Apollo Tyres Ltd
BSE:500877
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Apollo Tyres Ltd
Earnings Call Analysis
Q1-2025 Analysis
Apollo Tyres Ltd
Apollo Tyres has reported consolidated revenue of INR 63.3 billion for Q1 FY '25, marking modest growth both year-on-year and quarter-on-quarter. However, the operating performance faced challenges with an EBITDA margin declining to 14.4%, down from 16.4% in the previous quarter, largely driven by raw material cost pressures. The company experienced a significant rise in net debt, now standing at INR 2,250 crores, a reduction of over 10% compared to the previous quarter.
In terms of regional performance, the company saw double-digit volume growth in the truck and passenger car replacement segments in India, despite OEM volumes remaining weak. Overall, the revenue from Indian operations increased by 4% year-on-year, with a stronger push from exports that saw over 20% growth. Conversely, European operations only showed marginal revenue growth of about 1% year-on-year, experiencing a more challenging market.
Looking ahead, Apollo Tyres anticipates improved demand momentum, particularly in the replacement market and farm tire segment. While the company projects overall growth in the top line, it acknowledges that the operating performance may remain subdued in the near term due to continued increases in raw material costs, such as natural rubber, which are expected to rise sequentially by mid-single digits in Q2.
Apollo Tyres is focusing on balancing profitability with market share. The management has acknowledged a strategic shift towards premium product offerings, which may temporarily affect market share. Small price increases have been implemented to mitigate raw material cost pressures, with further hikes planned. The goal remains to achieve EBITDA margins exceeding 15% in the long run, demonstrating confidence in sustained profitability despite current challenges.
The company highlighted key initiatives in research and development, including contracts with a major German manufacturer, indicating an effort to enhance its product mix and brand presence. Additionally, Apollo Tyres is integrating digital solutions such as generative AI models to improve operations and has made strides in sustainability, receiving recognition for its environmental practices with a significant improvement in its EcoVadis rating.
Despite positive growth in replacement segments, Apollo Tyres faces stiff competition. There is a challenge in maintaining pricing power amid rising costs and competitive pressure from peers focusing on aggressive pricing strategies. The management intends to monitor competitive actions closely and is prepared to adjust its strategy to safeguard both market position and profitability.
In conclusion, while Apollo Tyres confronts near-term challenges with rising commodity costs and competitive pressures, its strong focus on profitability, market share management, and strategic investments in innovation suggest a potential for recovery and growth. Investors should watch closely for how these factors evolve in the coming quarters.
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Good afternoon, everyone. This is Amar Kant Gaur from Axis Capital, and I welcome you all to Q1 FY '25 Post Results Earnings Call of Apollo Tyres. We have with us today Mr. Neeraj Kanwar, Vice Chairman and Managing Director of Apollo Tyres, Mr. Gaurav Kumar, Chief Financial Officer; and the IR team. We will start the call with brief opening remarks from the management team followed by a Q&A session. Over to you, Mr. Kanwar.
Thank you, and a good afternoon, and thank you for joining us today. I welcome you all to Apollo Tyres Q1 FY '25 post results conference call. And as always, I will start with a broad overview of the results, followed by key initiatives and then pass on the floor to Gaurav for his commentary on our financial performance.
After which, we are happy to take questions from you. Q1 FY '25 proved to be a challenging quarter and with modest top line growth and a muted operating performance. Consolidated operating margin for the quarter was down about 200 basis points sequentially, mainly on account of raw material cost pressures.
We are keeping a close watch and we'll continue pt's focus on profitable growth through price increases, new product launches and premiumization of our products. As highlighted in my earlier interactions, we remain committed to free cash flows and improvement in our return ratios. I'm pleased to share that despite a challenging quarter, we were able to further reduce consolidated net debt by more than 10% in Q1 as compared to Q4, thereby helping us further strengthen our balance sheet.
