Apollo Tyres Ltd
BSE:500877
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Apollo Tyres Ltd
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[Audio Gap]
Mr. Ravi Shingari, Group Head Account and Taxation; and Mr. Himanshu Sharma, IR Head.Without further ado, I hand over the call to Mr. Kanwar. Over to you, sir. Thank you.
Thank you, Ashutosh. Good afternoon, everyone, and a very warm welcome to Apollo Tyres quarter 3 earnings call. First of all, my best wishes for you and your families' health and safety. I would once again also like to take this opportunity to thank our employees, our dealers, suppliers and all other stakeholders for their continued support.I'm happy to inform that the demand recovery has continued to be extremely positive in India, both in the OEM segment and in the replacement market. We are seeing a sustained recovery in OEM -- in the OEM demand. In Europe, despite a sluggish demand environment, we continue to make inroads in the premium segment and gain across product categories. I'm extremely pleased with the quarter 3 operating performance and believe that post COVID-19 scenario, Apollo is today more efficient, leaner and future-ready than it has ever been.Also with government turning from fiscal consolidation more to expansionary mode in their FY '22 budget, the focus is clearly on growth. More importantly, the reform momentum continues with government announcing various initiatives like increase in FDI spends, privatization of PSUs and the ease of doing business with time bearing of past cases, changing limits to reduce mitigation, et cetera.The markets also gave a thumbs up to the budget with a 2,300 points increase in 1st of February 2021. Another welcome step by government has been the announcement on scrappage policy. While we await final details, it could be a big boost for the tyre industry in the near, medium term.All of these steps auger well for Apollo Tyres as we have invested on building block like capacity, R&D and our brand-building initiatives in the long run.In terms of outflows, while we have limited ability to forecast given the uncertainty around the second wave of COVID-19, I want to highlight a few things. We continue to see healthy demand momentum on ground in India. We are in the final leg of specialization in our Dutch plant, and we'll start seeing the benefits from FY '22 onwards. And given all of the capacity in R&D, in the brand, in the distribution and optimizing our costs, we are extremely well placed to leverage demand recovery as and when it happens across all segments, across India and across Europe.Also, we have made significant progress on strengthening our balance sheet in the current year. We will continue to focus on controlled capital allocation to ensure free cash flow and balance sheet leveraging at reasonable levels. This increased sweating of assets -- of our existing assets and expanded capacity will ensure that we drive up our ROCE in the long term.with this, I would like to conclude my opening remarks and hand over to Gaurav, our CFO. Thank you, and stay safe.
Thank you, Neeraj, and good afternoon, ladies and gentlemen. Let me start by reiterating our commitment towards safety of all our employees and stakeholders, even as we witnessed a significant ramp-up in our activity levels. We continue to urge all our employees and stakeholders to not let their guard down against the risks posed by the pandemic.During the last 9 months at Apollo Tyres, we have focused on converting the current crisis into an opportunity. We have recently rolled out a new e-commerce portal for passenger car and 2-wheeler tyres in India where the customers can select and buy a tyre online and then get the fitment done at a dealer of their choice. Initiatives like this will not only help us to improve customer engagement but will also help us become future-ready. There is a lot of focus on digitization and online collaboration with a twin objective of being future-ready and bringing down cost on a long-term sustainable basis.We continue to keep a very close tab on all our expenses with efforts to bring down the fixed cost across regions. Supply chain costs have been reduced. With focus, the inventories of both raw materials and finished goods have been reduced to new benchmark norms, resulting in significant optimization of working capital and achieving positive free cash flows in our regions.Similarly, a lot of work has happened on digital launches, helping us not only minimize cost, but also maximize the reach. Even as volumes have recovered, we have continued to keep the cost in check and driving up the strong operating results that you see in the current quarter. We expect to retain significant part of these benefits even on a steady state basis.Finally, as Neeraj mentioned, we continue to focus and invest in the fundamental pillars of our business, R&D, brand, enhancing distribution network and enriching our product mix.Moving on to the financial results. The consolidated revenue for the quarter stood at INR 51.5 billion, a growth of 17% over same quarter last year and 20% on a sequential basis. The Indian Operations registered a growth of 24% year-on-year basis whereas the top line in Europe declined marginally given the market conditions.The consolidated EBITDA for the quarter stood at INR 9.9 billion, a margin in excess of 19% compared to a 12% plus margin in the same period last year and a 16% plus in the previous quarter. The strong margin performance has been helped by a strong top line, reasonable raw material costs and control over the other costs.We have continued to strengthen our balance sheet with continued focus on free cash flow generation to control over CapEx, cost reduction and the equity raise that was done earlier in the year. Our net debt has decreased to INR 38 billion at the end of this quarter compared to INR 46 billion at end of September 2020. The net debt-to-EBITDA for the consolidated operations has dropped to 1.6x.Moving on to India Operations. The revenue for the quarter was INR 34 billion, a growth of 24% over the same period last year. This top line includes a one-off element of SIPCOT subsidy linked to our investment in Chennai of INR 1,350 million. If we exclude this, the top line growth would have been 19.5%. The top line growth for the quarter was driven by volume growth in both OEM and replacement segments. This was in spite of our Kerala plants being impacted by COVID, which adversely impacted the bias production and sales to a slight extent. That situation has recovered in the current quarter.In terms of product segments, all segments posted strong growth. We continue to make rapid strides in the 2-/3-wheeler segment to challenge the market leaders. And as per our internal estimates, we have had market share gains across product categories.For the Indian Operations, the EBITDA for the quarter stood at INR 7.3 billion, a margin of 21.4%, more than 800 basis points gain vis-à-vis same period last year. Even if we exclude the one-off element of SIPCOT subsidy, the EBITDA margin would have been in excess of 18%.In terms of outlook for the Indian