Apollo Tyres Company Research Report
Apollo Tyres headquartered in Gurgaon, Haryana, manufactures tyres under the Apollo and Vredestein brands. Vredestein, acquired in 2009 for EUR 40 million, operates a manufacturing unit in Enschede near Amsterdam with an annual capacity of 5.5 million tyres. In FY16, Apollo acquired Reifencom GmbH, a distributor with 37 stores in Germany, for EUR 45.6 million. Apollo Tyres Company Research Report.
Apollo Tyres caters to all tyre segments, including truck and bus, light truck, passenger vehicles, two-wheeler, and off-highway. The Vredestein brand serves the premium and luxury segments of the European market, including high-performance German vehicles like Audi and BMW, as well as premium SUV consumers. Vredestein has successfully established itself in the PCR and two-wheeler markets in India and has made inroads into the APMEA (Asia Pacific, Middle East & Africa) markets. Apollo Tyres Company Research Report.
Apollo Tyres has seven manufacturing locations across India and Europe. In Europe, the company largely operates in the replacement market in passenger vehicle (PV) , agriculture, industrial, truck and bicycle segments, even as it continues to make inroads into the OEM (original equipment manufacturer) segment in PV and agriculture. The company has 7,250 dealers in India and in Europe it has 6,500 dealers. Its OEM partnerships include Volvo, Audi, Bentley, Mercedes Benz, M&M, Hyundai, Volkswagen, Toyota, etc. Total production capacity stands at 6,82,366 MT. Apollo Tyres Company Research Report.
In Limda (Gujarat) its production is catering to categories such as passenger car radial (PCR), Truck Bias, Light Truck, OTR (off the road tyre) and two wheelers, in Chennai its production was towards PCR, truck bus radial (TBR), light truck radial (LTR), in Perambra its production was for Truck Bias and Light Truck Bias, OHT, in Kalamssery the production was towards Light Truck, Truck Bias, OHT, and it has one more manufacturing unit in Chinnapanduru. Hungary’s production was for PCR and TBR and Enschede’s capacity caters to PCR, OHT, Space Master). Apollo Tyres Company Research Report.
SALES GROWTH 5 Year CAGR 7.7%
In FY24, the net sales was ₹25,378 cr and increased by 3.3% YoY. In India, growth was led by exports and replacement segment and OEM category remained subdued. While in Europe, the PCLT (Passenger car & light truck) performance was sluggish the ultra high performance tyre and all season tyre in replacement category observed growth and therein the company gained market share as well. Apollo Tyres Company Research Report.
In the coming year, strong growth is anticipated in Europe markets and Indian markets. In H1 FY25, the net sales was ₹12,772 cr and grew by 2% YoY. Its India business grew by 3% YoY to ₹9,280 cr (OEM segment remained flat while the replacement segment observed steady growth), Europe business by 2% (in the passenger car segment) and others (Americas and other corporate entities) by 22% YoY. Apollo Tyres Company Research Report.
EBITDA GROWTH 5 Year CAGR 17.8%
In FY24, the EBITDA saw an increase of 34% YoY to ₹4,447 cr. The increase can be attributed to softening of raw material cost, better product mix (premiumisation) and cost control initiatives in India as well as Europe. The raw material price basket was flattish between Q3 and Q4 FY24, respectively. Natural rubber price was at ₹163/kg, synthetic rubber ₹155/kg and carbon black at ₹120/kg in Q4 FY24. In H1 FY25, the EBITDA was ₹1,787 cr and de-grew by 19% YoY. This can be attributed to elevated natural rubber prices and freight cost. Alongside, there was an increase in employee cost because of salary increments, etc. Apollo Tyres Company Research Report.
PAT GROWTH 5 Year CAGR 20.4%
In FY24, the net profit stood at ₹1,722 cr and grew by 65% YoY. The rise was on account of rise in other income, decline in finance cost and stable depreciation cost. The deferred tax stood at ₹398 cr v/s ₹131 cr in FY23. This is attributed to MAT Credit and on account of this the tax rate increased to 32% in FY24 v/s ~22% in FY23. It shall switch to new tax regime once its MAT (minimum alternate tax) credits are exhausted. In H1 FY25, the net profit was ₹599 cr and declined by 31% YoY mostly on account of operating profits and higher depreciation expenses.