Coming to our regional performance, we've witnessed a double-digit volume growth in our TBR and PCR replacement segments in India, both on Y-o-Y and on quarter-on-quarter. However, overall top line growth was once again impacted by weaker OEM volumes during the quarter. Coming to Europe, we reported marginal growth on Y-on-Y basis. We remain focused on profitable growth and are undertaking several initiatives across our key markets.
We expect the demand momentum to recover going forward. In terms of outlook, we expect the top line growth to pick up going forward. However, given the steep increase witnessed in commodities like natural rubber, near-term operating performance is expected to remain subdued. We believe the headwinds we face today in form of subdued top line momentum and softer margin performance, our near-term challenges, and we are extremely well placed to leverage across our key markets in the medium to long run.
We have consistently displayed our focus on profitability, cost optimization, free cash flow generation and improvement in our return ratios, and these continue to be our cornerstones of our strategy as we go ahead.
So let me now talk about key pillars of our FY '26 vision and as always, highlight some of the work done by our teams in the quarter. Starting with research and development, I'm pleased to share that we have recently started supplies to marquee German passenger car manufacturer in India.
This confirms our product capabilities, strengths our relationships with premium automotive companies. Further, it also improves our OE mix and helps us further establish our brands in the premium segment in India.
On the digitalization front, we have started rolling out domain-specific generative AI models. These models would help us ascertain root causes and address issues across domains like manufacturing, customer pricing, R&D, et cetera.
During the quarter, we further augmented our brand-building efforts across key markets. We recently signed up with Giancarlo Fisichella, a 3-time formula race winner as ambassador for our Vredestein tire brand. As I've highlighted earlier also, sustainability is a key pillar for us as we go ahead. I'm happy to share that we have recently received in FY '24 score from one of the premium agencies, EcoVadis, and we have registered a significant improvement in our ratings.
We've been rated in the top 5% of all tire and rubber goods manufacturers and top 8% of all companies across industries. It is heartening to see that the team continues to scale new heights as we go ahead and is also being recognized by external agencies. As always, we are keeping a close watch on the markets and at our cost. We will continue to be judicious about CapEx, and we'll continue to focus on profitable growth and free cash flow generation.
Thank you. I conclude my remarks, and over to you, Gaurav. Thank you.
Thank you, Neeraj, and good afternoon, ladies and gentlemen. Continuing from where Neeraj left, let me share further details of our operations for the last quarter. The consolidated revenue for the quarter stood at INR 63.3 billion, slightly up compared to both same quarter last year and the previous quarter. The consolidated EBITDA for the quarter stood at INR 9.1 billion a margin of 14.4% compared to 16.4% in the last quarter.
Coming to the balance sheet. We have been able to further improve our leverage ratio given the focus on cash flow and profitability. We reduced our net debt by more than INR 280 crores in Q1 to a figure of INR 2,250 crores. The net debt-to-EBITDA for the consolidated operations stood at 0.6x at the end of June '24, almost a similar level as the March '24.
In India, we witnessed Y-on-Y volume growth of mid-single digits overall, helped by recovery in the export volumes and continued good growth in the replacement segment. We have seen strong double-digit volume growth in our core replacement segments for TBR and PCR and a 20% plus volume growth Y-on-Y in the export channel.
The revenue for the quarter was INR 45.9 billion, a growth of 4% over the same quarter last year and 5% over the previous quarter. The EBITDA for the quarter stood at a margin of 13.8% compared to 15.6% in the last quarter, given the pressure from rising raw materials. We are cognizant that we have not performed in line with what some of our peers have done and are looking into this thoroughly to ensure that our performance comes up ahead of the industry.
In terms of demand outlook, we expect the demand momentum to get better going forward, continued robust replacement demand and strong signs from the farm tire segment as well. On the raw material front, the pressure continues, we expect the raw material cost to go up further by mid-single digits in Q2 on a sequential basis.
We have taken small price increases in the current year and will seek to negate the raw material cost pressure through further price increases. We reduced our stand-alone net debt from about INR 2,200 crores to about INR 1,900 crores in June. The net debt to EBITDA for India operations stood at 0.7x at the end of June '24.