Operations, we expect the demand momentum in the replacement to remain strong in the near to medium term, and a sustained demand recovery in the OEM segment. Given the strong recovery, we are making sure that within the guidelines, our plants are able to produce enough tyres and supply chain able to deliver them across the country to service the customers.The ramping up of our latest greenfield in AP will further boost our capacity and help us to capture growth going forward. We are witnessing an increase in raw material cost and expect the trend to continue in near term. In response to this, we took some pricing actions in both OEM and replacement segments towards the end of Q3 and are monitoring the environment. Further price increases would be needed to negate the cost push on account of raw materials.Moving on to Europe. The sales for the quarter were EUR 136 million, lower than the levels in the same period last year, though a growth of 6% on a sequential basis. The business environment was impacted by the second wave of COVID, the market witnessed negative growth. We have, however, continued to gain share in the UHP passenger car segment and the truck segment. Our focus on mix improvement have meant that nearly 37% of our volume of passenger car sales is UHP. The Hungary plant continues to ramp up and improve its cost competitiveness.The EBITDA for the quarter was at EUR 18 million, a margin of 13% compared to 9.3% for the same period last year. The operations were able to deliver a substantial improvement in profitability in spite of a weak demand environment. The margin recovery was supported by the sales mix improvement and cost control measures.Europe Operations also, like India, have generated positive free cash flow, and we have been able to maintain a healthy liquidity situation. As mentioned by Neeraj, we have made significant progress on our intended specialization of the Dutch operations. We are in the final leg of this, and the process would be completed in the Q4 of this year, leading to a much improved cost competitiveness going forward.To that point, what we have talked earlier, there was a one-off exceptional item pertaining to the specialization of the Dutch plant and the same has been accounted in Q2. Accounting standards dictated that the charge was taken in Q2 financials, even though the amount was finalized recently. The exceptional item amounts to EUR 69 million, EUR 54 million on account of the payout to the employees and about EUR 15 million for impairment of old plant and machinery. This specialization would go a long way in improving our cost competitiveness of European Operations and showing a path to recovering to healthy profitability levels, signs of which can be seen in the current quarter itself.In terms of outlook on the European Operations, we expect the demand environment to remain subdued given the current COVID situation. However, tyre stores are not impacted by lockdown and hence, business continues at a certain level.Thank you. We would be happy to take your questions now.
Thank you, management, for that opening remark. [Operator Instructions] The first question is from Mr. Raghunandhan -- from Mr. Nishit.
My first question is on Europe business. Just wanted to understand, once we complete this restructuring exercise, what could be the potential volume and revenues that we can deliver with the existing order restructured capacity that we would have in Europe? Because our capacity will also come down after the restructuring, right?
Okay, Gaurav, I will take the questions. So there won't be any capacity drop because what we are doing is after specializing -- as we speak, we are specializing the Dutch plant, but molds have already moved into Hungary and into India. So the capacity constraint is not there. In fact, the volume growth will be there. As and when the market is moving up, we also see volume growth happening.So Europe will actually be -- in the new form, it will be -- volumes will come out of Hungary and from India and only 500,000 tyres will come out of our Enschede plant. So volumes will not take a beating on that.
Okay. So -- and my second question is on India business. We have seen this imports restrictions coming on to the PV side, passenger vehicle side. And I think we had plans to launch Vredestein brand in India to cater to the premium car segment. I just wanted to understand, have we -- where are we on that and what are our thoughts on that perspective?
So like I mentioned last time, yes, we are launching in the month of March of this year, Vredestein. Vredestein will be targeting the niche market in India, the higher segment of the market. That would also mean higher profitability products that are coming into the Indian market. We were ready -- we are doing this as we have experience in the European market. We brought in the molds straight from Europe into India. Manufacturing is already started. So the launch is as per the plan, which is going to be taking place in March.
Okay. And lastly if you can give some color on RM cost increase that you would see probably in 4Q and 1Q in terms of if you can quantify those numbers, it would be very helpful.
Gaurav, will you take that?
Sure. So Nishit, 1Q, given the volatile situation, is still to be seen. But there will be a sharp jump of raw material of high single digit in Q4 over Q3.
That is something which will pass to the P&L, right? Because last quarter we talked about a 5% increase. But if we look at RM cost per kg on a sequential basis, we have not seen an increase. So are you talking about procurement costs or are you talking about P&L costs there?
No, we are talking about P&L cost. Even in the current quarter, there has been an RM increase. It has[Audio Gap]
So the next question is from Mr. Mukesh Saraf.
Yes, am I audible?
Yes, sir.
Yes. So my first question is on the Indian business. Could you give some sense on -- between the PCR and the TBR -- and the truck and bus, how is the replacement growth we've seen in this quarter -- in the third quarter?
Sure. I will just say a few things, and then Gaurav can take it on. As far as replacement is concerned, we've seen a handsome growth for Apollo. As you would have seen, we've achieved a very high -- highest turnover that Apollo has ever achieved in India. This has been because of the main volume growth that's not only coming in the truck/bus segment, but also in passenger car tyres and in farm.We've seen really -- according to our internal estimates, we've seen a 300 basis points increase in market share in truck/bus. We've seen a 400 basis points market share gain in passenger car segment, and close to 500 basis points market share in the farm segment. This has really come on the back of 1 import restrictions that have come in.We've seen personal mobility increase in India. We've seen the farming segment going very rapidly positive. Also Apollo has opened a lot of rural distribution networks in India, and that is also giving boost, not only to these 3 segments but also to our 2-wheeler car segment -- I mean 2-wheeler segment, sorry.Gaurav, would you like to add more color on this?
