Apollo Tyres Ltd
BSE:500877
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Apollo Tyres Ltd
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Ladies and gentlemen, welcome to the Q1 FY '21 Results Call of Apollo Tyres, hosted by Emkay Global Financial Services. [Operator Instructions]Please note, that the conference is being recorded. I would now like to hand the conference over to Mr. Raghunandhan, Research Analyst of Emkay Global. Thank you, and over to you.
Thank you, Ayesha. Good morning, everyone. I would like to welcome management of Apollo Tyres, and thank them for taking time out for this call. We have with us today Mr. Gaurav Kumar, the CFO; and other senior members of the management team. I thank the management for providing us this opportunity. I would now hand over the call to management for opening remarks. Over to you, Gaurav, sir.
Thank you, Raghu. Good morning, everyone. First of all, best wishes for you and your family, health and safety as we live in these extremely challenging and unprecedented times. I would also like to take this opportunity to thank all our stakeholders, employees, dealers, suppliers and even all the other stakeholders for their continued support, which has helped us maintain business continuity during these uncertain times. While we have restarted our production facilities and they have ramped up slowly over the month, the recovery and replacement demand has been significantly better than expectation. However, we remain cognizant of the risks in current time and continue to prioritize safety of our employees over any other business factor. We've taken a number of measures to ensure safety of the team even as we ramp up our activity level. We've released health and safety guidelines, established preventive controls and undertaking proactive testing of front-line team and employees with symptoms in any travel history. We've taken additional insurance cover and are exploring ways to facilitate even e-consulting for any emotional challenges faced by our employees. Moving over to the financial results. The consolidated net sales for the quarter stood at INR 28.3 billion, a decline of 34% over the same quarter last year and a decline of 20% on a sequential basis impacted by COVID-19. It has to be seen in light of a scenario of April, where in India, everything was at a standstill. The Indian operations in light of that registered a higher decline of 43% on a year-on-year basis, whereas the decline in Europe operations was at 28%. The consolidated EBITDA for the quarter stood at INR 2.4 billion, a margin of 8.3% compared to 11% in the same period last year and a 13% plus in the preceding quarter. Despite the steep decline in topline, we were able to restrict the margin drop on the back of effective cost containment and optimization measures and also reasonable input costs. In fact, some of the key learning and measures of this period will continue well beyond the current COVID-19 crisis and would help us further optimize our fixed costs. For example, we've been able to achieve significant reduction in controllable SG&A expenses through digital launches, renegotiation of contracts and reduction in consultant engagement. We are focusing on rationalization and optimization of real estate cost across our key markets. We are doing a lot of work around digitization and online collaboration, which would not only help us prepare for the future, but also help us in bringing down costs, like travel, which are a significant comp. While we acknowledge the fact that these are tough times for the employees, we are cognizant of the need to balance out the company needs, and hence, all increments have been deferred in the current year. And at the top level, there have been salary cuts. Similarly, we are also working on the supply chain side to not only optimize freight and storage costs, but to also reduce the investment and working capital. There has been significant reduction in inventory levels across operations. All in all, the examples for [indiscernible] but as an overall team, we are determined that we come out of this pandemic, not only surviving this but emerging stronger from this. Coming to the balance sheet. Despite subdued financial performance, we've been able to strengthen our balance sheet with cost control measures, tight control over CapEx and a timely equity raise. Our net debt decreased from -- decreased to INR 52 billion from INR 60 billion from the previous quarter. The net debt-to-EBITDA for the consolidated operation was at 3.1x. We are also very comfortable on the liquidity position given the team's excellent effort on both sales collection and the borrowings that we have done in recent times, including the equity raise. Moving on to the India operation. The sales for the quarter were INR 17.3 billion, a decline of 43%, as I mentioned earlier, over the same period last year and 27% on a sequential basis. While the top line decline was almost entirely due to disruption in economic activity due to COVID-19, we would like to highlight 2 significant takeaways from the quarter. One, April saw negligible sales volume. Thereafter, things have improved significantly. And in fact, we've been very positively surprised by the demand momentum, especially in the replacement segment. Secondly, despite the current demand environment, pricing environment has remained fairly stable. Between this segment, the OEM started its recovery from near 0 levels in April, still