Coming to the European operations. The revenue for the quarter was EUR 146 million, slightly up compared to the same period last year. The EBITDA for the quarter at EUR 20 million was a margin performance of 13.7% compared to 13.4% for the same period last year.
In terms of outlook and with the seasonality coming in, we expect the top line momentum now to go up and the margins to improve. We keep evaluating options for supporting our [ crude ] business through adjacencies. One such venture, which was worked out with a top-notch consultant was Trumigo, a doorstep car servicing ensuring better connect with our car tire customers.
However, the financial performance of the venture was significantly lower than expectation. And hence, we took the decision to shut this
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of write-off on account of this. We continue to monitor our CapEx outflow. There is no change in our CapEx guidance for the current year. And we will continue to focus on profitability, free cash flow generation and improvement in the return ratios.
With this, I conclude my opening comments. Thank you. We would be happy to take your questions.
Thanks, Gaurav. We'll have the first question from Raghunandhan.
My first
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sports growth was strong at 20% plus and replacement growth was also healthy. Can you share your thoughts and expectations for FY '25 growth in exports and replacement?
Raghu, the overall replacement growth should be high single digit. As I mentioned, we have not done in line with our peers. So the replacement demand overall should be at high single digits, and we would recover some of the lost ground, exports though facing challenging conditions on account of freight rates disruptions but definitely is at a higher trajectory compared to last year.
So that should see growth where the demand momentum suffering is on account of OEMs, it had a negative growth in the first quarter. Particularly on the Truck OE side, the demand is significantly lower than what would be projected [ out to be ] and that probably, for better part of the year would still be in the negative zone. It would recover towards the second half.
Got it. Sir, Q2 RM cost increases 5% Q-o-Q. What would be your current under recoveries and price hikes planned in Q2? Also, on your thoughts on whether you expect these unnatural rubber prices to reduce going forward?
To answer the second part of your question, Raghu, immediate future, there doesn't seem to be a respite with the early monsoons, et cetera, the availability of natural rubber is quite constrained. So particularly the RM cost pressure is driven by natural rubber. And at least in near term, it will continue to be there, maybe we will start seeing some respite from Q4 onwards.
On the first part of your question, we were still short of recovering the RM of Q1. So hence, we would need at least 2 to 3 price increases to cover up fully for the raw material that's baked in for Q2.
Got it sir. Would that be to the tune of at least 3%, 4% price hike?
More than 5%, Raghu.
Got it. And lastly, sir, on the other expenses side, was it higher marketing spends, apart from EPR, was there any other factor which led to higher other expenses this quarter?
As you've rightly said, there was an EPR chunk, which is about INR 27 crores in the current quarter, which was not there in the same quarter last year. Other than that, our -- a little bit of one-offs of advertisement charges, et cetera. Some of those will come off from next quarter on.
Thank you very much. Before I fall back to the queue, please do share the Q1 commodity prices and also the reifen numbers.
Sure one minute Raghu. So the commodity prices for rubber were around INR 180. Synthetic rubber also at INR 180, carbon black INR 120 and on the reifen numbers. The revenue for reifen for the quarter was EUR 50 million.
And margin, sir?
Margin of 4%.
We'll take next question from Jay Kale. Jay, please go ahead.
Sir my first question is, your thoughts on the strategy, which going for profitability. And of course, to a certain extent, that is hampering some bit of your market share, whereas some -- section of the industry is focusing more on price increases while 1 or 2 players are focusing more on market share. And til now, it seems that market share strategy seems to be working as they are at least in the short-term, reporting better than the others numbers.
So how do you plan to balance this profitability versus market share going forward? We did see that in July there was some bit of reaction or realization from your side that this aggressive pricing is maybe not working to our advantage. So is there a rethink on that strategy where [ incrementally ] or will start focusing a little more on market share over profitability.