Sure. So in terms of the data Mukesh that you asked for, our volume growth in this quarter on the same period last year, truck was 17% and passenger car was 24%.
This is the aftermarket, isn't it sir?
Yes.
Aftermarket was also similar numbers. Passenger car was lower. Passenger car growth was driven more by OEM. But on the truck side, the replacement growth was similar to the overall number.
Okay. And so passenger cars, I remember last quarter, you had mentioned that about 15% of the industry volumes are reported. Is there any shift we've already seen in pulling that demand domestically? Industry-wise...
Imports are negligible currently given the current restrictions. So bulk of that demand has gone to the domestic players.
Right. Right. And second question is regarding this niche. So we talk about dealer expansion. And we separately talk about this rural expansion where the number of outlets have probably quadrupled in the last, say, 9 months. What is the difference between these 2 outlets? I mean are these not regular retails -- retail outlets, the multi-brand outlets? And some sense on that, what is the difference between these?
Are you asking difference between rural and urban?
No, sir. You mentioned a total outlet count of, say, around, say, 350 to 450, that kind of a number increase. But on the rural outlets, you -- we increased it by more than 3,000. So -- I mean how do these kind of differ?
Well, in the rural market, it is a multi-product dealership and this is a new initiative that we've only taken, I would say, 18 months ago. And these are non-tyre dealers who have not dealt with tyres. Some would be tyre dealers, some would be non-tyre dealers.And so here, the company is gone into the rural markets and is promoting employment, promoting business in rural markets to give them tyres and to make business. So the 350 is more matured retail network, whereas 3,000 is a new network that Apollo is creating in the rural market.That also gives growth to us because you're dealing with all 5, 6 product categories, all the way from truck to farm to passenger car and then to 2-wheeler. So it gives you a whole multi-product facility. And, yes, more or less, it's more of an exclusive drive than a multi-brand drive that is happening in the rural market.
Right. Understood. And just the last bit on the growth in the CV segment, how is the difference between the TBB and TBR growth? Because last quarter you had mentioned the TBB growth was higher than TBR. Are we seeing some change there? Has TBR now caught up in the aftermarket?
Gaurav, do you want to give idea on that?
Yes. So TBB continues to be strong, but TBR growth in Q3 was 30% and TBB was 5%.
So the next question is from Mr. Jay Kale.
Congrats on a good set of numbers. So my first question was on the restriction on imports. So how are you seeing that currently? What kind of an impact it would have had in Q3? And going forward, we've had certain news flow of certain companies applying for licenses, initially thought of getting them and then kind of getting delayed and maybe taken off operations in the -- temporarily from India. How are you seeing the organized players getting licenses in India, whether it will be a long drawn process for them and hence, a sustained benefit for us over the next 1 year? Or you could see this reversing back shortly?
It's not going to -- yes, the organized players, specifically the international MNCs, have applied for import licenses. And there is some breather given by the government for these licenses. But we at Apollo, because of our strong hold in Europe, we are competing with the best in those markets. We're competing with the Michelins and the Bridgestones and the Goodyears of the world in those markets. Vredestein today is competing with those brands.So as soon as we launch this, I feel that there is a sustainable growth in Vredestein in India. Whether they get the impot license or not, it doesn't affect us because we've already started seeding that market and the brand, and the leaner network is also -- which was buying those high UHP tyres, have also started coming into the Apollo franchise.So my strategy is very clear, is that this has given us a boost, it has given us the energy and the direction to go in that segment of the market. And the team has done a good job by really taking on to that opportunity and launching tyres in the next 1 month.
Sure. Just on a continuation to that. So would it have helped your lower end tyre? Because these imports, it's a 2-pronged way of import that was going on. One was on the lower end tyres and also on the upper -- higher end tyres. So for the fleet operators and all of that, that kind of tyres would have benefited your portfolio? Or it would be more of the upper end tyres where you would have got a better chance of catering to that market and establishing your brand?
See, there are 2 things that you've asked here. I think all in all, it has given a boost to the passenger car segment, whether it's in the lower segment or in the higher segment. Imports were really coming on 14-inch and up. 12 and 13-inch, those are the lowest segment of the market. The international players don't make those tyres because there is no market for them outside.We, at Apollo, I want to tell you that 12 and 13-inch is also a very low-margin business. Rightly so, you said fleet operators, commercial. There is very less margin in these tyres. So slowly, slowly, Apollo has also been inching up and going down as far as 12 and 13-inch is concerned. And our focus is really on the higher end of the market and -- where the higher profitability expansion will happen.So really if I look at the pie chart of 12-inch all the way till 20 inches of Apollo in India, 12 and 13, consciously we started going down, and we started increasing our fold in the 14-inch higher sizes.
Sure. Just 1 last question, if I may squeeze. This is on your net debt and FCF portion. You've kind of had a good control on your working capital and got an FCF in this quarter. How should we look at FCF going forward over the next 2 years, while CapEx, we are at the fag end of our CapEx cycle, but the demand being so strong as it is today, how should we think about CapEx and FCF over the next 2 to 3 years?
Gaurav?