the volumes in June were significantly below June '19 level. However, as mentioned before, we've been very pleasantly surprised by the momentum in the replacement segment. Overall, for the quarter, the replacement volumes were down 25% compared to same period last year, but we ended the quarter in June with a 10% volume growth over the same period last year to give an idea of how strong the demand is. In terms of product segment, farm segment performed the best followed by truck segment. Passenger car tire segment saw relatively subdued recovery initially but has started doing very well now. We also saw good traction in the two-wheeler tire segment. We anticipate that we've had market share gains in the replacement segment. The tire imports were put under a restricted list which would be a further boost for the domestic industry going forward. With this, we are looking at potential entry into the premium segment of tires for cars and two-wheelers. Our motorcycle radial tires continue to gain traction. For the Indian operations, the EBITDA for the quarter stood at EUR 1.9 billion, a margin of 10.8% as compared to 11.6% for the same period last year and 14.4% in the preceding quarter. The net debt decreased from INR 48 billion to INR 41 billion, and this helped us despite the fall in absolute EBITDA, maintain our overall leveraging ratio. In terms of outlook, we expect the demand momentum in replacement to remain strong. We saw similar trends in July where the replacement segment continues to do well. In fact, in July, we have registered a volume growth in almost all product segments. Given the strong recovery, we are making sure that within the guidelines, our plants are able to produce enough tire and supply chain is able to deliver the tires across the country to service the customers and benefit from the strong replacement demand. We are seeing signs of recovery in the passenger car OE segment and there is a strong pickup in the activity levels going forward. So we are seeing a significant recovery in the topline as we go forward, which would also give us the operating leverage and help in margin recovery together with tight cost control. Moving on to the Europe operation. Sales for the quarter was EUR 90 million, a decline of 28% over the same period last year, again, largely on account of COVID-19. We were able to gain market share in this environment, both in the TBR and the PCR segment. The European market, for example, for the passenger car declined by 32% in this quarter. The EBITDA for the European operations for this quarter were at EUR 1 million, 1.1% compared to 6% for the same period last year. This was largely attributable to the loss of operating leverage. Even in Europe, our liquidity situation is healthy on the back of measures like reduction in CapEx, improvement in collection and efficient working capital management. We've also made significant progress on our intended specialization of the Dutch operations, including the manufacturing operations there. We reached an agreement with the Works Council in the second week of July. And AVBV management will now start the work on preparing for implementation of [indiscernible]. The consequence of this would be 528 redundancies in the Dutch operation, in the last quarter of this fiscal year. This would go a long way to improving the cost competitiveness of the European operation and showing us a part to recovery of the profitability level. We were, again, positively surprised by the Reifen operations, our German distribution operation. We registered a growth of 14% Y-on-Y for the quarter. EBITDA margins for the quarter were at nearly 5%, similar levels as last year. In terms of outlook of the European operation, we expect the volume recovery to continue, and we should have a significant volume growth sequentially. This should provide us the operating leverage, all costs continue to be looked at minutely and cut or controlled as much as possible. So with an improvement in topline, stable RM prices and cost control measures, we should see a margin recovery even in our European operation. Thank you. That's all for our session, and we would be happy to take your questions.
[Operator Instructions] The first question is from the line of Ashutosh Tiwari from Equirus Capital.
Gaurav sir, congrats on decent numbers in this environment. I just want to understand that you talked about this cost saving initiative that they have taken. Just want to understand, what part of it can sustain? And can you quantify that improvement and say, margins -- say in '22 or '23, basically because this cost cut initiatives that we've taken.
Ashutosh, it is difficult to, as of now, given a very fluid situation, to say how much of it remains. Now for example, travel costs which are the simplest thing with the way of digital ways of working getting established, travel costs would come down, and a lot of it would be continued going forward. Digital launches of products which we've experienced for the first time, and we are rolling it out across operations will continue. Some of the dealer conferences, et cetera, would be reduced. But it's still not a situation which has reached a stable situation. And hence, to quantify it for FY '22 or '23 is difficult at this time.
Okay. Sir you talked about travel cost. If I look at annual reports of last year and also it's roughly 1% was travel cost at consol and standalone both the levels. So this can come down substantially going ahead?
