Apollo Tyres Ltd

Last modified by Asif Farooqui on 2021/03/17 09:37

Contents

Overview
- Brands
Industry Overview
- India
- Europe
Business Segments
Financial Highlights
Recent developments
References

Overview

Apollo Tyres Ltd. (NSE:APOLLOTYRE) came into inception in 1972 and has since been a trusted name in the business of manufacture and sale of tyres. With its corporate headquarters in Gurgaon, India, the company cater to over a 100 countries across the globe.¹

The company markets its products under its two global brands: Apollo and Vredestein. These products are available in countries across the globe through a vast network of branded, exclusive and multi-product outlets. Apollo Tyres has multiple manufacturing units in India, the Netherlands and Hungary.

At the end of the financial year 2020, the company clocked a turnover of US$ 2.27 billion, backed by a global workforce of approximately 17,200 employees.

Brands

Apollo Tyres established itself in 1972 as a single brand enterprise. Over the years, as the organisation grew and expanded its footprint across geographies, several brands either joined or were born into its fold. While the company focuses on its 2 key brands —Apollo and Vredestein, it also owns two smaller and region specific brands – Kaizen and Regal.²

Brands, Apollo and Vredestein comprise of tyres for passenger, commercial and off highway vehicles. Brands Regal and Kaizen focus on the truck-bus tyre segment.

Each brand from the company is equipped with its own distinctive visual language and targeted to a specific customer need. This approach has enabled Apollo Tyres to provide a wide range of products for various applications, across geographies — ending with a delighted customer.

Industry Overview

India

Since FY09, the tyre industry has been growing at a CAGR of 7%. It had de-grown only during FY13. However, FY20 seems to be a repeat of FY13, as the numbers from Automotive Tyre Manufacturers Association (ATMA) indicate. According to the data released by ATMA for 11 months, the industry shows an overall decline of ~6% compared to the 11-month numbers of FY19. This is no surprise as the industry’s fortunes are closely linked to those of the auto sector and the overall economic development.³

In terms of key segments, demand for the Medium & Heavy Commercial Vehicle (M&HCV) segment tyres dropped by 12% even though it had seen a stellar growth of 16% for FY19. The other major segment, PV, posted a drop of 3% for the year.

The tyre industry is directly dependent on the business from the Original Equipment Manufacturers (OEMs) and the replacement market. With the auto sector in a limbo during FY20, the tyre industry was directly impacted as sales to OEMs reduced drastically. However, the replacement market helped recoup some of these losses, with the CV space witnessing a greater utilisation of existing assets and increased sale of replacement tyres.

According to ATMA data, replacement sales for M&HCV accounted for 72% of its total domestic production, among the highest in all categories. The category saw good demand in the replacement market post monsoon till the arrival of COVID-19 and the subsequent lockdown. During FY20, imports continued to fall with sustained imposition of anti-dumping duty.

India’s tyre industry was helped to a certain extent by the falling materials costs of some of its key raw materials. These raw material prices declined by ~5% in FY20 over the previous year, aided by a drop in carbon black, synthetic rubber, nylon fabric and chemicals prices. However, the domestic natural rubber prices saw an increase of ~7% during the same period. The domestic supplies were partially impacted during FY20 due to erratic weather pattern. Prices for the imported natural rubber witnessed a spike in the second half of the financial year. Reduced production and supplies from Indonesia and Thailand due to the onset of fungal leaf disease were the key factors for this. India continued to witness the inverted duty on natural rubber during the year.

Europe

For CY19, the tyre industry performed poorly in the EU, according to data from the European Tyre and Rubber Manufacturers’ Association (ETRMA). Barring the motorbike and scooter tyres recording a 2% rise and replacement truck tyres with a flat growth, all other tyre segments were in the negative zone for the year.

Agricultural tyre sales performed poorly for the sixth year in a row and dipped by 6% vis-à-vis the previous year. This was largely due to the extreme drought resulting in poor harvest and low financial returns for farmers. Also, expectation of stricter regulations for the farming industry in relation to climate change policies and uncertainties around it further dampened consumer sentiments for investment into new equipment and tyres.