Sure. So Jay, you've rightly pointed out that demand is very strong and it's a situation that we are monitoring. FY '22 CapEx, you've already talked about, which is the INR 1,600-odd crores. If this strong demand momentum was to continue, we will assess if any small additional CapEx needs to be added to that. So there should not be a big increase from that.FY '23, as of now, we haven't initiated any new growth CapEx. So we continue to be conscious of the fact that we have to be controlled in our capital allocation and free cash flow positive. We have made significant headway in deleveraging and generating free cash flow, but still too early to say about FY '23.
So the next question is from Siddhartha Bera.
And congrats for a great set of numbers. Sir, my first question is on the market share side, which you indicated that we have gained significantly over the past several months. So first, some color, if you can throw some light on the segment-wise market share in this quarter, if you have, Q3.
Gaurav, you want to throw some light on that?
Sure, sir. Siddharth, what I talk about is market shares on a YTD basis because on a quarter, the industry data comes to us with at least a 2-month lag. So up to October, which is April to October, we believe that our truck market shares are around 31%, our passenger car is around 22%.
Understood. This is on the replacement side, you are mentioning?
No, this is on the domestic industry, which is OEM plus replacement.
Okay. In the replacement side, will it be possible to highlight?
We don't get that market data broken up to that extent. So that's why we estimate it on a total basis.
Understood. But -- I mean just wanted to understand -- I mean we know that the first few months have been a bad month for everybody. So is this increase there compared to last year also in Q2 or Q3? Would it be fair to say that it has gone up compared to those quarters?
Compared to Q2, we may not have gained. In fact, you've seen results of Ceat and JK, and they have also posted strong growth, in fact, marginally ahead of us. So we may not have gained significantly or may not have gained at all over Q2. What we have the data is April to October, the November industry data is just coming in. So we would not be able to comment on Q3 backed by data.
Understood. So basically -- I mean the gain has largely come from the import segment or -- I mean who has lost during this period? Would you have some color on that also?
See, we do not get the data for other players. But yes, a, we have benefited from the imports restriction. But we've even gained from some of the players. For example, on the truck bias, the Birla production went out. That again got spread within the domestic players. We believe we've gained a little bit from domestic players, but difficult to comment player by player as to who would have lost.
Understood, sir, understood. Second question is on the replacement demand side, I mean in Q3, we have seen a very strong growth. So would you have some color about how December, January is playing out? Is there any catch-up which is happening or we continue to see those strong growth trends even now?
Q4 has started on a good note, specifically, even early January. We see a very positive trend going forward, specifically for us, given the distribution and the brand and the technology that we've put in. Plus, I want to tell you that the greenfield that we have put in, in Andhra, and the expansion in Chennai of Truck/Bus Radial is -- that volume growth is going to now come into the market because Andhra is now ramping up very smoothly. Currently, we are producing 4,000 passenger car tyres and close to 1,200 Truck/Bus Radial. They are going as per ramp-up plan, if not even better than what we had estimated.So all of that production is going to come into the market. Last quarter, we saw plants running at close to 85%. Our feeling is that in this quarter, all our plants should be above 90% utilization. Running the plants at 90%, 95% utilization, all that volume growth is going to come into the market.Also, from the OE side, we are seeing a positive trend as we have seen already in the month of -- in quarter 3. All segments have grown handsomely. CV has grown 15%, car has grown nearly 25%, farm has grown 60%. That order book for quarter 4 is even going higher than quarter 3.So all signs, as far as India is concerned, are very positive. And we are pretty bullish about quarter 4 as far as volumes are concerned.
Understood, sir. And lastly, sir, on the Euro business. So this quarter 3, staff costs are -- they already have some benefit from the restructuring they've done or it is yet to come in completely for Q4?
It will start -- actually, you will start seeing it from April. We are in the midst of specializing our plant. Everything has been done. [Technical Difficulty] releasing in the month of February and March. So the benefit of staff cost will actually start coming in FY '22.
So the next question is from Sonal Gupta.
Just a couple of questions. One, I mean could you just talk about -- like historically, what you've seen for the industry is that generally, price increases tend to lag as the raw material cost increases, but this time around, we are clearly seeing a very strong demand trend as well, as you just highlighted. So do you think the industry is in a position to take the further price increases like you've indicated that would be necessity to pass on the full commodity cost pressure in Q4?
Sonal, as I mentioned to you already, we have taken a price increase in replacement market to the tune of 2% to 3% in December month, okay? Obviously, going forward, given the RM push that we have in the industry, we are looking at on a second price increase towards the end of the quarter. And given there is volume growth happening in India, I believe that, yes, we would have that maturity and the strength to take on the -- another increase in various segments of the market.
Right. And anyway the OEs are indexed to the raw material cost [indiscernible]. So...
So the -- so I'm not majorly concerned because OEs, you've already seen price increases come in, in all the 3 segments. So that is linked to the formula of natural rubber and carbon black, whereas replacement is where the pricing power comes in and we're able to do that. So even with the 3% increase in most of our product categories, I've seen a very bullish January, that's gone by.
Right. Right. And just the other question, like, if I got you correctly, you've indicated that the plants are running at almost 90%, 95% capacity utilization in most of your plants?