This [indiscernible] definitely given everything. And then going forward, there will be a stable level, which should be lower than the levels that you have talked about. Certain amount of travel would be there, you cannot replace face-to-face interaction and the human touch. So we would not eliminate it completely, but it would come down substantially.
And A&P also will come down, like you said, because these are just standard initiatives and all?
That's correct. Especially the product launches, the A&P related to promoting of the product, et cetera, would come back as we reach normal levels. That the decision taken on brand push, brand building. But clearly, our experience with digital launches, for example, we used to participate in tire sales, et cetera, that would come out. The product launch that we did for Europe, which was planned actually around the time COVID hit us, the digital launch was done at 1/5 the cost.
Okay. Okay. And sir, lastly, in terms of CapEx that we're looking ahead for next 1 or 2 years. So just to understand what part of Phase 1 AP is remaining now? And secondly, on the expanded capacity post Phase 1 gets completed, what was the utilization level, say in FY '20? So FY '20 volumes upon the expanded capacity post AP plant?
AP plant is still in its infancy stage. We've started the passenger car tire production. The truck tire production has still not started. We expect to start commercial production of truck tires in September. It will then continue to ramp up. So there is no further change in the CapEx outlook from what we gave earlier. We've reduced CapEx by INR 400 crores this year. The CapEx and the AP plant ramp-up would be completed in FY '22. Going on from there, it would, of course, depend on demand. But I can safely say that FY '23, '24, there should be only maintenance CapEx, and we should be strongly free cash flow positive.
Okay. And so what is the utilization level currently at the current capacity in say, PCR and TBR?
So currently, if we look at June, across our 4 plants in India, we would be at about 2/3 capacity utilization. So about 66%, 67%. If I give you the numbers for the quarter, they would be very misleading because [indiscernible] it's under 10% in...
The next question is from the line of [ Subrat Vivado ] from [ NPI Life ].
Yes. You mentioned that in the replacement market segment, there has been significant improvement in June. So just wanted to understand which segment is this dividend coming from? Is it a large fleet operator? Is it the kind of used vehicle payers who are contributing to this demand?
The demand has been so strong, as I mentioned, on the truck side, the volume growth in June has been upwards of 15%. So it's been fairly all across in the replacement segment on the truck side. The only large segment where we, in June, were lower compared to previous -- Yes, it's been fairly all across in the replacement segment.
Okay. So in terms of natural rubber prices, so how has it been for you in this quarter?
One thing to note is that a large part of our raw material basket was also based on the inventory that was already there when operations came to a standstill. So for natural rubber, the decrease was only about INR 1 vis-à-vis last quarter. Our average consumption price was INR 139.
Okay. And CapEx, you mentioned it largely remains in line, around INR 400 crores decrease as you had expected last time. So on an absolute basis, it will be around INR 1,200 crores or INR 1,300 crores for this year?
For India operations, the figure that we gave was INR 1,050 crore. And for the European operations, the CapEx for the year would be a little under INR 200 crores. So yes, on a console basis, your number is correct.
Okay. And one last question on the debt. You mentioned the net debt levels, but if you can also give the gross debt and the cash position at a console level?
So the gross debt number for -- at the end of the quarter was INR 58 billion.
Okay. And at standalone level?
Gross debt?
Yes.
Just a minute. My apologies, the gross debt at consolidated was INR 75 billion, and our the Indian operations was INR 58 billion.
The next question is from the line of Joseph George from IIFL.
My first question is on the redundancy that you talked about in the Netherlands operations. Could you give us a sense of what would be the cost savings of being able to let go of 500 to 600 headcount, just to get a sense of how would look going ahead in terms of employee cost?
Joseph, we -- the process is fairly elaborate. Now that the number has been finalized recently, just a few weeks back, we are now going through the exact legal procedure to identify the specific people. Broadly, you could take it that our average cost per person in the overall Dutch operations is about a little under EUR 100,000 per person per annum. So savings would be at least on the manpower side somewhere in the $40 million to $50 million.
