Apollo Tyres prunes FY20 and FY21 capex by Rs 300 cr on auto slowdown

Apollo Tyres has decided to cut back its capex by about Rs 300 crore to Rs 2,400 crore in 2019-20 and by a similar amount in FY21, following the slowdown in auto sector. The proposed capex mainly will be at company's upcoming unit in Andhra Pradesh and at its Hungary facility.

During the recent analyst call, company's management said, “The company had started the year with an estimate of Rs 2,700 crore capex, which has now been scaled back to Rs 2,400 crore. Over the last nine months, the company incurred a capex of about Rs 2,000 crore”.

For the next year, the number should be in the range of Rs 1,400-1,500 crore from Rs 1,700-1,800 crore earlier. The decision is in line with other tyre makers' plans to cut down capex due to the slowdown in the auto sector.

"All the competitors, including us, were surprised at the drop in OEMs and particularly the extent of drop in OE business. Because of that, from the announced plans, the capexes have been slowed down by everybody like we have," Gaurav Kumar, chief financial officer of Apollo Tyres told analysts.

"Based on the market information that we get, all the players have slowed down their capital expenditure. So is there specifically some capacity coming up, which will alter the demand‐supply economics in near term? (The answer is) No," he added.

Speaking about the Andhra Pradesh facility, he said, that the plant ramp up may depend on how the demand situation pans out. The ramping up is scheduled to happen over two years, and the full capacity will be available in Fiscal 2023. When it reaches 100 per cent utilisation, it can genrate over Rs 4,000 crore in revenue.

The plant will start making tyres by the end of this year and then its capacity will be expanded to 15,000 car tyres and 3,000 truck radials over a two-year time frame, that is by FY22-end.

The company expects the fourth quarter raw material prices to be lower than the December quarter. The major rubber manufacturing countries may look at offloading their output, as the Chinese market has been weak in the recent past, said analysts.

While the coronavirus outbreak may impact the supply of Chinese tyres to Europe and offer a widow of opportunity Indian manufacturers including Apollo Tyres, it could also disrupyt the supply chain considering China's presence across different geographies is significant. The firm expects to start realising all the benefits including a fully-scaled up plant in Hungary, Europe by FY22.