Gaurav, Let me take that. So yes -- so Jay, you're right, there is a very tight balance between volume growth and profit growth. And we -- as we go along, we are going on analyzing to see what competition is doing. We are obviously not wanting to go down hugely amounts on market share. As you'll see there's a recovery already happening in the PV in PCR, where we have gone out of the 12-inch sizes, which were they were not profitable.
Again, like in my opening remarks, I said OEMs is an area where we are increasing our product mix -- enriching our product mix. So all along the chain, we are looking at small increases in price given the RM cost pressure. We are also looking at what competition is doing. And yes, we will lose a little bit market share when we do the strategy. But the overall thinking is that we need to get better on our cash flows on our ROCE and also look at our profitable margins.
Understood. And my second question is, you've seen this natural rubber in the recent days, increased substantially, and that may not have been factored in when you are giving your guidance of 5% increase in RM index in Q2. So is it fair to assume that the recent days natural rubber increase will probably flow through in Q3, even despite crude coming down to a certain extent.
I think, 5% Gaurav mentioned, does take this into account.
Okay. Understood, understood. And sir, lastly, on the market share on the OEM side, you did mention that the OEM truck side, you did see a volume decline. But if we see the M&HCV industry in Q1 on a low base, did see some growth. So are we kind of prioritizing a little more profitable OEM segments and ready to go off some of the market share on the OEM side?
So you've seen that increase coming in the bus segment mainly, which is a very bad paymaster and a very small margin business. So we really don't play in that segment. And again, on the high HCV side, we play on the highest premium segments. Okay? So we don't play on the lower sizes. So you're looking at an overall, but if you do a micro analysis, then the HCV segment, which is a premium segment has not grown this time.
All the best.
So we'll take the next question from Siddhartha Bera.
Sir, again, the first question on the growth side, like you mentioned that you would want to sort of improve the growth momentum. But if I see your TBR and PCR replacement are already growing in double digits like you mentioned. So where is the gap which is sort of pulling down our growth? And where do you see sort of more initiatives you will do to sort of improve the [indiscernible]
See, I think in the replacement, the company has done good. As you see, there has been a double-digit growth. Where we have lost out is on is OEMs and that is primarily because of we trying to go into premium sizes, okay? So again, coming back to that balance question of profit versus volume. So we've lost a little bit on the OEMs and on export.
Export, as you know, we export from here to Europe and to the U.S., we've had small gains in the U.S., not expected at the levels that we wanted. Again, Europe is a challenging market. We've had a single-digit growth in Europe.
So going forward, I see both exports and OEMs picking up. So while replacement will do what they are doing, as soon as export and OEMs pick up, our growth will be much better than our competition.
Got it. Got it. And sir, second question on the pricing. So post Q1, what has been the price increase if you have taken any till now? If you can help us on it.
Gaurav?
Just 1 minute. So we have taken about a 1% price increase in Q2 as of now, Siddhartha.
Okay. So 1% we have taken and we need to take total of 4% more to sort of cover up the prices.
That's correct.
Okay. And any segment, sir, where do we see sort of issues in taking up prices, given the demand outlook which you are looking at?
See, all of it is a mix of demand and what competition does in isolation to be able to take price increases beyond a point and go out of sync with what the pricing accepted in the market is a difficult thing. So We will have to take this call along with seeing how competition is reacting to this. You've heard about competition also considering taking price increases given the steep cost pressure, how much we will take when we will announce that is still being discussed internally.
Okay, sir. Got it. Sir, lastly, probably, if I look at sequentially, our mix in the replacement has gone up, our mix in terms of passenger car -- also, Agri also has probably gone up a bit. So does that sort of positively affect margins? Or do you think because of the commodity increase that improvement will -- is not meaningful.
Right now with the steep increase, it is less meaningful, but otherwise, your interpretation is absolutely correct. As a result of market dynamics of OE being weaker, the mix is shifting towards replacement and also passenger car continues to grow. So it's both moving towards a fundamentally more profitable mix.
