APOLLOTYRE - Apollo Tyres Ltd Share Price

Outlook by Management:
Apollo Tyres expects improved operating performance ahead, driven by demand recovery in key markets, cost-control measures, and stabilizing raw material (RM) costs. Growth in India's replacement segment (PCR, TBR, agri) and Europe's premium product mix (UUHP tyres now 48% of PCLT volumes) will support momentum. Europe's demand recovery and new product launches are expected to boost growth.

Key Points:

1. Financials:

   • Q3 consolidated revenue: Rs.69.3B (5% YoY, 8% QoQ), EBITDA margin stable at 13.7%.
   • Net debt reduced by Rs.4.5B QoQ; net debt/EBITDA at 0.7x (consolidated).
   • India EBITDA margin at 11.1% (down QoQ due to RM inflation); Europe EBITDA margin improved to 17.7%.

2. India Operations:

   • Replacement demand (PCR, TBR) grew 5% YoY, offsetting a 10% decline in OE volumes.
   • Outlook: Continued replacement momentum in Q4; RM costs expected to plateau.

3. Europe Operations:

   • Revenue grew 3% YoY to €181M; focus on premiumization driving margin improvement.
   • Reifencom (online platform) revenue: €88M (7%+ EBITDA margin).

4. Raw Materials:

   • RM costs rose 15% YoY but are stabilizing; Q4 RM expected to remain range-bound.

5. Strategic Initiatives:

   • R&D: Secured new OEM wins in Europe; premiumization efforts in India (e.g., EnduMaxx LT HD record).
   • Sustainability: Zero-liquid discharge certification at AP plant; industry recognition for ESG efforts.
   • Expansion: Targeting US (PCR, TBR growth) and Middle East markets.

6. Capex & Debt:

   • FY25 Capex to moderate below initial guidance; FY26 Capex to rise for PCR capacity expansion.
   • Working capital pressures temporarily increased India's interest costs; deleveraging to continue.

Challenges: Competitive intensity limiting pricing power; OE weakness in India. Focus remains on profitability, premiumization, and calibrated growth.

Question 1:
"Actually, my first question was on the interest costs. We have seen balance sheet deleveraging for a while now, and especially in this quarter, but on a consolidated basis, interest cost is still remaining in that stable range. In fact, in the standalone, the interest costs have actually moved up quarter-on-quarter. So, is there anything that we should be mindful of? And when do we see the interest cost number actually trending down?"

Answer Summary:
India's interest costs rose due to higher working capital borrowings linked to profitability challenges and market conditions, while Europe's interest costs declined. The increase is temporary, and debt reduction will reflect in lower interest costs in future quarters.

Question 2:
"You also mentioned that RM should be range-bound in 3Q versus 2Q. So, how should we interpret it? Because I'm guessing that some price hikes have happened and maybe more are planned or not, I would love to hear from you. So, if RM is flattish, then should gross margin actually improve quarter-on-quarter because of the impact of price hikes, or how should we think about that?"

Answer Summary:
Q3 raw material (RM) costs rose 2% sequentially, but Q4 is expected to remain flat. Marginal gross margin improvement is anticipated due to price hikes, but no immediate price increases are planned due to market conditions.

Question 3:
"Sir, first question on the India business, possible to highlight, at an overall level, what is the volume growth across replacement, OE, and exports?"

Answer Summary:
India's Q3 volume growth: replacement +5%, OE -10%, exports flat. Replacement momentum is expected to strengthen further in Q4, driven by TBR, PCR, and farm segments.

Question 4:
"On the export side, we had been seeing very strong numbers in the first half, but suddenly we have seen a very soft growth, while if I look at other peers' data, generally I see that the growth has been good. So, anything here, why has the growth been suddenly slowing down for us, and are there any initiatives we are taking to sort of improve that in the coming years?"

Answer Summary:
Export slowdown stemmed from demand fluctuations, logistics costs, and targeted markets. Focus areas include the US (PCR and TBR growth) and Middle East (Saudi Arabia) as key expansion markets.

Question 5:
"On the financials, there are some housekeeping questions. Can you share, for the last nine months, what would have been the Capex and FCF, because I see that it's only mentioned for the first half in the presentation? So, if you can share that number, as well as the gross debt, also at a standalone and consol level."

Answer Summary:
India's nine-month Capex: INR 350 crore; gross debt: INR 3,200 crore. Consolidated Capex: INR 500 crore; gross debt: INR 3,500 crore. FY25 Capex likely moderates to ~INR 700"“800 crore.

Question 6:
"And next year, should we again continue to expect similar, INR 1,000 crores of Capex, or how should we look at the coming years?"

Answer Summary:
FY26 Capex will increase due to PCR capacity expansion in India and Europe. Growth Capex will exceed maintenance levels, with specific figures finalized later.

Question 7:
"I think if I look at the Reifencom numbers, if you can share those for the quarter?"

Answer Summary:
Reifencom Q3 revenue: EUR 88 million; EBITDA margin: 7%+.

Question 8:
"Firstly, on the India standalone numbers, q-o-q gross margin have contracted in Q3 quarter almost like 300 bps. Just can you explain what has happened to the gross margin here?"

Answer Summary:
Gross margin contraction resulted from inventory accounting adjustments (high-cost inventory consumption). Normalization expected in subsequent quarters.

Question 9:
"On the Europe demand outlook for next year, how do you see? There's a good pickup happening last few quarters. Do you see the momentum to continue? And just on the outlook for Europe?"

Answer Summary:
Europe demand remains strong in PCR and truck replacement segments, with UHP/UUHP mix improving. Growth expected to sustain due to market recovery and new launches.

Question 10:
"Can you help us the RM basket for the Q3 quarter, sir?"

Answer Summary:
Q3 RM cost: INR 175/kg (+15% YoY, +2% QoQ). Natural rubber: INR 215/kg; synthetic rubber: INR 195/kg; carbon black: INR 120/kg.

Question 11:
"On the India business, we have been relooking at our strategy of margin over market share. We still continue to underperform some of our peers who have reported so far on the revenue side. Any update on that side about how are we thinking about our market share versus margins now?"

Answer Summary:
Balancing profitability and growth, Apollo prioritizes margins but aligns growth with peers. Sequential improvement noted, with Q3 growth matching/outpacing some competitors.

Question 12:
"My question was on the other expenses, which have declined quite a bit sequentially. I'm sure there's a component of certain costs that you have rationalized. If you could identify some of them, and how should we think about these other expenses going ahead?"

Answer Summary:
Other expenses reduced via A&P and administrative cost cuts. Normalized levels (~INR 800 crore) expected, with expenses declining as revenue grows.

Question 13:
"So, PCR, as you said high utilisation, so capex will be for that next year. So, what's the utilisation level of TBR now on an annualised basis, not just quarterly?"

Answer Summary:
India TBR utilization: ~80%; PCR: high 80s; Europe: 90%. FY26 Capex to focus on PCR capacity (India/Europe), adding ~10% capacity via brownfield expansion.

Question 14:
"Just to confirm on the gross margin piece of it, so the high-cost inventory, is that portion has been consumed or do we expect it to be consumed by the end of Q4?"

Answer Summary:
Partial high-cost inventory remains, but levels are not unusually elevated. Residual impact on Q4 margins will be limited.