Well, that's a good number, yes. That's good. And second question, Gaurav, was -- you said that you're seeing a big improvement as far as stocking tires replacement goes. But as analyst, we struggle of this to understand where the demand is coming from [indiscernible] environment where the economy has not become fully functional and the freight generation and utilization of the truck fleet that is there in the country is not at optimum levels. And in simple logic tells us that if trucks are not running at optimum levels and the amount of replacement demand that is generated or the [indiscernible] that is generated for tires to be lower than what we would like. And even in that context, we are seeing strong growth in truck and bus replacement. What -- can you provide some impact as to how exactly this is -- I mean it's a little counterintuitive. That's the reason why I'm asking?
Fair question, Joseph. And this has been talked around enough that is this pent-up demand or this is sustainable demand? And as you would accept that it is still early days to see. April from negligible level, May also has things started opening up. We've had half the quarter, which was pretty much nothing. And then suddenly from a pickup situation to a June situation where I have told you that the volume numbers are 15% to 20% up on the truck side; farm side, more than 50% up, was a very strong surprise on the replacement side. July numbers, again, vis-à-vis July last year continued to be strong. Given the level of overall economic activity, yes, it's a bit surprising, but it's also together with the fact that the OE levels on the truck are negligible. We can only say that nobody buys truck tires if they are not needed. So if we are selling that much, and we believe we've had market share gain, we are better off than our competitors, but there is still signs of strong economic activity of books being moved around in the country based on what we've seen in June and July.
Okay. Got it. And last question, Gaurav, could you give us a sense of what the OE truck and bus contribution to revenues in standalone was last year -- last full year?
OE truck, I would need to take out that data, but roughly, truck, overall, is about 60% of our operations. And within that, OE is about 25%. So 15% of our overall revenue comes from truck and bus OE at a very broad level.
The next question is from the line of Mr. Jalan from Axis Capital.
Congratulations on decent set of numbers. Sir, I have 2 questions. Firstly, on the CapEx side, I wanted to understand, I think, our total CapEx outline in AP was around INR 38 billion. Just wanted to understand how much have we already incurred in FY '20? And what will we be incurring in FY '21?
In FY '20, again, I would not have ready this immediately, but I think we had already incurred INR 2,200 crores out of the INR 3,800 crores in AP and out of the INR 1,050 crores of this year, the largest chunk is for AP. So INR 600 crores to INR 700 crores of the current year CapEx would go towards AP.
Okay. And you mentioned that in FY '23, '24, you would be incurring just about maintenance CapEx. Can I understand what is the maintenance CapEx level that you have in India and Europe?
In India, the maintenance CapEx is around INR 250 crores to INR 300 crores, depending on if any large maintenance comes up to not being there like a mixer overhaul. And Europe, the maintenance CapEx would be, again, ranging between INR 150 crores to INR 200 crores.
Okay. And my second question is on the RM cost front. You talked about -- we have seen -- we have yet to see the full benefit of declining commodity costs, right? So I just wanted to understand how should we look at RM cost basket in 2Q and 3Q?
So we expect RM cost basket in Q2 to further come down. You are right. We haven't seen the full benefit. Sequentially, there was a decline of 3%. We would expect another couple of percentage decline in the raw material costs in Q2. Q3, as of now, the expectation is that the levels would go up and would probably be back around the Q1 level.
Why is that? Which specific commodity has gone up?
Rubber, et cetera, has gone up. And even some of the other crude derivatives have shown a reversing trend in July.
Okay. And one of my last question is on the Dutch operations. You talked about tendency and you talked about potential savings of EUR 50 million. But it will not come at the same revenue level, right? We will need to cut down our capacity also over there. That's correct, right? And we -- whether we will shift that capacity to India or to Hungary, how are you thinking on those lines?
So that production optimization, et cetera, as the European management now starts to roll it out will happen. We don't need to set up any additional capacity. So there is no cost being incurred. The production of passenger car tires that is shifted from Netherlands will be shifted to Hungary and to India, depending on how optimization should happen on the manufacturing side.
So basically, what I was trying to understand is this EUR 50 million is not net savings. That cost, if we transfer the capacity from Netherlands to Hungary or to India, so your employee cost in these locations will go up, right? So essentially, we are moving from a high cost location to a low-cost location?