Got it. Got it. So assuming all of these cost increases take place. So if you look at next year, would you be sort of targeting that, target of more than 15% EBITDA margins? Will it be fair to say that? Or there can be some resets along the way?
Absolutely. And in line with our long-term vision, we will continue to target higher than 15% EBITDA margin. The current level of margins that we have reported in this quarter is not what we are happy with.
We'll take the next question from Amyn Pirani.
I had a question which actually spans both your India as well as the Europe business. if we see in this quarter, based on your commentary, it looks like in India, replacement has grown much faster than OEM. So there has been a mix improvement.
Even in Europe, revenue growth was just about 1% Y-o-Y, but your UUHP volumes grew by 20%. So notwithstanding the RM pressure, shouldn't your gross margin and EBITDA margin performance have been better than what you have reported? Because if the mix is improving so sharply, despite the challenges, the inherent margins of that business should ideally be better. So I'm just trying to understand what has happened there? Especially since we have discussed a lot about competition having a certain performance and you having a certain performance.
So just trying to -- or is it that the profitability of replacement and UUHP is not that much better than the underlying business.
So a, Amyn, the 2 geographies still act in a different way. So Europe, you would see, in spite of the market conditions, a very low growth of just 1%. The margins are better than what it was last year. That's a direct result of mix improvement which in spite of the raw material pressure, no price increases, et cetera, has resulted in better margins. And because of the seasonality impact, Europe, it would not be appropriate to compare it vis-a-vis the last quarter. You need to see it vis-a-vis Q1 positive previous year. And we've had a margin up.
Coming into India, a, fundamentally the raw material proportion is higher. So it weighs more heavily and b, because of a larger component of natural rubber, the pressure of raw material on the Indian operations was larger. And that, in spite of the mix changing towards replacement has weighed down on the margins.
Okay, okay. So in Europe, you're saying that the overall volume growth was just around 1%, which means that your operating leverage despite the UUHP doing better was significantly negative. Is that correctly way to think about it?
In a sense, there was hardly any operating leverage in Europe. There was some bit of RM pressure lesser than India. But the mix improvement negated it to reflect the margin improvement.
Okay, okay. And the other thing is that in the India business, we have steadily been seeing other expenses rise -- I mean last year also other expenses rose more than revenue. This year, obviously, in 1Q, we have EPR. But apart from that, you've also talked about some lumpiness. So I mean this, again, brings me back to the question when we are comparing with competition. Your revenue growth overall has been a bit behind.
So in India, how should we think about operating leverage because you are trying to focus on pricing but ultimately, revenue growth is still -- the price plus volume is not leading to better revenue growth, but your other expenses are rising because you are competing in the market. So how should we think of operating leverage in India? Because that is also going to be a challenge apart from the RM.
Fair point, Amyn. And we are conscious of this. And in this quarter, the comparison vis-a-vis peers and at least 2 of our peers is even more struck in terms of revenue growth. But over the last several quarters, it was slightly lower, which following the profit strategy was still playing out. We are going to go back and have a deep debate amongst ourselves. These results have just come out. And as Neeraj said earlier, it's a fine balance to choose. It's not an easy thing to choose just one way or the other.
We will reflect on it and choose our strategy going forward to make sure that the revenue growth is ahead of the curve of other expenses to keep going up both on the revenue side but equally not forgetting the profitability or the return ratios.
Gaurav there is also -- the whole organization is going through a new transformation. We had mentioned this last time also. And you may have heard. So during this transformation, expenses will go up. But eventually, they will start coming down. Why I say because we are rewriting SAP, for instance, people movement is taking place. redundancies are happening, new joinees are coming in. So there is all this cleanup happening to get ready for the new Apollo 2.0 is what we call it. And so we will have some pain, but it's a longer-term plan which is our vision to get to 1 of the top players in the world. So that's why we are taking this pain right now.
We'll take the next question from Ashutosh Tiwari.
