Seeing good growth in replacement market; hope scrappage policy comes through, says Apollo Tyres

Neeraj Kanwar, VC and MD, Apollo Tyres is of the view that auto industry is close to bottoming out. "Last year was very bad, original equipment manufacturers (OEMs) were down 40 percent but that is the bottomed out industry and now we can only go up from here,” he said.

“We have seen some recovery in the passenger car side, which is good news. We have seen very good recovery in the tractor side as well but commercial vehicles (CVs) are still down and we don’t know what is going to happen as far as CVs are concerned," he said in an interview with CNBC-TV18 from the sidelines of the World Economic Forum (WEF) in Davos.

On capacity utilisation, he said, “Today we are working at around 75-80 percent capacity. We are selling into a lot of export markets - into south-east Asia, into middle-east. Europe too is doing well and we are winning market share there but not at the cost of margins. They are premium products, so we are not coming down on prices. We have entered OEM markets in Europe, which is adding fuel to the replacement market.”

“Coming into FY21, I feel Europe margins will start going up. I see double digits coming in because our Hungary facility has come on and it is running at 85-90 percent capacity, so the cost of manufacturing has  come down. Therefore, the cost of production is going to help us increase our margins,” said Kanwar.

Talking about the possibility of an import duty hike on tyres in India, he said, “That will be good for us if import duty comes in, we will see less Chinese tyres come in. There is anti-dumping in India for CV tyres, so that will be a good news for India.”

However, the bigger picture that we are looking at from the budget is scrappage policy, which the government has been talking about for the long time. What we are asking them is to reduce the scrappage policy from 20 years to 10 years and that will incentivise the entire country. We are pretty hopeful of that,” he further mentioned.

Talking about their capex plans he said,  our plants are ready, geared up for an upward journey. “Once the positive trend starts and we believe in FY21 the positive trend will start –cars have already started showing a positive trend – that is when Apollo is going to gain market share," he added.

Giving a growth outlook, he said, “We are looking at a double-digit growth. In replacement, I am happy to say that, we have gained market share because we have brought in a lot of new products into the country especially, in truck and in cars. Farm is also a sector where we are going aggressive in. So I believe that our growth in the replacement market is going to be good.”

“The biggest risk for 2020 would be if the auto industry doesn’t pick up from here, especially the CVs. On the positive side, if the scrappage policy does come in then Apollo is there to gain market share,” he said.