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Apollo Tyres Ltd

BSE: 500877 | NSE: APOLLOTYRE ISIN: INE438A01022
Market Cap: [Rs.Cr.] 8,243.66 Face Value: [Rs.] 1
Industry: Tyres

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Management Discussions

It was a year of mixed fortunes for the global economy. Many high-income economiescontinued to struggle to gain the growth momentum as they grappled with legacies of theglobal financial crisis. Few emerging economies emerged as the saviour with healthy growthbut the growth engine of the world, China, underwent a carefully managed slowdown. US andUK had gathered pace but the recovery sputtered across Europe and Japan.

Despite the local and global economic conditions, Apollo Tyres continued on itsstrategy to invest during lean times to build fortomorrow's growth. The company hadinvested to setup a new plant in Chennai, India even as the world was going through asevere economic recession. In a re-run of its 2009 strategy, the company announcedinvestment of Euro 475 million in a Greenfield facility in Hungary. During the year, thecompany introduced top-notch products for the European and Asian markets and saw aninfusion of top talent in the organisation.

During the FY, the company exited its manufacturing activities in South Africaimpacting the topline growth. The Company's net sales dropped by 4.4% to Rs. 127,25Rs.Million. Operating profit at Rs. 19,844 million was up by 1%, while Net Profit saw amarginal fall of 3% at Rs. 9,776 million.


The fiscal year (FY) in India started with a 'good feel' factor of a new majoritygovernment and possibilities of external vulnerabilities on the wane. Coupled withcontinuing softening of oil prices since September 2014, it was projected as the year ofrevival. Early in the year, India's Central Statistical Organisation (CSO) released theadvance estimates of growth numbers which indicated that the Indian economy will see agrowth of 7.4%forFY15.

However, the good feel factor did not translate into high growth for the varioussegments in the automobile industry. While there were the usual silver

linings like the Goods Carrier segment which grew by over 21%, the other main driversof the industry witnessed negative or muted growth. Even for the Goods Carrier segment, itis important to note that growth has come after two years of de-growth resulting in a lowbase. The overall growth numbers for the key segments like passenger and commercialvehicles stood at a mere 2.5%. It is only due to the high volume two-wheelers andthree-wheelers segments that the industry could post an overall growth of 7.2%.

Given the direct correlation of the tyre industry and the automobile industry, theformer posted a marginally higher growth rate than the automotive segment. Based on thedata available for 1Imonths from Automotive Tyres Manufacturers' Association, the Indiantyre industry registered a 9% growth with the truck segment growing by 7.9% and thepassenger car segment jumping by 12.4%. This is against a full year growth of 5 % in FY14.

For Europe, it was a year of tentative recovery in Calendar Year (CY) 2014. The overallGDP growth in Euro area countries in CY14 was 0.8% (CY13 -0.4%). Germany continued tooutperform the region with GDP growth for CY14 at 1.6% (CY13 0.5%). While it wasmarginally better than the estimates, it was not strong enough to pull the economy out ofthe doldrums. The pace of the recovery remained slow as Europe continued to struggle toleave the legacies of the crisis behind it.

While private consumption has been the main engine of growth in the current recovery,investment has failed to recover and exports have done little to support growth. Whiledetermined policy action and the fall in crude oil prices supported growth, the economicrecovery is being restrained by high public and private debt, high levels of unemploymentand low confidence levels.

Nevertheless, it was a year of gradual domestic healing as consumer confidence becamestronger. The strong consumer confidence during the year showed itself in new carregistrations. For CY14, with a 5.7% growth, new car registrations increased for the firsttime since 2007. Similarly, the commercial segment posted an overall growth of 7.6% led bythe light commercial vehicles which grew sharply by 11.3% and accounted for 83% of totalnew commercial vehicle registrations.

The year started with good demand for summer and all season tyres. Even the winterpre-season sales was good. However, a warm winter situation for the 3rd year ina row coupled with high inventory position with the customers affected the performance ofwinter tyre sales during the year. For the entire CY, especially in the four key segmentsincluding passenger cars, bus and truck, agriculture and two wheelers, the growth was atepid 2% as compared to its previous year.