So if I look at the margin performance of ours versus peers this quarter particularly is a bit stark the compression that we have seen on the gross margin is higher than peers. And despite the fact that probably we have -- we are ahead in terms of price taking price increases versus peers, so reason that you can highlight behind that, is it like we are carrying low inventory of RM than peers. If you have some idea on that front or any reason like that because gross margin compression is much more for us than peers.
Ashutosh a difficult one, given some of the results have just come out. We need a deeper analysis. There's been no significant deviation from norms on the raw material front at our end. We'll have to look at some of the stuff in more details for competition. And sometimes, some of these things could be a pure fortunate thing that if you were carrying a higher raw material and in a rising scenario, that benefits you, but we don't have an immediate answer right now.
Okay. And in the Europe operations, like, obviously, this quarter was 1% growth, but are we seeing any revival of growth over there? Like can growth pick up from next quarter or we expect it to be low single-digit growth only going ahead.
No, next quarter, as of now, our expectation would be a mid- to high single-digit top line growth. So much better than what it is currently. And this, we are again talking year-on-year because, as I said, from a seasonality factor, the sequential comparison in Europe has less of a meaning.
So that would mean that the margin also should expand, like we should compare Y-o-Y only. So Q-on-Q, there should be good margin improvement from 2Q.
That's correct.
And any price increases in Europe?
Europe, currently, the competition hasn't taken any price increases, and we will have to function within that industry. Europe also typically faces some of the raw material cost pressure with the lag. And keep in mind that the largest component of current pain in India, which is natural rubber is a much smaller proportion in Europe.
Okay. And can we like -- we mentioned the volume growth in replacement in [ TBR and PCR ] was in double digit. Can you share the numbers like segment-wise in other segments also, how has the growth or decline as well as the OEM segment, how much decline you saw in truck segment and all? .
So in truck, for example, we had an OEM decline of almost double digit. And passenger car was, just a little negative.
And lastly, on the price increase side, we had taken around 2% price increase in the first quarter blended and 1% we have taken in this quarter so far.
Price increase, we had taken -- while on the passenger car side, it was close to 2%. On the truck side, it was just about 1%.
In the last quarter?
That's correct.
And this quarter, we have taken 1% more across.
Yes. I'm not including in this the one that we took for the replacement segment on account of EPR.
Oh, that's separate?
That's separate. That's covering a separate cost element.
That's how much basically?
That I think was around 0.7%.
And that was taken in 2Q only?
That was announced in May for the entire replacement segment.
So we'll take the next question from Pramod Amthe.
So the first question is with regard to the price increases. Even though you have been taking up aggressive price hikes, but if I look at your or the competition behavior, it looks like where you are a leader, you are taking literally a lower price hike than the required whereas in case of -- like in case of PCR, your price hikes are more than the TBR, where you are a challenger, we are similarly competition is doing the same exercise.
So is there a threat of market share further lost by the leader and hence, the price hikes taken by the leaders within the subsegments are lower than the followers. And hence, as a repercussion, the realization or the followers in terms of these price hikes will be lower than what is expected.
Pramod, each segment, we will have to take a call depending on situation, there's no simple equation. Your question is very valid. But in truck, it's not as if we have a clear leadership position. MRF, in fact, in cases of volume is ahead of us. So we have to take price increases, taking that consciously into account. Passenger car where you said we've rightly taken more price increases.
It's on account of a certain brand built over the last few years and a call was taken that we could take such a price increase. It's not that, that is the formula going forward for the various segments. Each time there would be a call taken as to what's the appropriate action for each product category and within that each channel.
And a follow-up to the same considering these price hikes have come at just start of the monsoon how has been the on-ground realization of these price hikes into the actual ASP for the company?
Still early, and we have taken only a small price increase, as I mentioned, about 1%. There are price increases announced by competition. So we are considering another round of price increase. I don't have a date for that. This quarter, as you yourself said, is seasonally not our best quarter. So things for this quarter will continue to be tough and then really a pickup going forward from Q3.