To some extent, you are correct, because there will be manpower addition in AP, in Hungary, very little. So yes, the full entire savings may not be like-to-like of the manpower cost production in Netherlands, but there would be a substantial saving, and we expect some payback on this project to be about 2 years. So we expect a fairly strong recovery of profitability margins in Europe operations, and the benefit of this should start coming in from FY '22 onwards.
The next question from the line of Pramod Amthe from CGS-CIMB.
Good EBITDA performance. First, I wanted to know what is the extent of OEM replacement mix in this quarter because both of them have been very diverse in growth profile?
So for the Indian operations, normally, the OE business ranges from a 20% to 30%. Last quarter where OE was still under decline, was at 20%. But if you look at Q1 FY '20, the OE business was about 25%. Our Indian operations in this current quarter, it was a near 7%.
Sorry, you said OE was just 7%?
7% in Q1, which is the quarter gone by.
Okay. So in that sense, that should get normalized as we go forward in second and third quarter, am I right? Is that fair evaluation?
It will -- very large component of that, which is truck OEM, is recovering far slower. We've seen a very sharp recovery in passenger car OEM, and we should get there quicker. So getting back to the normalized levels of OE, not before Q3.
And the second question is with regard to the interest cost. Even though the net debt, as we indicated, seems to be coming under control. But on a Q-on-Q basis, the interest cost spike is pretty steep, almost around 30%. What is that underlying factor? Is it still about working capital rates or what is going on? And when you expect that to come back to a sequential decline profile?
One of the reasons, Pramod, there is nothing to do on the rates we truck design at competitive rates and as per our usual rate. Given where the situation was in March and as the situation get better, the first priority of the company was to maintain liquidity. And hence, we borrowed fairly quickly to be not caught up in a prices on fuel and liquidity front. So through the quarter, we carried a fairly high level of debt, which we decided to have on our books as a safety cushion. And that obviously contributed to the interest expense going up. Normally, we would have borrowed at a much lower rate during the year vis-à-vis a situation where we pick up all the debt, and we would not be raising any debt for the balance of the year.
And the last one is in terms of your channel inventory, what is the normal channel inventory you have in India? And where is it against those normal inventory levels?
Our inventories reduced by almost INR 250 crores or about 7 days of sales. Depending on the level of sales, I would say, the normal level would be at least inventory levels going up by INR 100 crores to INR 150 crores, if we were to be at normal level. The current levels of inventory are lower and have dipped, a, because of constraints at production, where we have to operate the plants within safety guideline and the demand being extremely strong. So it's a fairly tight flow right now where there are constraints on how much we can produce. And supply chain also has to ensure that material supply across the country is adequate.
The next question is from the line of Priya Ranjan from Antique Limited.
So a couple of things. One is on how much do you attribute the current growth is related to, say, channel inventory pulling because probably even in [indiscernible] when the entire operation was locked down, I mean the dealers might be still supplying some of the -- I mean, their own inventory to probably for public who were already operating due to -- I mean the essential services or not?
Again, difficult to get statistic, but I don't think the dealers were that low on inventory. And if anything in the current environment, dealers would tend to keep waiting rather than have money blocked up. So it was genuine demand. And as I've mentioned, we have continued to see strong demand and growth over last year even in July. So as of now, demand continues to hold on. But it is still early months. We would -- we are watching the situation actively to say what is the normal level of demand. Right now, replacement demand across product categories continues to be good.
Yes. And just another -- I mean, the housekeeping question on the volume growth as well as the key raw material cost, if you can help us?
So natural rubber prices, as I mentioned, were INR 139 per kg. Synthetic rubber at INR 105 per kg, Carbon Black INR 66, and Steel cost INR 139.
And overall volume declined for this quarter, domestic as well as export in the Europe?
Overall, the entire revenue decline of 43% is essentially coming from volume, so the overall volume decline is 43%.
Okay. And lastly, on the -- any sign you are seeing that the TDR versus [indiscernible] ? How is that, I mean, trend panning out during the COVID time and the current time basically? Because probably the one assumption is that probably people will go for a little lesser cost tires, et cetera. And the truck operation, particularly, also of the single fleet operators is much higher than the larger fleet operators?