The Scooters (two/three wheelers) and the Motorcycle tyre accounted for 52% of thetotal volumes, while the other heavyweights (M&HCV, passenger cars, LCV, tractors andoff road highway, etc.) accounted for the balance 48%. As per industry estimates, the keyheavyweights, passenger car segment posted a healthy clip of 12.4% and the truck segmentgrew at a 7.9% in volume terms. For the segments under consideration, passenger car andtruck, as per estimates, OEMs accountedfor42% and 17% respectively. The replacement marketcontinued to support the tyre majors and accounted for 45% and 78% for the mentionedsegments.

Imports has become an important source of tyres into the country and, as per industryestimates, accounted for 13% and 14% for the passenger car and TBR segments. This willcontinue to haunt the industry in the current fiscal as the growth of low cost tyres fromChina continues unabated. Given the 'inverted' import duty structure in India, where tyres(finished product) attract lower duty, whereas raw rubber (raw

material) attracts a higher duty levy, the Indian market was flooded with low costtyres in the last quarter of FY15. According to market estimates, Chinese tyre importsgrew 138% to 555,438 tyres in FY15 for the truck radial segment and accounted for 11% ofthe total availability in the Indian market. Similarly, the imports for the passenger carsegment were up by 10% to 1,480,044 units and now accounts for 4.2% of the Indian market.

In terms of raw material, natural rubber prices ruled lower in FY15 due to weak demandfrom major consuming blocks such as BRICS, EU, ASEAN and Japan. The domestic rubberproduction in India continued to fall short of the demand and imports of rubber from ASEANregion were necessary to offset the shortfall in domestic supplies.

In order to ensure long-term sustainability of its natural rubber supply chain, thecompany supported the Kerala Government scheme of sourcing domestic rubber at 20% higherthan international prices. Given weakness in oil prices, synthetic rubber prices remainedsubdued in the fiscal. Other crude based raw materials such as carbon black displayed asimilar trend.

In FY15, the European passenger vehicle tyre sales in replacement market has remainedflat as per data from the Industry Association in Europe. The growth for almost allsegments has remained flat with an exception of 7% growth in the SUV tyres segement. Inpassenger vehicle tyre category, there were some signs of recovery evident in markets suchas Hungary, France, Spain, Switzerland & Nordics, while countries like Germany,Netherlands, Belgium, UK & Austria, Poland stayed longer on a descending slope. Theagricultural tyre market showed a negative growth inFY15.

The beginning of the new year 2015 brought mixed results for the European tyreindustry. The all season tyre market is getting more mature and the recent introduction ofsuch products by another major tyre player only confirms the growing importance of allseason tyres in Europe. Further, the introduction of TPMS (Tyre Pressure MonitoringSystem), mandatory in new cars from November 2014 onward, pushes European consumers to useall season tyres as tyre changes between summer and winter is expected to become timeconsuming and costlier due to the TPMS legislation.

The other big trend is the growing impact of the internet, both on B2B as well as onB2C. Initiatives in B2C are to bring products and end-consumers together and pushing theretail business into a more service minded approach.

Like India, Europe is witnessing the growth of low cost non-European imported brands.While the introduction of the European tyre label in November 2012 has forced manyimported brands to invest in improved quality, the European tyre landscape is changingvery quickly.

In terms of raw material, prices remained soft during the year with further declineduring second half of the financial year. However, these benefits were passed on to themarket with lower sales prices due to a highly competitive market situation.



1. Apollo Tyres has the advantage of a diversified market base across geographies andis therefore, not dependent on a single domestic market. Furthermore, the company isworking to establish and grow operations in other large international markets as well.

2. The company is powered by strong global product brands in its markets - Apollo andVredestein.

3. Apollo Tyres enjoys an extensive distribution network for its key brands across itskey home markets.

4. In Europe, the company's brand 'Vredestein' has an established presence and enjoyspremium positioning in ultra high performance (UHP), winter and all season passenger cartyre segments.