Sure. And the second -- the third question is with regard to the market share versus the organo changes or the actions which we are taking up. I wanted to get -- because this market share erosion has been initially as more conscious thought which you guys took and now the reaction mode. We also see some amount of changes or churn at the marketing team level. Is it part of the action taken up to correct the market share gain, one. Second, or you feel the industry is still a capacity push type of an industry versus the action which you are taking up as a good citizen is not coming through.
Some of the churn, Pramod, is people having their own career ambitions or in some cases, their own different goals coming up. It's not a reaction to market share. On the second part, we will continue to again strike a balance. This market share loss and particularly this current quarter does not make us feel good. How we will take actions, let's say you will get to know in the next 1 or 2 months.
And Gaurav, I don't want to link this Appolo 2.0 to market share loss or gain. That's 1 of the main -- the reason we are getting ready for Appolo 2.0 is because we see the whole landscape of mobility is changing worldwide. We have 3 big operations in India, Europe and U.S. We were not getting global scale benefits, synergies across all the 3 regions.
Give you an example about product rationalization. Plants were running for their own territories. So now with this new structure, we've become 1 global company. And everyone is looking out for how do we get to those vision figures that we've always mentioned, okay? So it's a collective effort and not just Europe doing what they want to do and not -- India, what they want to do. So that in itself will give us a lot of synergies.
And in the long term, you will see Eventually, it will come to profitability. It will gain market share. It will gain podium positions. So all of that is our target of doing this Appolo 2.0.
All the best.
We'll take the next question from Jinesh Gandhi.
Am I audible?
Yes, Jinesh.
Gaurav, can you talk about the quantum of cost inflation seen in first quarter?
The RM basket went up by 5%, Jinesh.
5% Q-o-Q.
Yes.
Okay. And secondly, if you can also talk about our market share on the replacement side, both for PCR and TBR.
The market share data no longer is available Jinesh as a published figure. So it's difficult. I would say -- we would have lost a little bit of ground on the truck side. Our broad figure used to be late 20s, difficult to estimate how much we would have lost. But given some of the growth of competition, I would say...
No, I mean our market share is still March '24 last year, not for the current quarter til last year.
Up to March '24, probably on a full year basis, we had a truck market share of about 28%, 29%. We had a passenger car market share of about 20%.
And truck will -- TBR would be higher than 28%, 29% or it would be around there.
It would be around there.
And secondly, for the European business. I mean, given the consolidated nature of the market, would we be comfortable that 15%, 16% kind of EBITDA margin on sustainable basis from where we are today, there should be upward trajectory from there.
We believe, Jinesh, that the 16-odd-percent margin that you mentioned on EBITDA is quite a sustainable margin within that industry structure. Pre-COVID some years, we definitely had dipped, but this margin has been demonstrated for a number of years leading up to 2016 from about 2012 to 2016, and then over the last 2 or 3 years, even without the market operating leverage and market conditions being tough, we've delivered these margins. So we definitely believe these are sustainable with the potential to go up.
Right, and last question on the India business. I mean, where we have been willingly letting go of less profitable businesses on replacement and on the OEM side. Would that stance change once we have capacity is also available probably towards the end of the year, early next -- early FY '27. Do you think we'll have to relook at those decisions? Or those are more structural in nature and not to do with the capacity constraints, which we may be facing today.
A, we don't have a capacity constraint today. We are not at the best of capacity utilizations with some of the strong growth, particularly on the passenger car side, the capacity utilizations have started going up to mid-80s. But through last year, we were in the 70s. The truck continues to be in the 70s, and yet, we have chosen not to participate, as Neeraj mentioned earlier, in, for example, the bus segment, which is seeing growth because that's fundamentally low profitability, including question marks on payment issues.
So some of our decisions are structural. They have not been temporary one-off decisions. Some of them are constantly up for debate and will be evaluated. And on your first point about capacity, as of now, our capacity will continue to only get tighter. There is no capacity expansion happening in India to give us that surplus capacity, and hence, pressure to get into unprofitable segments.
