APOLLOTYRE - Apollo Tyres Ltd Share Price

Apollo Tyres Ltd. management provided an optimistic outlook during their Q1 FY26 earnings call, showing a commitment to strengthening performance across various segments. They noted a consolidated revenue growth of 3.6% year-on-year, reaching INR 65.6 billion, with an EBITDA margin of 13.2%. Domestic growth was driven primarily by OEM segments, spurred by pre-buying due to new regulatory requirements in heavy commercial vehicles. However, they faced challenges in Europe, where industry volumes declined, leading to a sequential revenue decrease due to seasonality.

Looking ahead, the management anticipates stronger topline growth, particularly in the Indian replacement segment. They expect demand to recover post-monsoon, particularly in infrastructure and mining sectors. Management highlighted the successful launch of the Apollo Aspire 5 ultra-high performance tyre and ongoing investments in research and development, including securing approvals from a prominent German passenger vehicle manufacturer.

Key forward-looking points include:

1. Net Debt Reduction: Consolidated net debt decreased by over 15%, to INR 21 billion, improving the net debt to EBITDA ratio to 0.7x.
2. Sustainability Initiatives: Achieved significant reductions in emissions (35% in Scope 1 and 39% in Scope 2).
3. Restructuring in Europe: A planned closure of the Enschede plant is expected to finalize during the summer of 2026, with restructuring costs recognized in Q1.
4. Profitability Focus: Free cash flow generation and improving return ratios remain top priorities, with ongoing efforts in cost optimization and product premiumization.

The management remains cautious yet strategically optimistic, preparing for both challenges and opportunities in the coming quarters.

1. Question: "Sir, my first question is on the India business. So, if you can first share for the replacement side, what is the segment-wise breakup between PCR, TBR? And going ahead, how should you think about the full year growth?"

   Answer: "On the replacement side, we grew mid-single digits in TBR and low-single digits in PCR. While we initially expected better growth, we now anticipate a more realistic high single-digit topline growth for the year due to market dynamics."

2. Question: "Any other reason why this has been so sudden and whether is this sustainable going ahead?"

   Answer: "We expect raw material costs to decrease slightly in Q2, barring any significant fluctuations in the USD/INR exchange rate, which could impact our benefit from reduced raw material prices."

3. Question: "So, would it be fair to say that the inflationary pressure that you're seeing in Netherlands is higher than Hungary, or is it the same?"

   Answer: "Inflationary pressures are quite similar in both locations. However, the Y-o-Y rise in raw materials of 3% in Europe and the ongoing staff cost increments are pushing up costs, impacting our margins despite flat revenues."

4. Question: "How do you see the broad range for EBIT margin for FY'26?"

   Answer: "We don't comment on margin guidance. However, we expect synergies from the restructuring to begin flowing in from FY'27, following the consultation process, which should help our margins in the long run."

5. Question: "Can you share the commodity prices for the quarter?"

   Answer: "Natural rubber averaged around Rs.210, synthetic rubber Rs.180, carbon black Rs.120, and steel cord Rs.160. The blended raw material basket was approximately Rs.166."

6. Question: "Has that plant ceased operations? So, we will not be getting any revenues from that plant or till what period will that be operational?"

   Answer: "The Enschede plant continues operations until the final consultation process is completed, likely until June 2026. Revenues from this plant will persist until then, unless circumstances change drastically."

7. Question: "Will there involve any land sale which can give cash in, and can receive some cash for the land, sir, other plant?"

   Answer: "It's too early to discuss land sales. Our priority is the consultation with the Works Council first, and we'll address asset management after that."

8. Question: "When do you see our volume growth catching up with the overall industry growth?"

   Answer: "We aim for our volume growth to align with industry rates by Q2, especially focusing on TBR and PCR segments, while addressing competitive pressures in smaller categories."

9. Question: "What should be the tax rate going forward?"

   Answer: "The tax rate for European operations is typically in the high teens due to varying regional rates. We may get tax shields from exceptional items that further diversify our tax obligations."

10. Question: "Can you comment on the export side? What are the current trends?"

    Answer: "Exports have declined due to supply chain disruptions and market conditions. We are actively addressing this and will set targets for recovery as we develop our next five-year plan."