Your point is absolutely correct. So there's been a slightly higher amount of [ buyer's ] tire sold. It is still majority radial, but there's a couple of percentage points shifted towards buyer. And that could also be a result of where the Chinese tires have stopped coming.
And in terms of Europe -- last Q on Europe, what kind of, I mean, the revenue run rate we can see now things are normalizing? And at what level we will be probably a bit breakeven then?
Europe, as I've mentioned, we've seen a fairly normal July. We would expect to be at around 90% of normal levels in Q2, unless there is some big second wave which comes, if we look at the current level of operation, we should be getting back to 90% of our usual level.
And any thought on breakeven level at EBIT -- from the EBIT level?
We do not give out margin guidance, so I would not like to go there.
The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.
Gaurav, on the import restrictions in tires, what we understand is that the government has made it mandatory to obtain licenses to import. So from a segment wise perspective, we are given to understand the PCR segment has a higher import currently earlier it was TBR now the PCR as the percentage is higher and some of the larger even organized players, [indiscernible], Michelin are also importing some SKUs into the country. Now given all this, how do you -- are you seeing any gains for the domestic incumbents, including us because of this import restrictions that have been imposed now and on the PCR segment as well as in the TBR segment?
So yes, the import profile, Shyam, was very different. The TBR segment import was largely from China. And hence, barring small component of it was largely a price factor that used to come in at the lower end. Whereas on the passenger car side, it was across the entire spectrum, the Chinese player component in it was small, even all the higher end cars and some of the OE stuff to their usual partners. But to correct one thing, the import percentage as a percentage of the overall market has always been higher for passenger cars vis-à-vis the truck segment. That was around 15%, whereas in the truck, at best, it was reaching a double-digit at its peak and then has come down with the antidumping duty. There are signs that there would be gain because some of the OEMs also with this restriction has started talking to us for fitment on the car. And hence, there would be larger gains on the passenger car segment for the domestic players, and we are seeing some signs of that already.
Okay. And in the aftermarket also, Gaurav, from a PCR perspective on India aftermarket side, is there any meaningful changes that you are seeing because of the import restrictions?
Yes. Again, a lot of it used to get fitted on the taxi segment. We will begin to see gains. As I said, the pickup on the passenger cost side was slower. Passenger car segment was one of the segments where we did not have volume gains in the replacement segment in the June quarter. But that itself is beginning to change as we enter the current quarter.
Understood, Gaurav. And just one additional question if I may. Now there have been various levels of production disruption across the domestic players during the current quarter. And because of all that and with the import restrictions that have been placed, are there any market share shifts in any segment that you are seeing on PCR, TBR or the farm business. Any market share shifts that are visible now in any meaningful way?
In it is too early to say. Our own internal estimates are that we've had market share gains in Q1 in the replacement segment. But the industry data has not yet come in so I would not be able to give you conclusive data as of now.
[Operator Instructions] The next question is from the line of Prateek Poddar from Nippon India Mutual Fund.
Sir, one question. Could you just talk about the channel inventory as of now across segment, PCR, TBR, TBB?
Our own inventory across segments, as I mentioned, is low. I would not have data of how much of inventory the channels out there in the market are carrying. For us, particularly, we are sitting on very low inventory in the truck segment, particularly in truck radial and farm. We were okay at the end of the quarter on the passenger car's inventory, given where the demand was. But that is also beginning to get extremely tight as we've had very strong pick up both in the OEM and the replacement segment in the July month.
And to get an indication of what low means versus normalized levels, will you be down to 30%, 40%, 50%. [indiscernible], How should I think about this?
We would be down at least about 25% level.
Given your -- when you say your own inventory, right?
That is our own inventory.
The next question is from the line of Siddhartha Bera from Nomura.
Sir, just on the demand side, again. So as you have indicated by July, we have seen very good growth. So just wanted to understand, I mean, that good means it is like about 10-odd percent only or higher or lower? Any color if you can give? And how are you seeing the trends towards the end of July, anything on that lines?
I would not have it on a weekly basis, but July, the replacement volume growth, a, is different vis-à-vis June that it has been on all the product categories. It's been slightly lower than June, so high single digits.