Yes. So yes, I just want to correct that. Our Kerala plants were running at around 65% last quarter because of COVID. As you all know, Kerala was affected with COVID in a big way. So even our plants were down from 300 tonnes per day to nearly 230 tonnes per day in the months of November and December. In fact, I would say, an estimate of INR 80 crores to INR 100 crores of sale we lost in quarter 3 because of the issues of COVID in Kerala.But I'm happy to say that now that is set back. And in January, we've already reached a level of 80% to 85% in Kerala plants. So that production is going to come out in this quarter.Our Baroda plant was running as high as 90% to 95%. And given the greenfield that's coming up in Andhra and the new expansions that we've done in Chennai, we believe that all this growth is going to come into the market in quarter 4 of this year.
So could you just clarify -- I mean like the Chennai capacity is now what it was 12,000 TBR tyres per day, right?
Yes, just -- yes, 12,000. Now the product mix has changed. So it's around 11,300. And we value the capacity of light truck radials. We are the pioneers in India in light truck radials, which is really very good. That has the capacity of 1,700. So if you add both of them together, it's around 13,000 Truck/Bus Radial plus light truck radials.
Okay. And just on -- what is the expansion...
We request you to going back to queue.
Sure. No, I just wanted to get a sense on like keeping where -- till what level can we expand the current -- I mean what is the current investments we've made, till what level of capacity can you go with that?
Gaurav?
Yes. So Sonal, for the current investment of about INR 4,000 crores, the capacity would go up to 15,000 car tyres per day and 3,000 truck tyres a day.
Okay. That will happen by end of FY '22 or?
That would happen by end of FY '22. Yes.
[Operator Instructions] The next question is from [indiscernible]
Just 1 question. Your investor presentation highlights the replacement mix on a YTD basis in India and at a consolidated level of 75% and 84%. I just wanted to know what was this replacement mix at the same time last year on a YTD basis?
For YTD FY '20?
Yes. India and consolidated both.
Just 1 minute. So FY '20, Q3 was 70%, just between replacement and OE; 70% replacement, 17% OE and the balance was exports.
Okay. This is India or this is consolidated level?
This is Indian.
Okay. And at a consolidated level?
At a consol level, the replacement number would be close to 75% and OE -- or 77% and balance would be OE.
So the next question is from Raghunandhan.
Congratulations for the stellar numbers. Company has done extremely well on return ratios this quarter and has posted strong numbers. Would you aspire for sustaining double-digit ROE, ROCE in FY '22? I just wanted to get your take on your efforts on sweating the assets sweater, improving margins and sustaining these double-digit numbers.
You are on mute, Neeraj.
So Raghu, I will say a few things and then Gaurav you come in with the numbers. But from a strategy point of view, a very clear focus, I've mentioned to you in our quarter 2 earnings call, is around deleveraging our balance sheet, okay? Heavy capital allocation has already happened in the past 3 to 4 years.Now the strategy going forward is really to sweat our assets, get our utilization, which I'm going on mentioning in my call over here is that utilization has to go about 90% to 95% in all our plants. And you will start seeing ROCE coming up. We've already seen our net debt to EBITDA coming down to 1.6x in quarter 3, which is a very handsome, I would say, downfall from where we started in April of 2020, from a 3.22x, coming down to 1.6x.So there is a clear focus on cash management, on capital allocation where we are only looking at maintaining the plants and whatever Gaurav has already mentioned about the phase of Andhra, which is going in as we speak. So given that we've already created a new distribution, there is a lot of emphasis on creating a brand, there is a lot of emphasis on R&D and technology.Given the distribution networks that are coming across, we believe that we are, right now, poised to really take over from here. From our quarter 3, you will only see a positive trend line in most of our ratios in the balance sheet.Gaurav, do you want to give some more inputs here?
Sure. And Raghu, yes, the efforts on improving the ROCE and ROE, where we were below our own expectations and market's benchmarks will continue. Even as this significant growth momentum comes to somewhat good levels given the base effect, we will continue to improve our return ratios as we sweat our assets and capital allocation will continue to be based on very strong analysis of where and how much we should invest.
And Gaurav one more question. Can you indicate RM cost [indiscernible] for various commodities, which you share every quarter?
Sure. So natural rubber in the current quarter was at INR 140 a kg, synthetic rubber at INR 115, steel cord at INR 150 and carbon black at INR 65 a kg.
And blended number would be, RMP per kg?
Blended number was around INR 120 a kg.
Just a last question. The rural outlets you spoke about, the new initiatives like expanding the rural volume in the last 18 months. How would it help in expanding volumes and market share? How meaningful is it now or how do you see it going forward in terms of contribution?
Gaurav, would you answer?
Sure. Rural share would continue to grow, Raghu. I don't immediately have a percentage vis-à-vis our overall India business, we can get back to you.
I meant to say the rural outlets, which has been expanding in the last 18 months, that multi-product dealers through whom you are selling tyres. So how would that business shape up over the medium term? I mean do you think that, that business can meaningfully contribute to volumes?
It will. It will continue to grow still at a very rapid pace, and it will contribute significantly to the growth even going forward.
The next question is from Mr. Prateek Poddar.
Am I audible?
Yes, Prateek.
Just 1 question. We have seen a very good cost -- I mean you mentioned it in your PPT also about cutting up costs. How sustainable are these in your view? And is this something which is the new normal for Apollo Tyres?