5. The company is a leading player in the Indian commercial vehicle segment - whichaccounts for the bulk of the industry's revenue. Since the company assumed an early lead,Apollo is best positioned to maintain its leadership position in the truck-bus radialsegment and drive growth through the same.

6. Global and culturally diversified management team driving growth across geographies.

7. The presence of modern Research & Development facilities for passenger andcommercial vehicle tyres will play a key role in bringing cutting-edge technology andinnovation to drive growth for the company.

8. Increased spends on corporate brand including Apollo Tyres' association withManchester United is starting to make Apollo a globally recognised brand.


1. India has a large and growing 2-3 wheeler tyre segment. However, Apollo does notmanufacture tyres for this category and has continued to focus on other product segments.

2. At times in the past, the company has been unable to timely pass on raw materialcost escalations to consumers, due to intense competition and various market dynamics.This has a direct impact on the margins.

3. The company is currently not present in the European OEM market for regularpassenger car tyres which to a certain extent drives the replacement market sales.


1. In India, Apollo Tyres enjoys early mover advantage in the truck-bus radial segmentand has a healthy lead over its competition in terms of capacity and market share. Thisimplies healthy growth prospects with increasing radialisation.

2. The company's Apollo branded passenger vehicle tyres are being sold in Europe andthis could develop into a sizable market for the same, leveraging its already existingnetwork in Europe.

3. With the announcement of Apollo's Greenfield plant in Hungary, the company ispositioned to grow in the European market through an added cost competitive manufacturingfacility.

4. The company continues to increase its focus to new geographies like South America,Middle East and South East Asia. These would be growth avenues for the future.

5. The company can convert excess bias capacity into industrial tyres capacity and tapinto a new product segment.

6. The company is talking to auto majors for OEM fitments in Europe. This wouldestablish the brand even more strongly and drive significant growth in European market.

7. The company would look to introduce products and make an entry into the EuropeanTruck, Bus & OHT segments.


1. Economic downturn or slowdown in the key markets - Europe and India - can lead todecreased volumes and capacity utilisation.

2. Increased competition from global players like Michelin, Bridgestone, Continental inIndia.

3. Increased competition from truck radial imports from China resulting in a quickerthan expected decline in volumes within the truck-bus cross ply segment, creatingredundant capacities requiring investment to convert into other product segments.

4. Continued threat of raw material price volatility translating into pressure onmargins during a rapid rise in raw material prices.

5. Weak currency resulting in pressure on margins, since the company is a net importer.

6. Growing influence of budget tyres, mainly tier 2 and 3 brands from establishedEuropean manufacturers as well as Chinese and Korean imports.


Apollo Tyres is divided into two key regions - Asia Pacific Middle East and Africa(APMEA) and Europe and Americas (EA).

For Apollo Tyres' APMEA operations, it was a year of consolidating its leadershipposition in India, expanding the product portfolio in existing APMEA markets and pushinginto new markets in the region.

For the APMEA operations, it was a year of product innovations and launches. The yearbegan with the launch of India's largest loader tyre at the IMME 2014. The company alsointroduced the ALT 188 TL tyre which had the industry's first traction tread design. Itfurther led its product expansion strategy by introducing Apollo Tyres and ManchesterUnited co-branded tyres launched in Thailand. After the UK market, Thailand was the firstcountry to have the Apollo-Manchester United co-branded tyres in Asia.

The region also leveraged Apollo's global R&D skills to launch a new cross plytechnology based tyre, AWR-HD with the Apollo HDF technology, for the Indonesian market.This tyre was specifically engineered for the Indonesian market based on a detailed marketstudy by Apollo's product and R&D teams on the application of commercial vehicles inthis country. The higher horsepower vehicles used

for short and long haul applications on roads, which are more than 50% unpaved, have aunique requirement from their tyres; low inflation pressures for heavy load applications.

To consolidate its leadership position in India and offer innovative and 360 degreesolutions to customers, the APMEA operations has started to focus on the retreadingbusiness in the country. As radialisation makes deep inroads into the commercial sector,there exists a huge opportunity to tap the growing retreading market. While theunorganised players cater to the current market requirements, customers are increasinglooking for retread solutions from tyre manufacturers. The company plans to open 20branded retread outlets by the end of the current fiscal year.