PV tyres also performed poorly during CY19 and replacement consumer tyres fell by 3%. Despite the growth in new car registration of 1.2%, tyre sales to OEMs declined by 5%. Both categories, Summer and Winter tyres, showed a negative growth of 7% and 6%, respectively during CY19.

While the performance for the European tyre industry was weak, it continued to evolve. The year saw instances of industry players driving initiatives to integrate manufacturing and trade in an attempt to reduce their dependence on independent tyre distributors in Europe.

In terms of categories, in the PV segment, the All-Season segment continued to outperform the other segments (Winter and Summer tyres) and posted a double-digit rise over the previous year. The growth in the segment is also bringing in an increasing number of players, resulting in pricing pressure. Another segment which showed positive trend was the UltraHigh Performance (UHP) segment and it witnessed a high singledigit expansion.

The imports of PV tyres from outside Europe continued to post strong growth during the year and continued to gain market share. The share of UHP and Winter tyres in imports is increasing. While anti-dumping duties have been imposed on Chinese imports of truck tyres, these have been partly replaced by imports from other countries, particularly South East Asia and Korea. Imports from the Association of Southeast Asian Nations (ASEAN countries) grew by 215% in CY18 and by 170% in CY19 and from South Korea by 117% in CY18 and 7% in CY19.

The impact of COVID-19 is already being felt across the auto and tyre industries. According to ETRMA data for March 2020, replacement passenger vehicle tyres sales declined by 26% and by 15% for both agricultural and CV tyres.

Business Segments

The Company continued to focus on its key regions – APMEA (Asia Pacific (including India), the Middle East and Africa) and Europe. Also, it continued to build its presence in the Americas with product releases and seeding the market.

During FY20, the APMEA operation continued its focus on key themes for India’s market - consolidating its leadership position and expanding market share by introducing new products across segments. The Vision 2020 for the India business aims at building leadership in multiple segments of the industry. Committed investments in R&D and brand building continued to fuel the growth journey of the region to attain its vision. The region has seen continued OEM approvals with high satisfaction as well as increased customer acknowledgements. For other countries in the APMEA region, the Company continued seeding the markets with country-specific products, building brand salience and expanding distribution networks.

Commercial Vehicles

Apollo Tyres continued to consolidate its leadership in the CV segment. In the M&HCV category, the Company’s R&D and manufacturing worked hand-in-hand to launch tyres for both Truck Bus Bias (TBB) and TBR for the new axle load norms for trucks. The products were tuned to carry higher payloads while continuing to offer their value propositions to the customers, thereby maximising productivity. The other big product introduction was the EnduRace TBR range for Intermedia Commercial Vehicle trucks and buses. As India continues to witness higher investment in the infrastructure development, there is a growing demand for tyres from the Tipper segment. To cater to this demand, the Company introduced two new products, EnduTrax MA and EnduTrax MD, specially created for the tipper application.

In the Light Commercial Vehicle/ Small Commercial Vehicle (LCV/ SCV) category, the Company’s offer of premium EnduRace radial technology products helped further inch up its market share. To cater to the fastest growing segment in the LCV space, Pickups, the Company launched the EnduMaxx LT range and offered unmatched cost of ownership, highest mileage, a very durable product and fuel savings. The product was launched across 12 states with over 26,000 footfalls at key identified markets. The Gold Award recognition by SEAC Singapore Customer Engagement Awards in the Most Admired Brand Activation category is a testimony to the success of the product launch. Given the success of the product, the Company extended the EnduMaxx LT to the SCV category as well.

Apart from launching products to cater to different applications, the Company took multiple initiatives to engage with its customers. On the M&HCV front, it focused on further strengthening its driver connect programme, Apollo Swastha Saathi. The programme saw additional coverage in new districts even as the trucking community appreciated the Company for reaching out and helping them to be healthy and safe. The other key customer connect initiative, Leaders and Movers Meets reached out to over 15,000 customers through more than 300 meets organised during the year.

