurav, can you give him the number? Yes. So, the Reifen revenues for the quarter were EUR 46 million. And G

Congratulations on great set of numbers. So, some of the questions I have had been answered. Could you share your guidance for Q3 and Q4 on revenues and EBITDA margins as you see them, if you could? And also, there was a mention that there's a 3% saving on raw materials expected in Q3. That means 3% on raw material or 3% overall? This will feed into the EBITDA as well, so either way you could answer it. So, Devang, we don't give out specific margin guidance. So, we would not be able to share that. We expect the raw material basket to come down by 3%. Based on the demand uptick that we see and

Devang Shah

This is Y-o-Y or for Q3? No, this is full year FY23 over '22. Okay. And in terms of your possibility of exports to Europe, is there a plan -- does that also work given that Europe is operating at nearly full capacity and India is at around 80% capacity, so is that a possibility? So as Neeraj mentioned, Devang, we already export significant quantity of passenger car tyres from India to Europe, and that will continue. That's a decision that, along with the regions, the global supply chain takes. Even on the truck side, there is exports from India to Europe. So that possibility is definitely ther

Thank you.

Management

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Speaking time

Gaurav Kumar

Neeraj Kanwar

Moderator

Ashutosh Tiwari

Raghunandhan

Disha Sheth

Jinesh Gandhi

Siddhartha Bera

Amyn Pirani

Nishit Jalan

Opening remarks

Neeraj Kanwar

Apollo Tyres Ltd Q2 FY23 Earnings Call Hello, everyone. Good morning. Good afternoon. On behalf of IIFL Securities, I welcome you all to the 2Q FY23 Results Conference Call of Apollo Tyres. From the management team, we have with us Mr Neeraj Kanwar, Vice Chairman and Managing Director, Mr Gaurav Kumar, Chief Financial Officer and the Investor Relations team. I'll now hand over the call to Mr Kanwar for his opening remarks, post which we'll start the Q&A. Over to you, sir. Good morning, good afternoon, everyone, and a very warm welcome to Apollo Tyres' quarter 2 earnings call. Let me start the call with thanking you all for your interest in the company and taking the time out for today's call. I'm proud to share that our biggest plant in India, which is in Chennai, has been awarded the Deming's Prize this year, the most important recognition in the field of quality. This, once again, highlights our absolute focus on world-class quality. We, at Apollo, are relentlessly working on deliver

Gaurav Kumar

Another key area of focus is Sustainability. Apollo Tyres has a commitment of becoming carbon-neutral by 2050, aligning with the European Green Deal. We are committed to a target of 25% renewable energy by 2026. This will translate to 25% reduction in Scope 2 intensity for the company in FY26. We are also committed to target 25% reduction in water-withdrawal intensity by 2026. We continue to focus on enriching our product mix and superior-price positioning of our product across geographies. We are seeing signs of recovery in the commercial-vehicle cycle and a strong momentum on the passenger vehicle side in India. Given the recent corrections in commodities and our continued focus on price and profitable growth, we expect revenue growth and recovery in operating margins going forward. Thank you, once again. Stay safe. Now I'll pass on to Gaurav, our CFO. Thank you. Gaurav, over to you. Thank you, Neeraj, and good afternoon, ladies and gentlemen. Continuing from where Neeraj left, let m

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