Yes. During COVID, a very clear focus has been to take out all bad costs. In fact, what we have done in the organization is also looking at our fixed costs becoming variable, thereby making flexibility one of our key components of our plants.Bad costs, when I look at, is really costs which are incurring infrastructure. We've had digital launches of our products, new products in the U.S., in India and in Europe. And we've seen a much more, I would say, data points coming in, into a virtual launch, where you do a physical launch, you used to take 200, 300 people to a destination and do a physical launch. But with a virtual launch, it's gone to 3,000, 4,000 dealers coming and participating.So these are sustainable. And the team has also seen, and I myself have seen that this has been much more productive than having a physical product launch. Digital conferences has been a very, very productive way of doing conferences. So these are all sustainable going forward.Obviously, part of it -- part of the fixed costs will come in like travel, which, once the world opens up, travel will come in. We've also taken conscious decisions on shutting some of our stocking points, some of our godowns, not only in India but also in Europe. We've looked at offices, we've looked at godowns and see which are more productive, which we can do our way with, which were more luxury. And those are now going to be sustainable because given COVID, it has taught us a lot on how to manage our costs.The other big cost that we've also seen is reduction of inventory, and inventory has come down in India to a norm of nearly 20 days. And in Europe, also, our inventories of finished goods has come down dramatically.So these are sustainable and the company is only looking at investing more and more in digitizing the entire process of supply chain. So we are able to really be much more efficient as far as inventory management is concerned. And I believe that this will be -- going forward, this will be sustainable.Gaurav, do you want to add anything to this?
Nothing further.
Fantastic. And one small another strategic question. when do you -- I mean basically do -- when do you really think about the next [indiscernible] growth for Apollo Tyres? At what capacity utilization would you really start thinking and not deploying, but just think about or go back to the drawing board and think about? This is the time where at least you'll have to plan some growth?
Okay. So Prateek, I said this before, this is the time for Apollo to really consolidate all the internal CapEx that we've already put in. So like I mentioned, the heavy CapEx cycle is over for now, for at least for the next 2 to 3 years that we see. I'm happy that the strategic decision of Andhra was taken at the right time because if you remember in 2009, we took a decision when the world had come down because of Lehman Brothers, but the Board really gave us that energy and the power to go and put up a new plant in Chennai. That is why today, clearly, we are the Truck/Bus Radial leaders. That gave us a nearly 18 months to 2 years head start from competition. Today, we would be sitting at a market share of nearly 32% to 33% in Truck/Bus Radial.So similarly, when we took the decision of Andhra, we knew that infrastructure spends aren't going to come in. We obviously [ have one year of ] COVID. But now that the COVID is hopefully on a downward trend, the markets started improving, the replacement markets like we have said is improving. So the volume growth of Andhra is going to be there, is going to go into the market.And we are going to be looking at really utilizing all our plants, getting the best product mix, bringing our cost structures down of all our plants in the next 2 to 3 years, and really getting more free cash flows into the organization. And then we will see, and we will see how the markets are behaving. And then we will take a call on our next opportunity of our CapEx spend.
The next question is from Mr. Hitesh Goel.
Sir, in the truck business, what is the share of OEM and replacement segment?
Gaurav?
Roughly, Hitesh, it works on 75% replacement, 25% OEM. It can vary plus/minus 5%, depending on where the OE cycle is. So we've seen it swinging from 20% to 30%. Right now, we would be at that 75%, 25% mix.
And what would be the replacement overall growth in India for 9-month basis? Is it single-digit growth?
On a 9-month basis, yes, would still be negative.
9-month FY '21 replacement demand is negative for you guys?
No. For us, it's okay. Just a minute. For us, truck replacement overall is a small positive, 4%.
And passenger car?
Passenger car is still negative on a YTD basis.
So the next question is from Mr. Nishant.
So my question is, can you throw some light on the Dutch plant restructuring? What is -- what -- how much -- [Foreign Language] what is the -- what was the sales number? What was the initial investment before restructuring and the [ baseline blended ]?
Gaurav?
So Nishant, the Dutch plant or the Dutch company was an acquisition. So we -- it's not -- we did not go and build that plant. So in terms of -- there was no large investment. Fundamentally, over the last few years, the European market, as it went through, it swings [indiscernible]. The market became more and more competitive, with the result that a number of players started finding that the Western European capacities were not cost competitive.The global majors against whom we compete, all had plants in Central Eastern Europe, they expanded those capacities. And while they continued to maintain their single mother plant in the Western Europe, bulk of the output was coming from Central Eastern Europe.We were having a capacity mix where a large part of the production was still coming out of the Dutch plant and Hungary was still ramping up, which is what, together with the market conditions, put our profitability under tremendous pressure and that's reflected in the number of last few years where profitability number came down.It forced us into a situation to have a hard look and come to the tough conclusion that we had to specialize the Dutch plant on to product categories and volumes at the high end so that it could still be sustainable and profitable in spite of the high costs. And bulk of the mid end and low end has moved to the plants in Hungary and India as Neeraj alluded earlier.The cost that we incurred in this, as I mentioned earlier, is twofold. One is a noncash cost of impairment of old plant and machinery. There's no cash attached to that. The other one is the social plant cost or what you have to pay to the redundant employees as per the law. And that is what we would be paying out in Q4. The accounting of that has been done in Q2 because the letters, et cetera, were all given out at beginning of October.
Okay. So the investment is for making it more cost efficient. That is the rationale, right? So can you throw some light as to what was the operation amount and what kind of sales were we getting from that plant before the -- before this restructuring?
So Nishant, once again, the sales from the plant does not make sense. You have to look at the European Operation sales at the time of acquisition. Our European Operations or this Dutch company was doing a turnover of EUR 300 million. That turnover today -- last year was EUR 520 million of our European Operations. So in 10 years, roughly, the 300 million operations has become a 500 million plus operations.
Okay. And investment, what was our investment in that acquisition? Can you please throw some light?