Furthering its strategy of building higher visibility in its markets outside India, theAPMEA operations opened its first Apollo Zone in Kuwait. The outlet is designed to providecustomers with an enhanced retail experience for the brand and products displayed.

Given the importance of building a strong brand, the company expanded its sponsorshipagreement with Manchester United to cover many markets in the APMEA region. In India, itcontinued to ramp its branding presence with a high-decibel brand campaign - Performance:There are no Shortcuts - during the year.

The Company's multi-product strategy, supported by

its two-brand strategy, has helped the region to cross significant milestones. InIndia, Apollo Tyres became the first company to cross the 100,000 Truck Bus Radial (TBR)monthly sales in March 2015.

The strategy on investing in the radial technology is paying dividends as the companygrew at a healthy clip of 30.8%. The TBR exports story was no different for the company asit grew by 53%. While the Truck Bus Bias (TBB) saw the expected decline, the APMEAoperations' strategy of looking at new markets paid dividend as exports in the segmentgrew by 14%. In the replacement passenger car segment, the operations saw tepid growth butthis was slightly offset by the higher than industry growth in the OE segment as theoperations increased its market share in the OE segment to 21%.

The EA operations managed all odds including slow market demand, influx of low costproducts and lower sales prices to marginally exceed the net sales in FY15 in Euro terms.The operations accounts for 28% of Apollo Tyres' consolidated revenue. In terms of volume,passenger car tyre sales grew by 4%, spare tyres sales grew by 12% and agriculture tyressales grew marginally by 2%. The operations gained market share in Agricultural tyre andsaw a marginal rise in passenger car tyre category. The operations' strategy of focusingon all season and SUV tyres had helped it reduce dependence on the winter tyres soldduring the cold months. The continuing warm spells in Europe for the 3rd yearin a row did impact the winter tyre sales, but it has been compensated with strong growthof all season and SUV tyres.

The EA operations began the year with the announcement of the Apollo Alnac 4G - AllSeason and Winter tyres. The two new tyres expanded the existing portfolio of the Apollobrand in Europe. Coupled with the Vredestein brand, the EA operations offered a completerange of tyres catering to different segments. This was followed by the launch ofVredestein Quatrac 5 and Snowtrac 5 tyres launch in Scotland. The Vredestein Quatrac 5 isa completely new generation of four-season tyres. The winter tyre Vredestein Snowtrac 5has been designed and manufactured to handle the most extreme and unpredictable weatherconditions, including wet, cold or slippery roads. To further engage with the consumersand create higher visibility of the Apollo brand, the operations embarked on a six-monthpromotional tour across 8 countries in Europe to introduce its full range of Apollobranded industrial tyres to end users and tyre specialists. Across the year, new sizes inVredestein agricultural and Apollo industrial tyres became available, including the launchof Vredestein Endurion and Vredestein Traxion Versa at the SIMA in Paris, February 2015.During the mid of 2014, the EA operations initiated a road show and visited constructionand rental companies, tyre and machine dealers to create and increase the brand awarenessfor Apollo Tyres.

Given the increase usage on social media across the globe, even for buying productslike tyres, the EA operations focussed on the online space and now has a strong presenceon social media. Also, an E- commerce platform was launched last year which will be rolledout and used by all countires under the EA operations.

As both the operations relied heavily on understanding the consumer requirements andleveraging on its R&D skills to develop and manufacture products, various test resultsin Europe were a testimony to the success of this strategy. The Vredestein Sportrac 5 andVredestein Ultrac Vorti were rated highly in various independent European tyre tests,pinpointing the excellent results on dry handling, low sound levels and lower fuelconsumption.

The EA operations won the 'Tire Manufacturing Innovation of the Year'- an award for itstandem mixer inaugurated in 2014


The global economic growth for FY16 will continue to be a mixed bag. According toestimates, the global growth is expected to rise moderately to 3.0% in 2015, and averageabout 3.3% through 2017. However, all eyes will be focussed on India. According toforecasts by international agencies including World Bank and International Monetary Fund,India is set to emerge as the world's fastest growing economy in 2015, overtakingneighbouring China and widening the gap further in 2016.