Okay, year-on-year. Year-on-year. Okay. Got it, sir. And the second, sir, on the commodity side, again. So in this quarter, can you broadly indicate -- I mean, my analysis is that if we had a normal quarter where we had not drawn down the high cost inventory, would it be fair to say that nearly 200 to 300 bps over margins would have been better on the gross side in the normalized quarter, for Q1?
We've, Siddharth, not run that analysis because we were sitting on inventory. So we could do that exercise and come back to you that if we had used of only the current raw material at the current prices, what would have been the margin impact. The fact is as this thing [indiscernible] there are some positives of it in terms of lower raw material prices. But we had to use up the inventory which was there in the system. The margin would have been more if we were not consuming the earlier inventory, what the quantum of it is, is not an analysis that I have ready.
Okay, sir. Got it. And lastly, I mean, given the current trend of the synthetic rubber has come down very significantly, probably 15%, 20% compared to the last quarter. So the complete benefit of that should be visible in Q2 onwards? Am I correct on that?
That's correct.
[Operator Instructions] The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
Quick question. In this quarter, considering that the inventory buildup because of the lockdown, which is disturbing the reported gross margins. So if you can share what were the low gross margins for the quarter for both India and Europe, that will be helpful?
Jinesh will have to get back to you. I would have to ask the team to do an analysis to take out the inventory effect.
Okay. But do you have our gross margin [indiscernible] kg or something of that, sir, which might also get correct indication?
So we'll have to get back to you.
Sure. Sure. No problem. And lastly, with respect to the European operations, did we get any benefit from the government -- European governments for any support in European operations?
Yes. We got about EUR 6 million based which in Netherlands, largely, overall was a little under [ EUR 7 million ] bulk of it in Netherlands. Whereas for the government scheme, depending on the revenue fall, which was in splash, a 90% of your wage bill was given by the government. So we got about EUR 6 million as support against the wage will in Netherlands.
The next question is from the line of Amin Virani from CLFU.
Okay. Actually, my question was on the passenger vehicle replacement which is partly [indiscernible]. I'm not sure if you address the Europe thing also. So in Europe, our business is mostly passenger vehicle replacement. So what are the trends there and because -- I'm believing that [indiscernible] as a whole has come down, whether it's improving or not but it has come down. So what are the trends there? And how do you look forward because next quarter will be -- you will start building inventory for winter tires also as it is usual. So how are you looking at that?
So the passenger car market in Europe, I mean, they grew by 32%. Our own market share, and I will just break it up into a little on passenger car Vredestein brand, we've gained 0.1% market share. So still in decimal, but we continue to make headway even on proportion of UHP or UUHP tires continues to go up. So that overall theme of focusing on Vredestein brand. Overall theme of enriching the product mix of the UHP proportion towards a level which is where global majors operate continues, and we are continuing to make headway. We are slowly taking out the Apollo brand more and more and keeping it as a limited flanker brand in Europe and putting all our energies and A&P money behind the Vredestein plan.
Okay. Understood. And like you said, in India, the replacement market in passenger vehicles was starting to come back in July. You're seeing similar trends in Europe? Or is it different? On the replacement market side? You mentioned in...
I don't have the data for July, but our own expectations and initial signs is yet. As I mentioned, in Europe, we expect that Q2 to be a level of 90% of last year. So that's a substantial recovery from a nearly 30% decline in the current quarter.
The next question is from the line of Ronak Sarda from Systematix.
Congrats on the decent set of numbers. Gaurav, first question, I mean, again, on the India aftermarket demand, I mean is there any way to look at geographical analysis of how the demand recovery has been, especially in the 2-wheeler and 3-wheeler passenger vehicle side? I mean are the top 10 or top 15 markets contributing equally to the growth? Or is it largely driven by steady urban and rural markets? And does this apply to TBR or truck tire, TBB tyre as well truck tire as well?
Fair question, Ronak. I would not have that level of analysis immediately that would be available with the sales and marketing team who look at it. Broadly, what I have understood is that the demand revival has been more strongly led by the rural area. But if you were wanting a little bit of more color and details in terms of which state, which part of the country, we will have to go back to the sales and marketing people and the IR team can come back to you.
Sure. Sure. And does this kind of analysis work for TBR or TBB tires? Or I mean it there's no point looking at [indiscernible] analysis?
