Apollo Tyres Limited
NSE:APOLLOTYRE
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Apollo Tyres Limited
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Good morning, everyone. On behalf of Kotak Securities, I would like to welcome you all to 4Q FY '18 Earnings Call of Apollo Tyres. From the management today, we have Mr. Gaurav Kumar, our Chief Financial Officer, along with other Senior management of the company. I would like to hand over the floor to Mr. Gaurav for his opening remarks, after which, we'll move onto the Q&A session. Over to you, Gaurav.
Thanks. Good morning, everyone, and thanks for coming on to the call. We'll follow our usual practice of opening comments and then be happy to take your questions. We had a very strong quarter across operations with good growth shown by both, not just India and Europe operations, but even our smaller sales and marketing geographies. The consolidated net sales for the quarter were just short of INR 40 billion, a growth of nearly 22% on a Y-on-Y basis. The Indian operations registered a growth of 20% and the European operations in rupee terms was even higher than that. The operating EBITDA for the quarter was at INR 5.2 billion, a margin of 12.8%, an improvement over the same period last year and even sequentially. This was a significant achievement given that typically the December quarter tends to be the strongest quarter for the European operations. But yet, with the strong growth in sales with the operating leverage kicking in, the margins improved. This was, again, with the fact that the raw materials went up slightly on a sequential basis. The gross debt at the end of the quarter was at INR 46.5 billion, an increase of about INR 3 billion vis-à-vis last quarter. It was primarily on account of working capital borrowings increase. Similarly, the net debt figure also increased by about INR 3 billion, ending the quarter at INR 27.2 billion, yet the leveraging continues to be fairly comfortable. We are at 1.5x on net debt-to-EBITDA and at 0.3x on net debt-to-equity. With our continued focus on start-up brands, et cetera, the Indian operations continue to make good strides. Indian operations had a very good macro environment, including a strong revival in the CV segments with a focus on infrastructure. At the micro level, with a full range of products, winning products focused on the brand, we had market share gains across segments. The distribution network was significantly expanded and in the latest J.D. Power survey, we were ranked highest in the small car segment and a close second in the mid-tire segment. We continue to make market share gains not just in the replacement segment, but across the different OEMs. For the Indian operations, the sales for the quarter were at INR 27.9 billion, a growth of 20% over the same period last year and even a strong growth on a sequential basis. Most of this growth was driven on a basis of volume gains, the largest gain coming on the TBR segment, followed by a continued healthy growth on the car segment. The operating EBITDA for the quarter was at INR 4 billion, a margin in excess of 14% compared to 11.5% over the same period last year. And the gross debt for the Indian operations was slightly higher than INR 25 billion compared to a figure of INR 2 billion less at the end of previous quarters. Our revenue segmentation more or less compares -- continues at similar levels. The OE segment is about 30% plus with [ exports ] at 10% and the [ replacement ] at about 60%. Raw material, we are seeing signs of inching up, and we expect a slight increase in Q1 from the current levels, based on which the company is already looking at possibilities of price increase to maintain profitability. Moving on to European operations. The sales for the quarter was at INR 12 billion, a growth in excess of 20% over the same period last year. If we look at our sales and manufacturing operations, the margins there were in excess of 10%, but when we combine the rights and operations, the German distribution business where the EBITDA levels are between 1% to 2%, the overall operating EBITDA for the quarter for European operations was at 7.2%. The most important part of these operations, the Hungary greenfield plant, continues to be on track. We've completed one full year of commercial production. The capacity today is at about 6,500 car tires per day. And by the end of this year, we expect to reach our planned capacity of producing at about 13,000 tires per day. We faced feeding challenges. Levels of scraps were higher, getting manpower trained up to speed, but we see good progress, and we expect that in this year itself, the Hungary operations cost competitiveness would start getting better than the Netherlands operation and feeding into the profits of the European operations. In terms of capacity utilization, across operations, we continue to be very tight, particularly in India with the strong growth that we saw. Across various product segments, the manufacturing operations were challenged, and that continues to be the case as we look into the current year. We see a fairly good demand environment and manufacturing would continue to be operating at full. We are putting in place debottlenecking across product segments, particularly car tires. The ramping up of the Chennai would be completed to allow us to capture the market growth even in this year. The work on our AP greenfield has started. Machinery orders, et cetera, would get placed soon so that in the next year, which is fiscal year '20, in the second half, we should start seeing some output from our greenfield in Andhra Pradesh. That's all from our side. We would be happy to take your questions.