Apollo Tyres Limited 340-440
Expected level 570
Support 294
EBITDA MARGIN
In FY24, the EBITDA margin rose to 17.5% on account of softening of raw material cost, better product mix and cost control measures. This increase was despite ERP provision that the company undertook for the year. The company plans to offset the impact of EPR liability by implementing price increases, which were announced in May at ~3%.
This price adjustment effectively counters the EPR costs and partially mitigates the impact of raw material price hikes. 40%-50% of raw materials being imported, Apollo is vulnerable to forex rate fluctuations. In H1 FY25, the EBITDA margin was 14% and declined by ~367 bps YoY. This was mostly on account of increase in raw material cost, employee cost, freight cost, etc. It undertook price hike in the quarter and expects to take further price hikes in the coming quarters.
PAT MARGIN
In FY24, the PAT margin was 6.8%. Currently the company’s focus is in prioritizing sales to premium and high-end categories that would lead to profitable growth in India as well as Europe. In H1 FY25, the PAT margin was 4.7% and declined by 226 bps YoY.
ROCE
There was an increase in ROCE on a YoY basis in FY24. This was mainly due to the lower capex, coupled with better operating profitability. India’s overall capacity utilization is ~75%, with PCR (Passenger Car Radial) utilization at ~80% and TBR (Truck and Bus Radial) utilization at ~70%. A modest capacity expansion for the PCR category is anticipated in the second half of FY25. Apollo Tyres Company Research Report.
The company is leveraging productivity tools such as AI (artificial intelligence) and machine learning across all its PCR plants. It expects to see a notable 10%-15% increase in productivity from the existing equipment in these plants as a result of these technological enhancements. Apollo Tyres Company Research Report.
COMPANY POTENTIAL
- Currently, the growing demand for tyres is driven by increased automobile production and rising export activities of vehicles like tractors, buses, heavy trucks, and cars. This trend is a key factor supporting market growth in India. Additionally, higher income levels are boosting car and two-wheeler sales, creating a favorable market outlook. The demand for vehicles in rural areas is also on the rise. Operating margins are expected to moderate from the elevated levels of FY2024, given the increasing raw material costs. Apollo Tyres Company Research Report.
- India’s tyre exports were significantly impacted by falling demand due to the slowdown in advanced economies, geopolitical uncertainties, and inflationary pressures, particularly in the first half of FY24. However, the tyre industry witnessed a substantial recovery in the second half of FY24, with total exports nearly matching the previous year’s figures, amounting to approximately ₹23,000 cr. Conversely, tyre imports in India increased by approximately 19% in FY24. Tyres worth over ₹2,500 cr were imported during this period, benefiting from the low duty rates under Free Trade Agreements (FTAs) signed by the country.
- Domestic tyre demand is expected to grow at 4%-6% in FY25, driven by growth in replacement volumes and OEM segments such as PVs and 2Ws. (Source: ICRA)
- New capacity expansion plans are expected to pause due to weak global demand, muted growth in replacements, and existing headroom in available capacities. Technology continues to revolutionize the tyre industry. In 2024, the integration of AI, predictive analytics, and IoT in manufacturing will advance further. Smart tyres with real-time monitoring capabilities will enhance both safety and performance.
- The global tyre industry is predominantly led by China, followed by Europe, the USA, India, and Japan. There is an ongoing shift towards electrification, supported by nations worldwide. Car manufacturers have committed to phasing out internal combustion CASE STUDY engines as early as 2035
FUTURE PLAN
- The company plans to establish 50 exclusive Vredestein outlets by the end of FY26. These stores will cater to high-end premium customers, providing them with a unique and distinct experience. Vredestein is expected to achieve high-double-digit growth over the next three years.
- It secured additional model wins in both India and Europe from a marquee German PV (passenger vehicle) manufacturer. This shall support the company’s premiumization journey.
- The company continued to leverage new age technology to improve the process. It recently went live with the end-to-end supply chain digitization in India. This shall boost the demand-supply planning, product availability and optimise inventory.