Best-in-class and new product launches, continuous engagement with the customers and creating a strong brand helped the Company up its market share in both categories of the CV space and post double-digit growth in the replacement market. OEM supplies continued to be under strain due to poor growth by the OEMs in the categories

Passenger Vehicles

During FY20, the Company continued its market leadership journey in India in the PV segment. To increase market share, the Company focused on new product launches, marketing campaigns and increasing the distribution network. The year closed with the Company crossing a significant milestone in achieving its India Vision 2020 of ‘Building Leadership’ as its Passenger Car Radial (PCR) business took a pole position in the replacement segment and further strengthened its hold in the OEM sector. Apollo Tyres witnessed its replacement volume business grow double digits for FY20 over its previous year.

With its R&D teams across the globe working on creating products, which can set new benchmarks, the Company introduced Amazer XP, a new-age low rolling resistance tyre with low noise and high comfort for the entry level hatchbacks and sedans. This launch was very well received by OEMs as well and readily bagged new OEM fitment for Tata Tigor, Tiago (including the Electric Vehicle models), Renault Kwid, Datsun Go and Go+.

Further, in the past few years, the Company has been targeting the premium segment and has made significant inroads in the same. With R&D creating best-in-class products like Apollo Alnac 4G (for premium hatchbacks, compact SUV and sedans) and Aspire 4G (for luxury sedans/SUV), the business grew at a healthy clip as compared to the previous year.

The Company continued to invest in ramping up its distribution network. It added over 200 multi-branded outlets and 120+ branded retail stores during the financial year

Off-Highway Tyres

The Company’s Off-Highway Tyres (OHT) category is focused on three key sub-segments: Agriculture, Industrial and Earthmovers.

In the Agriculture tyre segment, the industry was impacted by uneven and delayed monsoon. While the replacement tyre demand declined in H1, its started improving in the next two quarters till COVID-19 lockdown hit the country. Despite the sluggish demand, the Company introduced products like VIRAT 23 and VIRAT Harvest adding to its rich and diverse portfolio to cater to general agriculture and haulage & speciality applications like puddling, compact tractors and row crop. Another highlight for the segment was the launch of multiple Apollo Farm Zones (AFZ) across the country. The AFZs are an industry-first branded retail and service store concept for agriculture tyres. The zones offer a range of products and services, including an Agronomist to guide the farmers in their tyre selection process.

In the Industrial tyres category, the Company continued its strong growth story in FY20 as well. It added the next generation Backhoe Loader and Crane Front Range to its wide portfolio in FY20. While the Company grew well in the replacement segment, it also bagged new business from JCB and other OEMs. All these efforts helped the Company grow well and increase its market share, even as the segment itself registered a degrowth of 5%, according to ATMA data. Apollo Tyres continued to bag key tenders with Coal India and cement companies in the Earthmover category.

Two-wheelers

The Company continued to make its mark in the two-wheeler tyre segment. Its foray in this segment is a recent one but thanks to a best-in-class and high-technology product portfolio, it has already grabbed 7% market share of the replacement market. The year also saw the focus on building a larger portfolio mix, shifting towards higher premium bikes and scooters as it launched 17 new SKUs, along with innovative off-roading pattern for premium vehicles, tubeless SKUs for economy/ executive motorcycles/cruiser market and new pattern for scooters. With a focus on radialisation of the two-wheeler tyre market, the Company extended its steel radial portfolio with the launch of two new SKUs – Alpha S1 140/60 R17 and 130/70 R17

Manufacturing Facility At Andhra Pradesh

The Company was allocated ~256 acres land by Andhra Pradesh Industrial Infrastructure Corporation (APIIC) for setting up project. The Company obtained pre establishment approvals from various Departments including Consent for Establishment, Building plan approval and Fire NOC before start of construction in November, 2018. Services and external infrastructure work is in final stages of completion. Manpower recruitment is completed, training is in progress. Total 151 management personnel have been recruited. All major process equipment for PCR and TBR tyres have been commissioned. Pre operational approvals are being obtained to start commercial production. Capacity creation is being staggered in line with market requirement to the extent possible.⁴