[Operator Instructions] The first question is from the line of [ Atul Dwivedi ] from [ Equiris ] securities.
So firstly, what kind of volume [indiscernible] India and Europe?
In India, we've seen a volume growth of nearly 17%. And in Europe, in car tires, which is the main product segment, we've seen a volume growth of 13%.
[ 13 ]?
1-3.
And sir, can you share the European operation Vredestein [indiscernible] numbers in euro terms, the sales and EBITDA percentage?
The -- first of all, just a small correction. It is not the Vredestein operations given that there is now Hungary, et cetera, it's not one legal entity. So the Apollo Europe sales and manufacturing operations for the quarter was at EUR 134 million, which is a 13% growth over the same period last year. And as I mentioned, the operating EBITDA for that operations was at slightly above 10%.
Okay. And reifen?
Reifen for the full year ended up with an EBITDA of 1.5%.
No, the fourth quarter revenue.
The fourth quarter was a negative EBITDA because the distribution business faced a significant decline.
The sales number of it.
The sales number can't be negative. At worst, it can be 0. The EBITDA number was negative.
No, for this year's number [indiscernible]
For reifen?
Yes.
EUR 34 million.
So secondly, right now in India, what percentage of our sales is from PV only?
Right now for India, our total truck operations contribute 63%. Within that, TBR would be slightly above tires, so about 35-odd percent would be TBR and about 27%, 28% would be TBB.
Okay. And did we saw any growth in TBB as well in the fourth quarter?
Yes, we continue to see some growth in TBB. In the fourth quarter, we had a small single-digit increase in TBB over the same period last year.
Okay. And what is the operational level right now at TBR plant to capture [ your ] production levels?
We are currently at about 10,000 tires per day.
Okay. And utilization level in the fourth quarter?
Utilization levels would be in excess of 90%.
And the [indiscernible] will come up over the next 6 months?
Pardon?
The [indiscernible] of TBR will come up for the next 6 months?
That's correct. In the second quarter of this fiscal year, we should reach the planned capacity of 12,000 tires per day at Chennai on truck radial.
Okay. What's the current growth that you're delivering? Will it happen that maybe your next one year or so, you'll reach optimal level of production at TBR plant [indiscernible] over there?
See, in Chennai, there is no way that production can be expanded beyond the 12,000. If you look at the average run rate for FY '18, that would be somewhere in the 8,000s. So there is enough scope for growth in terms of the capacity that is there in Chennai for this year. There can be a quarter or two where there is tightness, but the greenfield plant, there is no way to start a commercial production before 18 months. So as I mentioned, the AP greenfield will start production only in the second half of FY '20. We are on the drawing board, given the strong revival in demand and the small -- significant volume growth outlook. But now in AP, we are considering both car tires and truck tires. Earlier, the plan was to consider only car tires. We are now looking at the capacity for truck tires also in AP.
The next question is from the line of Amyn Pirani from Deutsche Bank.
So just one question. In truck replacement overall, including TBR, TBB, what kind of a growth are you witnessing for yourself? And what kind of a growth do you think that the industry is also seeing, any view you have on that?
Sure. So we've seen a mid-single-digit growth sequentially, which, Amyn, is more important for you, I guess, as to how the movement in it. But if you look at year-on-year, the replacement volume growth has been in mid-teens.
Mid-teens? Okay.
Yes. I would tend to think that our growth rate may have been slightly higher than the industry. There is no published figure out there. It would be safe to assume that fourth quarter year-on-year growth for the industry would still be in double digit for replacement.