The current government in India is looking at addressing structural and supply-sideconstraints which will give a big impetus to the investment activities in the country.Coupled with strong public and private consumption, India continues to be a bright spot inthe global landscape. The strong growth, lower external vulnerabilities, higher disposableincome will be a boost to the auto segment. The sales in the beginning of the FY16 pointsto a sustained momentum and the sector can emerge as the showstopper for the Indianeconomy. We expect that the bullishness will bring back the demand from the OE segment. Wehope the optimism in the auto industry is translated as sales in the tyre industry.

Likewise, there is an air of optimism across Europe. It is for the first time since2007 that the economies across Europe are expected to grow again. As per the EuropeanCommission's winter forecast, growth in CY15 is forecasted to rise to 1.7% for the EU as awhole and to 1.3% for the Euro area. The growth is expected to inch up further in CY16 to2.1% and 1.9% respectively, on the back of strengthened domestic and foreign demand, veryaccommodative monetary policy and a broadly neutral fiscal stance. Further, lower oilprices will boost real household income putting more disposable income with consumers andresult in increased spending accelerating the growth.

Despite another year of flat market forecast by the industry association, outlook forEA operations remains positive. The main drivers for growth will be further expansion andpromotion of Apollo brand in all the countries in Europe as well as new productsintroduction. The Vredestein brand has maintained its position amongst the premium brandand is well positioned to further gain market share in Europe. Sales strategy for thecoming year will focus on distribution network expansion, product range enhancement andconsumer marketing.

To support the long term growth plans, the company will be making significantinvestments in all its plants across both the regions. Given the focus on OE in Europe,investment will be made to prepare the Enschede plant for supplies to car manufacturersand expand the capacity of spare tyre production. The company has also undertaken a majorproject to implement SAP ERP system across all the European operations covering all thefunctional areas. SAP implementation will bring efficiency improvement by eliminatingduplicate activities, improve internal control, enable faster decision making and sharebest practices.


The impact of the key risks and opportunities listed below has been identified througha formal process driven by Apollo's Risk Management Steering Committees. The company'sapproach has allowed for a systematic appraisal of the business environment it operates inand a response aimed at capitalising and maximising benefits for all its operations.


1. Raw material price volatility

a. Natural rubber is an agricultural commodity and subject to price volatility andproduction concerns.

b. Most other raw materials are crude linked and are affected by the movement in crudeprices. Any increase in crude oil prices may impact prices of some of the raw materials.

c. Both natural rubber and crude prices are controlled by external environment andlittle can be done to control the raw material price movement internally.

2. Ability to pass on increasing cost in a timely manner

a. Demand supply situation must remain in favour of the industry to enable it toundertake price increases.

b. This is further impacted by competitive activities and a general reluctance as seenin the past, particularly in India, to make quick and significant price hikes.

3. Continued economic growth

a. Demand in the tyre industry is dependent on economic growth and/or infrastructuredevelopment. Any slowdown in the economic growth across regions impacts the industryfortunes.

b. In Europe, the company's winter tyre sales are subject to seasonal requirements,which can be adversely impacted in case of a mild winter season.

4. Radialisation levels in India

a. Slower increase in radialisation level in truck tyre segment, than expected, mayimpact Indian operations. Excess capacity may result in competitive pressures and declinein profit.

b. At the same time, an unexpected quicker increase in the level of radialisation canresult in faster redundancy of cross ply capacities and create a need for freshinvestments.

5. Future Growth

a. Lower profitability due to some of the above factors impacts the ability to investin future growth

b. Increased competition from global players like Michelin, Bridgestone and Continentalin India.


6. Manpower retention

a. Retaining skilled personnel may become increasingly difficult in India, due to theentry of global majors in the Indian tyre industry.

7. Labour activism

a. Increased labour activism across India may pose challenge for any manufacturingorganisation.