Sure. We paid an enterprise value of EUR 145 million, which comprised roughly of EUR 110 million of debt, which existed on the company at that point of time and about EUR 35 million of equity.
Okay. Okay. And we are spending INR 400 crores more on that salary part for the -- right? -- salary part, right? We are paying salary to redundant employees of INR 400 crores. That should mean for looking it as an investment. So that will be our total cost of investment, right? Anything else?
No. We have continued to invest in the plant modernization, maintenance CapEx over the last 10 years. So...
Okay. So if you have the number, how much have you invested in that plant, that would be very helpful, sir.
I'm not sure what calculation you are doing -- wanting to Nishant, and that's why I'm at a little loss.
So I wanted to understand how much have we invested in that plant and what kind of sales are we seeing from that plant? So I just wanted to understand the rationale behind that -- those operations set? So if you could throw some light.
That is -- I'm repeatedly saying that you need to look at European Operations. So let's look at it at the current stage. We will incur a cash cost of about EUR 54 million, as I mentioned. And our salary cost would reduce by EUR 30 million in the European Operations going forward. So on a very simple basis, as we have talked to all of you before, the payback period on this is less than 2 years.
The next question is from Chirag Shah.
So 1 question on the domestic PCR. You alluded that you are moving away from 12, 13 and focusing more on the higher inch tyres. So one, post this import back -- import restrictions, who is serving that category?Second, I understand most of the domestic players are actually trying to vacate 12, 13 inch and moving up to 14, 15 and even higher inch based on their capability. In that case, over the next 2, 3 years, do we envisage competitive intensity just inching up in 14, 15 inch category, which is extremely profitable today?
So Chirag, 12 and 13 inch, I am not saying we are moving out of, but we have reduced our volumes. Our percentage of total PCR going into the replacement market, we are consciously going down on 12 and 13 inch. Our Indian competition, I would not like to name them, are going in that 12 and 13 inch segment.To really play in the 14 and above segment, you need world class technology. And today, Apollo has put in a lot of investments in R&D and in our brand building, whereby our tyres are being tested in European markets, in test tracks in Germany and in India and are coming out as #1, #2 positions in those markets.So the tyre technology is there. And the customer is very cautious of the tyres in these cars that we are talking about. And so it is not easy to enter into this market. You need a good brand. You need a good technology behind it and you need good service levels to try and service these customers. And that's why I believe that Apollo would be ready to do that.
So my second question is on the CapEx that you mentioned, INR 1,600 crore of CapEx for this year. So basically, what is the kind of capacity addition, either in tonnage or in revenue terms, should we look at? Can you add 10% of capacity because most of your plants would be reaching 95% utilization rates? So you need to add capacities. So this log addition, should we assume 10% capacity addition can be done at INR 1,600 crore CapEx?
Broadly, yes, Chirag. Why we don't have a precise number because the AP investment is a multiyear investment, which will get completed in FY '22. What the investment does at an overall level? We will still have the exit number to be finalized is that on the truck side -- truck radial side, it was adding 25% capacity.
And a relevant question, without new greenfield, how much the existing plant can actually be utilized to increase the capacity without a major greenfield?
Sure. And just to complete that on the car side, it was -- the capacity addition was again about 15%, 20%. To your this next question, the AP plant can be expanded from the current capacity to at least another 3x before we need a greenfield.
And at other plants, they have largely achieved their...
At the other plants, we cannot do any significant capacity expansion from vis-à-vis the laws of the land and the land availability, we are pretty much at full.
So the next question is from Mitul Shah.
This is Nisha here. I just wanted to ask, when we say that RM cost has increased by 10%, and we have taken the 2%, 3% hike. So we made another 7% to take the complementation hike so that our margins remain stable quarter-on-quarter. Is my understanding right?
So here, the RM cost will go up in the current quarter. And yes, broadly, you're right. If we want to maintain margins that we -- then we need to take about a 6% price hike.
Yes. And also, we have other cost savings for the quarter. So that we can't say that the margins will go down by exactly 6% because we'll have other cost savings for the quarter.
We do not give out margin guidance, so we would not be able to engage in very specific as to what quantum of margins can go. The RM cost push we have indicated, and we would be taking all efforts possible, whether it's on price increases or cost control side, to see how we can counter the cost.
And 1 last question from my side. When the AP plant CapEx is over, at full utilization, what revenue can we expect from the -- around INR 5,000 crores, which we have invested in AP plant when it is fully utilized?
So the investment in AP plant is about INR 4,000 crores. And yes, once fully utilized, the turnover generation would be of that magnitude. The earliest that can happen is FY '23.
So the next question is from Mr. Jinesh Gandhi.
My question pertains to the SIPCOT subsidy, which you indicated. That is INR 135 crore, if I remember that, is that correct?
INR 135 crores.
And this would be one-off and would not be recurring in coming quarters?
The quantum is one-off. There would be a recurring item, but that would be of a much smaller magnitude. This was a catch-up because of the change from VAT regime to GST, the government was still finalizing the norms. And hence, this amount pertains to almost a 3-year backup.
Okay. So annualized would be INR 40 crores to INR 50 crores, depending on our turnover?
Annualized would depend on turnover and sales. We expect it to be about INR 75 crores.
Secondly, for the European Operations, when we indicated savings of EUR 30 million due to a reduction of number of people, any further savings beyond this due to the benefit of specialization which you can replicate? And how should we look at the margin trajectory for European Operations?