Okay. Okay. Got it. And lastly, on the exports, given that most of your peers who compete in India are also ramping up in exports. Are you seeing any signs of pricing getting tighter and export markets or it's more to do with the pricing set by the local players and we benchmark to them.
Largely benchmarked to the local players. And also there are different markets. For example, the Europe, which is our largest export market, followed by U.S., we are largely playing there under the Vredestein brand.
So it is definitely not priced in accordance with the domestic peers in India, but more with the global players who are operating there. In the Middle East or in the ASEAN region, et cetera, we would have to sort of compete with both the Indian players and a mix of local players where there is greater pricing pressure.
Okay. Okay. And you're not seeing the Chinese players coming back and disrupting the pricing in any of the export markets?
They are there in a certain quantum. But again, our pricing has never been benchmarked to the Chinese, and we don't cater to that customer or that subsegment where the Chinese play.
Maybe take 1 more question from the line of Basudeb Banerjee.
Am I audible?
Yes, Basudeb.
A couple of questions. One, if I missed out if you can just clarify the EPR expense this quarter, which you said is in the other expense line item, which enhanced the number, so but -- isn't that recurring in nature down the line? Or it had some retrospective element?
No, Basudeb. The INR 27 crores of EPR expense is a regular item. That's not a one-off.
Yes. So then this other expense increasing because of EPR, that is a recurring thing. And the sequential gross margin decline had nothing to do with EPR as such.
That's correct. The sequential had nothing to do with EPR, and it's a regular. What I was saying is that it's a deviation from the same quarter last year.
Sure, sure. And mathematically speaking, if one looks at residual 4% price hike required and already, we are through almost mid of August in Q2 and 1% price hike. So further gross margin deterioration is possible, at least in Q2.
That's correct. .
Yes. So that clarifies my doubt. Second question, if I look from -- more from industry holistic perspective from a long-term angle. If I look at raw mat basket cost, say, 2, 3 years back, where it was around INR 160 or INR 165 a kg, which is the current level approximately. But if I look at EBITDA per kg or gross profit per kg that time and today, there is heaven and hell difference where gross profit per kg is almost 50% higher.
And at today's results, there is an element of negativity that result is on a downward curve. End of the day, maybe 2 quarters later, if natural rubber prices falls back from INR 230 a kg to INR 160, and there won't be any price cuts in replacement and everybody will be happy to see margin go back to 18%.
But as a consumer, so the same, say, a Swift car tire price is inflationary in nature and hardly it is deflationary even in a raw mat deflation environment. So where is the end of that -- you understood what I'm trying to ask? So where will it end? Because it's a matter of demand/supply, it can't go on and on.
Interesting point Basudeb and fundamentally, there is an inflationary environment, things go up, whether it's our regular consumption items of day-to-day or white codes or tire stroke cars. You made the interesting point that when the raw material basket was around INR 160, a couple of years back, margins were at a certain level. It came down to the levels of INR 150-ish, margins went up, and one would want to say that, that is where the margin should always be, we have been cautioning that the highs of last year was also not a normalized situation.
We are currently in an environment where raw materials have gone up very rapidly. We will cover up for these cost pushes. And yes, fundamentally, a few quarters, a year down the line, the raw material basket will fall again. But the cost of your car or the cost of the tires would have gone up. They would not come down to the extent.
And if you look at the longer-term cycle, we are talking of a swing of raw material during the peak COVID quarters from INR 110 to up to INR 180 back to INR 150 and then INR 160. So it's some of the swings of the industry that we go through. But if you step back and take a longer-term view, the pricing of per kg or EBITDA per kg, et cetera, is fundamentally going up.
So we don't have any further questions now. So I'll hand over the call back to the management for any closing remarks.
Thank you to everyone, and hope to see you next quarter with better performance from Apollo. Thank you.
Thank you.