No, we would have it product wise. The internal teams would be doing that analysis and they would have data to say where the demand has been stronger product category area.
Okay. Perfect. I'll speak with [indiscernible] . And second question on Europe. What would be the product mix during the quarter? And how different is that from, let's say, Q-o-Q or Y-o-Y basis? I mean, because all of global OEMs have commented that the premium segment has picked up ahead of your mass market segment. So any color on the European product segment?
Not a big difference in Europe, the passenger car segment vis-a-vis the same quarter last year went down by about 3%. A big drop was in the Space Master, which is an OE product that fell by 4%. And we gained about 5% plus in the agricultural segment. So not the kind of dramatic shifts that I talked about in the India business scenario where OE fell from about 25% to 7%, but broadly a shift of 5% plus from passenger car to agri.
Okay. And the final question on the -- when you see capacity [indiscernible] almost 90%, 95% in Europe. This is, again, driven more by OE demand? Or I mean, there is some pickup in the aftermarkets there as well?
As said, we expect it to be at 90% of last year in Q2, and this is largely replacement because we are still negligible in OE in Europe on the passenger car side. We do have a presence, which is through Space Master and agri. But a much larger proportion of our business in Europe is replacement, more than 80% plus. So the recovery is seen there.
The last question is from the line of Abhishek Jain from Dolat Capital.
Sir, out of the total -- how the total gross [indiscernible] of INR 75 billion. Foreign currency loan stands at around INR 32 billion. So just wanted to know that how much ForEx losses or MTM losses have you incurred in this quarter and that has been added in interest costs? And how big hit you are expecting in bottom line because of the Rupee depreciation? And please throw some light on the [indiscernible] ?
So all our foreign currency borrowing is completely hedged on day 1, even the interest rates that we used to take a decision is on a fully hedged basis. So we do not have any hit on the borrowing side, even though it will give a significant quantum because they have been 100% hedged. And our policy also is that all borrowings for Indian operations would be completely hedged. On the operational side of things, the hedged at least the 50% of our operational exposure, and that's the call which is taken on a regular basis. So there is no large scare for us on that count. In general, we are a net importer. So a weak rupee is not favorable for us as our raw material cost goes up. And to that extent, the raw material drop impact that I talked about of 3% is after taking into account the rupee depreciation, otherwise, it would have been more.
So how much ForEx losses or MTM losses have you incurred in this quarter, losses or gain? And is it added in the interest cost?
I will have to ask my accounts people to answer that. Ravi, you have an idea if there is any ForEx loss, which is there in the interest cost.
So no ForEx loss in the interest cost. We normally book it as separate line item. I confirmed the amount exactly, but nothing clubbed in the interest cost.
So is it showing in the profit and loss account?
Yes, it's appearing in the profit and loss account.
Okay. Okay. Sir, my next question is related with the employee cost. Right now, The Apollo has around 18,000 permanent and contract employee worldwide. So just wanted to know that what is the proportion for the manpower India versus Europe? As the employee cost for the Europe is around 30% of the sales and 8% of -- for the Indian business. So what is your plan to reduce employee expenses in medium to long term?
So the European total manpower would be, I think, close to 2,500. We've already talked about a significant reduction of manpower in our Dutch operation. So that number will come down by FY '20. In India where there is significant manpower across plants, which is also a function of different plants cooperating with different product categories and different technologies. There are plants set up in the '70s, the '90s, 2000 and now the latest. And as the technology keeps changing, becoming more modern. Our latest plant would have significantly less manpower than the earlier plan. A certain amount of modernization as we go through maintenance CapEx or incremental CapEx is done, but it would not be an adequate return to try and modernize some of the buyers plants. So you could keep seeing manpower reduction in Indian operations, or in the case of AP, this growth in manpower would not be as much as you see capacity being addition. But there's no target that I have as of now to say that the India manpower will come down from x to y in the next 2 years.
Thank you. I would now like to hand the conference over to the management for closing comments.
Nothing further from our side. Thank you all. Stay safe, and if there are follow-up questions, I'm conscious that there were a few people in the queue, which we have not been able to take questions. Please do reach out to us, and we'll address your question. Thanks, again.
Thank you. On behalf of Emkay Global, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.