Vredestein branded automobile tyres sit stacked in a storage area at the Apollo Tyres Hungary Kft plant. (Photographer: Akos Stiller/Bloomberg)

Davos 2019: Apollo Tyres Sees Demand Surge, Double-Digit Growth In FY20

Apollo Tyres Ltd. expects the commercial and passenger vehicle demand to surge in the financial year 2019-2020, amid concerns surrounding the lacklustre auto sales in last year’s festive season.

Post Diwali, the demand for commercial and passenger vehicles slowed down, the tyre maker’s Managing Director and Vice Chairman Neeraj Kanwar told BloombergQuint on the sidelines of the 49th World Economic Forum in Davos, Switzerland. He, however, shrugged off any concerns about the same, calling it a “short blip”.

“There is going to be a demand surge coming in very soon. We are just waiting and watching ... 2019 is going to be a good year,” Kanwar said, adding that there should be a double-digit growth this year—both in its commercial and passenger vehicle segments.

Apollo Tyres, which has added close to 1,000 new network dealers to increase its footprint in rural areas, expects the growth to come in from these sectors.

Also read: Apollo Tyres Cuts Kanwars’ Pay After Shareholder Rebuff 

Watch the full conversation here:

Here’s the edited transcript of the interview:

What is the demand situation looking like back at home (India)?

Post Diwali, commercial vehicle sales have come down. Passenger car sales have also come down. It is a short-term blip. I am very optimistic, and I believe that this will come back up. Given that in April 2020, we have BS-VI in both vehicles. The demand surge will be coming very soon. We are just waiting and watching. I think 2019 will be a good year.

What do you expect the demand to be like either for the calendar year or FY20?

As Apollo is a leader in truck segment in India, we have 30 percent market share leader in trucks. Currently, I see demand-supply situation for our own tyres, whereby demand is more than what we can supply in original equipment manufacturer category and replacements. I believe that we should be looking at a double-digit growth in 2019 in commercial and passenger car segment.

How is the replacement segment shaping up?

The replacement segment for us is very good. We have increased our footprint in India. We are adding close to a 1,000 new network of dealers in rural areas, which is where the growth is going to come.

For input cost, what is the outlook for the year and how will it play out in margin performance?

For input cost, rubber and oil prices have softened. So, input cost is down. We are waiting and watching, and I can’t say what will happen in the coming year. There is economic downturn in various other countries. We have to see how rubber and oil prices play up.

As far as margin is concerned, we always look at double digit margin. We are a company that keeps investing back in organisation, in R&D and brand building. Our biggest challenge coming forward will be how to create a new brand with Sachin Tendulkar and how we can project that to the next level.

Did you expect the input cost to sustain? Do you think you might look at price cuts across certain categories?

No, that is too soon to say. It just happened. In quarter four, we will see margin expansion. In longer term, I can’t give you guidance about what will happen.

What about your growth strategy and inorganic strategy?

We don’t have any plan inorganically. We started our production in Hungary in 2018, which is going very good. We are reaching the capacity by 2019. The challenge is how do we sell that output into Europe which is getting interesting and challenging for us. Recently, we started supplying tyres to Volkswagon, Ford and Audi in Europe. So, that is good start for the Hungary project.

We also announced recently a greenfield in Andhra Pradesh which is new journey for us given the demand and growth situation happening in India, especially for our brand of tyres. I think Andhra is going to be very interesting for us. As far as growth is concerned, India will keep growing. We have to keep on strengthening our footprint in Europe which we are trying to do.

It looks like a year of consolidation for you—2019 and parts of 2020?

Consolidation in that sense as the capital expenditure is coming now. We had a Chennai expansion nearly doubling our capacity so that produce is going to come into the market. It is now to sit back, consolidate, try and gain on capex which we have put in past two years and then look at the new production in Andhra which is coming up.

You ran into a pay issue with your shareholder. Was that a governance wake-up call for you all? How are you looking at being able to communicate better to shareholders?

I don’t think it was a wake-up call. It was a good thing that they spoke. We heard them. The board revised the compensation. Now, the investors have given us approval and it is back to usual. It is good that the company is very transparent and communicative and heard the investors on what they have to say.

Has that changed your remuneration policy substantively for the future?

We have a revised policy. Going forward, we are looking at it.