Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Apollo Tyres Ltd (BOM:500877, Financial) achieved double-digit volume growth in the TBR and PCR replacement segments in India.
- The company successfully reduced consolidated net debt by more than 10% in Q1 FY25 compared to Q4 FY24.
- Apollo Tyres Ltd (BOM:500877) reported a 20%+ volume growth year-on-year in the export channel.
- The company has started supplying a marquee German passenger car manufacturer in India, enhancing its product capabilities and relationships with premium automotive companies.
- Apollo Tyres Ltd (BOM:500877) has rolled out domain-specific generative AI models to improve manufacturing, customer pricing, and R&D processes.
Negative Points
- Consolidated operating margin for Q1 FY25 was down by about 200 basis points sequentially due to raw material cost pressures.
- Overall top-line growth was impacted by weaker OEM volumes during the quarter.
- Near-term operating performance is expected to remain subdued due to the steep increase in commodity prices, particularly natural rubber.
- The company faced a negative growth in the OEM truck segment, significantly affecting overall demand momentum.
- The financial performance of the Trumigo venture was significantly lower than expected, leading to its shutdown.
Q & A Highlights
Q: Can you share your thoughts and expectations for FY25 growth in exports and replacement?
A: The overall replacement growth should be high single digits. Exports, despite facing challenges like freight rate disruptions, are on a higher trajectory compared to last year. However, OEM demand, particularly on the truck side, is significantly lower and expected to recover in the second half. - Gaurav Kumar, CFO
Q: What are your current under-recoveries and price hikes planned in Q2? Do you expect natural rubber prices to reduce going forward?
A: We expect raw material cost pressure to continue in the near term due to constrained natural rubber supply. We need at least two to three price increases to cover the raw material costs for Q2. - Gaurav Kumar, CFO
Q: How do you plan to balance profitability versus market share going forward?
A: We are analyzing competition and market dynamics to maintain a balance between volume growth and profit growth. We aim to improve cash flows, ROCE, and maintain profitable margins while not losing significant market share. - Neeraj Kanwar, Vice Chairman & Managing Director
Q: Are you seeing a revival of growth in Europe, and can we expect margin expansion?
A: We expect mid to high single-digit top-line growth in Europe going forward, which should result in margin improvement. - Gaurav Kumar, CFO
Q: What is the impact of the recent price increases on your ASP and market share?
A: We have taken a small price increase of about 1% in Q2. The impact on ASP and market share will be clearer as the quarter progresses. - Gaurav Kumar, CFO
Q: How do you view the sustainability of a 15-16% EBITDA margin in Europe?
A: We believe a 16% EBITDA margin is sustainable in Europe, with potential for further improvement. - Gaurav Kumar, CFO
Q: Are you seeing any signs of pricing pressure in export markets due to increased competition?
A: Pricing in export markets is largely benchmarked to local players. We do not cater to the same customer segment as Chinese players, so their impact on our pricing is limited. - Gaurav Kumar, CFO
Q: What are the key factors behind the higher other expenses this quarter?
A: The increase in other expenses is due to EPR charges and some one-off advertisement costs. These will normalize in the coming quarters. - Gaurav Kumar, CFO
Q: How do you plan to address the market share loss and organizational changes?
A: We are undergoing a transformation to become a more globally integrated company, which will eventually lead to improved profitability and market share. - Neeraj Kanwar, Vice Chairman & Managing Director
Q: What is your outlook on raw material cost inflation and its impact on margins?
A: Raw material costs have increased by 5% QoQ. We are taking price increases to mitigate this impact, but margins may remain under pressure in the near term. - Gaurav Kumar, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