Apollo Tyres has a robust Internal Control framework, which has been institutedconsidering the nature, size and risk in the business. The framework comprises, interalia, of a well-defined organisation structure, roles and responsibilities, documentedpolicies and procedures, etc. Information Technology policies and processes were alsoupdated to ensure that they satisfy the current business needs. This is complemented by amanagement information and monitoring system, which ensures compliance to internalprocesses, as well as with applicable laws and regulations. The operating management isnot only responsible for revenue and profitability, but also for maintaining financialdiscipline and hygiene.

In order to ensure efficient Internal Control systems, the company also has a wellestablished independent in-house Internal Audit function that is responsible for providingassurance on compliance with operating systems, internal policies and legal requirements,as well as, suggesting improvements to systems and processes. The function has a well laiddown internal audit methodology, which emphasise on risk based internal audits using dataanalytics and tools.

The Internal Audit prepares a rolling annual internal audit plan, comprising ofoperational, financial, compliance and information systems audits, covering all thelocations, operations and geographies of the company. The audit plan for the year isreviewed and approved by the Audit Committee at the beginning of each financial year.

The Internal Audit reports on quarterly basis to the Audit Committee, the key internalaudit findings, and action plan agreed with the management, the status of audits vis-a-visthe approved annual audit plan and status of open audit issues.


The financial statements have been prepared in accordance with the requirement of theCompanies Act 2013, and applicable accounting standards issued by the Institute ofChartered Accountants of India. The management of Apollo Tyres accepts the integrity andobjectivity of these financial statements as well as the various estimates and judgementsused

Rs. Million

Year Ended

Year Ended

SI. Particulars 31.3.2015 31.3.2014 31.3.2015 31.3.2014



1. Revenue from Operations:
Gross Sales 98,773 95,893 137,247 142,895
Less: Excise Duty 9,990 9,792 9,990 9,792
Net Sales 88,783 86,101 127,257 133,103
2. Other Income 971 1,809 1,133 1,995
Total 89,754 87,910 128,390 135,098
3. Total Expenditure
a) Decrease/dncrease) in Finished Goods & 197 (1,158) 875 (311)
Work in Process
b) Consumption of Raw Materials/Purchase 56,499 59,746 69,753 78,031
of Stock in Trade
c) Employee Benefits Expense 5,451 4,533 16,070 15,812
d) Other Expenses 14,076 13,008 21,848 21,832
Total 76,223 76,129 108,546 115,364
4. Operating Profit 13,531 11,781 19,844 19,734
5. Finance Costs 1,721 2,446 1,828 2,838
6. Depreciation & Amortisation 2,468 2,480 3,883 4,109
7. Profit before Exceptional Items & Tax 9,342 6,855 14,133 12,787
8. Exceptional Items - 711 825 468
9. Profit After Exceptional Items & Before Tax 9,342 6,144 13,308 12,319
10. Provision for Tax
- Current 2,545 1,327 3,535 1,942
- Deferred 346 391 (3) 326
Total 2,891 1,718 3,532 2,268
11. Profit after Tax 6,451
Futures & Options Quote
Expiry Date :
177.45    1.05 (0.60%)
Instrument: FUTSTK
Expiry Date: 31-Jul-2014
Open Price: 176.90
Average Price: 177.69
No. of Contracts Traded: 2,459
Open Interest: 64,96,000
Underlying: APOLLOTYRE
Market Lot: 2,000
Previous Close: 177.45
Day's High | Low: 180 | 175.65
Turnover (Cr.): 87.39
Open Int. Change: 0,13,98,000 ([17.71]% )
Key Information

Key Executives:

S Narayan , Director

Onkar S Kanwar , Chairman & Managing Director

Robert Steinmetz , Director

Neeraj Kanwar , Vice Chairman & M.D.

Company Head Office / Quarters:

6th Floor Cherupushpam Bldg,
Shanmugham Road,
Phone : Kerala-91-484-2381808-2372676 / Kerala-
Fax : Kerala-91-484-2370351 / Kerala-
E-mail : investor@apollotyres.com
Web : http://www.apollotyres.com


Apollo Tyres Ltd
Apollo House,7 Institutional Area,Sectro-32,Gurgaon - 122 001

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