Sure. So Jinesh, again, we would not engage in a specific margin [indiscernible] business. But broadly, our cost of manufacturing as an overall European Operations will keep coming down. As the product mix shifts to Hungary and India for the mid- end and lower-end tyres, our cost of manufacturing keeps coming down. And that will drive up the profitability very strongly from FY '22 onwards.
Got it. Sir, just on the SIPCOT subsidy. Of the INR 135 crores, how much is pertaining to the prior period?
Most of it will be pertaining to prior period. As I mentioned, INR 75 crores per annum. So roughly, you can say, a little short of INR 20 crores per quarter. So that would be the maximum amount that would pertain to Q3.
Got it. What I meant is prior period with respect to FY '20 and earlier, not for FY '21. So INR 60 crores would be for?
It's from a period starting from FY '18.
So we have our last question from Mr. Sanjeev Pandya.
Just drawing your attention to, say, the big picture story, if I try to slice your results in 2 parallel trends, one would be, let's say, the sectoral element. So there, I would say, some part of the change in your trajectory is coming from, let's say, the pandemic pullback. That would be normal and that would be something that we can see across the sector.The second would be that we were just on the verge of completing our CapEx cycle, and you've been fortunate to see very high capacity utilizations coming off the CapEx cycle. Normally, one would expect a kind of an industry-wide downturn towards the CapEx cycle. The tyre industry has been fortunate because of various sector-wide factors.Third would be, like Mr. Kanwar mentioned, the digitization cost and the raw material tailwind. That too, I would take it to be, let's say, a sectoral factor, and you can probably see it across the industry.Fourth would be working capital compression because of -- I mean that follows from the high-capacity utilization and the deleveraging that is evident, let's say, in your numbers, the surprising deleveraging.So these would -- these 4 would be sectoral. Now if I look at Apollo-specific factors from watching the company over a longish period, 3 factors. One, the fact that you are international. And you have European exposure and probably exposure to markets that demand higher price performance. So you get exposed to a tougher environment, let's say, in Europe. So that would be an Apollo-specific factor.The second factor would be the famous R&D capability of customizing local, shall we say, price performance equations in the replacement market. That, I think, is a unique Apollo, shall we say, differentiator where Apollo really probably stands out from the rest of the sector.Third would be TBR leadership and TBR conversion from TBB. So that is a macro sectoral trend where Apollo is pulling ahead of the others.So could we get your opinion on which of these horses are going to draw your future -- next 5-year trajectory? How much of it is going to be sectoral trends and how much of it is going to be Apollo? And of these 3 horses, which of them do you think is going to drive Apollo forward? For example, I don't want to put words in your mouth.
Sanjeev, I will answer that. You called us the 3 horses. I think I'm the biggest horse here, and I'm going to drive Apollo. To simply answer you, you've very nicely divided it into sectorial and Apollo. The story has just begun, and we have a long way to go. Like I have mentioned, I'm a very optimistic guy, and you've seen quarter 3, you wait for quarter 4 results.Whatever we have put, whether it's Apollo, whether it's sectorial, whatever seeds we have planted, whether in India, Europe, parts of EMEA, parts of the U.S. These seeds are just starting to grow, okay? Whether it's a specialization of a plant in Holland, whether it's an Andhra greenfield that has started coming. You've seen R&D spends going up. All of this -- in fact, if COVID had not come, then April onwards we would have had a fantastic year. But because COVID came, we had a lull of 2 to 3 months.We gained market share throughout this year, why? Because we went hard hitting on the road as soon as the markets opened up. We were the first guys over there. So I can only give you that assurity that you will see that all our horses, including me and the leader of the horse, is taking this company to a different level.A very clear focus on balance sheet, on leveraging -- deleveraging our balance sheet, on really focusing on what has already gone into the CapEx and sweating the asset and getting out into the market, whichever market may it be. I hope I've answered your question.
Mr. Kanwar, I have a problem. I need to track these horses. So I can't track you.
No, you can. I think you can track me. But let me come to your horses. You raised a very valid point. TBR, yes, we are very clear leaders in this market. You have seen we've gained close to 200 to 300 basis points in market share in India. And why? -- and this is also having a price leadership in the market. So if I'm 100, my next competition is at 96, and another top guy is at 94. So -- but still, I'm making headwind into the market share, why? Because of the service levels that we have put into place, the technology that's going into our tyres, the cost per kilometer that the fleet is enjoying by saving on his wallet. So these are some of the things that we are putting as far as truck is concerned.I would also say 1 more horse that you have not picked up is our passenger car story. Our passenger car story has gone up from being a third position leader to a first position leader. In the month of December, we have -- according to us, we are very clear replacement market leaders. We have opened up high-end OEMs in India, the Toyotas of the world. We are supplying to the higher end of the cars. Our SUV story is going very good. We are gaining huge amount of the market share in SUV. So passenger car is a segment where the entire company's focus is.Then comes the third pillar, which is our light truck radial that we have invested in recently in Chennai, which is another success story that we are seeing in the market. So Apollo is really taking on, in India, the radialization story and becoming leaders in all radial products in India. And that is added on with a new distribution network that we are creating in the market, i.e., rural or urban. Even in urban, I would say, in the metros, Apollo was very weak in passenger cars. And recently, we have made huge headway during COVID in adding distribution networks in the metros. And that is where the higher end of the tyres keep coming in. So I hope now I've answered your question.
Yes, yes. I mean I've got a good sense that at least I have a list of things to follow.
Thank you, and that concludes the call for today. I thank management for their time and all the participants.
Thank you.
Thank you.