Financial Highlights

Consolidated revenues, across operations, for the full year of FY20 closed at Rs 16096 crores. During the same period the company reported a net profit of Rs 476 crores. Net sales for the fourth quarter closed at Rs 3551 crores; net profit reported for the last quarter of FY20 was Rs 78 crores.⁵

Indian Operations continued with its growth in the replacement market for the full year in most of the product categories, led by a strong performance in the passenger vehicle segment, Industrial tyres and light commercial vehicle segment. The OE segment, though improved sequentially in the fourth quarter, remained under pressure for the full year. European Operations as well saw growth in some of the product segments for the full year.

Consolidated Annual Performance Highlights: FY2019-20 (April-March) vs FY2018-19

.Net sales closed at Rs 16096 crores, as compared to Rs 17273 crores in the previous fiscal
Operating profit reported was Rs 1962 crores
Net profit stood at Rs 476 crores for the fiscal

For the quarter ended June 30, 2020, Apollo Tyres Ltd, on a consolidated level, reported a revenue of Rs 2828 crores. While the pandemic deeply impacted the operations across geographies in the quarter under review, the company still recorded its highest ever sales in the replacement market in India in the month of June. The European Operations continued with its better than the industry performance, despite the pandemic related challenges across different countries.⁶

Quarter 1 Consolidated Performance Highlights Q1 FY2020-21 (April - June) vs Q1 FY2019-20

Net sales reported was Rs 2828 crores as compared to Rs 4272 crores
Operating profit closed at Rs 264 crores
Net loss reported was Rs 135 crores for the first quarter of the fiscal

Apollo Tyres Consolidated December 2020 Net Sales at Rs 5,153.84 crore, up 17.14% Y-o-Y ⁷

February 05, 2021; Reported Consolidated quarterly numbers for Apollo Tyres are:

Net Sales at Rs 5,153.84 crore in December 2020 up 17.14% from Rs. 4,399.73 crore in December 2019.
Quarterly Net Profit at Rs. 443.81 crore in December 2020 up 155.27% from Rs. 173.86 crore in December 2019.
EBITDA stands at Rs. 1,052.98 crore in December 2020 up 90.98% from Rs. 551.35 crore in December 2019.
Apollo Tyres EPS has increased to Rs. 7.01 in December 2020 from Rs. 3.04 in December 2019.

Recent developments

Apollo Vredestein launches full product offensive in NA⁸

September 11, 2020; Vredestein, founded in 1909, and now owned by Indian tyre major Apollo Tyres Ltd, boasts a rich 111-year history of innovation and product development, and has established itself as one of Europe’s highly regarded premium tyre brands.

In the US and Canada however, Vredestein is relatively unknown. That changes, with Vredestein launching a comprehensive brand offensive backed by a full range of new tyre lines explicitly designed for and developed in North America.

This launch, marks the culmination of a $30 million research and development effort. The result is the most complete line of ultra-high performance tyres for North America’s diverse geography and regional climates, an all new high-performance tyre line aimed at some of the most popular mainstream vehicle segments in the region, and Vredestein’s first ever dedicated pick-up truck and SUV tyre.

“The company learned that today’s drivers place a greater premium on tyre performance versatility than ever before,” said Abhishek Bisht, Assistant Vice President for Americas, Apollo Tyres Ltd. “In North America, the company found that the customers want, and expect to feel supreme confidence across the wide range of road surfaces, conditions and climates they are likely to encounter during their travels”.

“The company's global expertise, combined with a local focus on the North American market, has delivered a complete market-tailored tyre line-up, that the company believe sets new standards across a full range of usage scenarios,” added Bisht.

The new Vredestein line-up, while developed in and for North America, maintains Apollo Vredestein’s distinct European identity. Every tyre is beautifully designed, boasting a unique visual signature that makes each tyre in the line-up stand out from the next. These deliberate design choices immediately communicate the performance edge that each tyre was meticulously engineered to deliver.