And this is something we would have seen after a very long time, right? I mean...
That's correct. This is -- replacement growth of this proportion has been seen after a significant time.
So would you say that this is just like a kind of a [indiscernible] or -- I mean, there is a strong activity level, which is leading to this sustaining. I mean, what's your view on that?
Our view is that this is a result of strong economic activity sustaining. While the [ basics ] comes into play on the OEM side, it is not so much of a factor on the replacement side, which is sort of very strongly dependent on the economic activity. And it doesn't go through the wild swings that's happened on the OE side. And if at all, there may be base effect, et cetera, that may come in the first quarter of this year, where last year, with the GST thing, there may have been a little bit of a slowdown. But fourth quarter is really a result of economic activity picking up as we said, the kind of focus and spend that is happening on infrastructure sector. So the volume outlook continues to be very strong even in -- for the current year.
Okay, okay, that's great. And just on the pricing with the raw material, we've seen some other companies facing pressure on gross margins. You obviously manage that much better. So would you say that this is -- I mean, what I'm trying to understand is that are the raw material pressures going to get much worse, in which case, I mean, gross margins could be under pressure? Or do you think that we are fairly balanced for the next few quarters?
The situation, I mean, is a dynamic one. I would say even a month back, the outlook on dollar-rupee and also on oil was a slightly better one. Clearly, in the last one month, the rupee depreciation had been very strong, which impacts us adversely. Similarly, the outlook on oil, if anything, is going towards higher side. So our original outlook on the year had been a slight increase in raw material prices, which was more easily manageable. We are possibly now looking at a larger increase on raw material. But again, given the demand outlook, there could be temporary pressures on margin, but I would say overall, the environment continues to be one where the industry should be able to manage.
Understood, understood. And just lastly, in Europe, you've obviously seen strong volume growth. In general, how is the pricing discipline in the market right now? Because in Europe, we've generally seen good discipline but then, things went a bit out of whack for some time last year. So how are you seeing the market pricing discipline right now?
The pricing continues to be stable. There was not much change in pricing on the car tires side. The encouraging sign was that the majors took an increase on the agricultural segment, which we followed up with. There's a fresh round of push up on the raw material side. There could be action on the pricing side yet to see there. We are more a price follower. But overall, the demand continues to grow OE and replacement, so there's no cause for worry. One encouraging thing for us where we are just entering the segment is the EU authorities have just recommended antidumping duty on Chinese truck tires. So clearly, this was something that U.S. used to be very active with. And now, EU also has started looking at it, and that could be a fairly big boost to volumes if it goes through.
The next question is from the line of Pramod Amthe from CIMB.
Would you just quantify what was the exit loss for the Hungary plant so that we can build it going forward, how it can change?
The loss in terms of a legal entity, Pramod, was slightly in excess of 5 million loss at the EBITDA level. You need to keep into account that at the end of the day, the Hungary operations is really a manufacturing entity with a bit of R&D, et cetera. There is more direct sales to the customers. For this 1 year, yes, there was a need to look at it separately because it was in a start-up phase. Going forward, really looking at Hungary operations EBITDA, et cetera, now that it's a normal running entity would not be the right way because Hungary essentially will sell all its products on a markup basis today. The sales and marketing team which for historical reasons, sits out of the Dutch operations.
Is there any particular reason why you're structured that way because of any...
No. It is purely out of historical reasons. If we were to say that we were setting it up afresh and if we were setting up 2 manufacturing plants in Netherlands and Hungary, you would typically have a separate head office entity which had the corporate functions. But essentially, our growth has been -- in Europe has been through the 2009 entry into the erstwhile Vredestein Banden entity, which had all the operations. There is fair bit of complications if you start now moving out functions from one entity. Hence, it will remain in a manner where the Hungary operations or the legal entity would sell everything to the common entity, which is the sales and marketing team sitting under the Apollo Vredestein entity. And hence, going forward, it would make sense to really look at our Apollo Europe operations, and that's why we gave reifen separately because that's a very different business.
That's helpful. Coming to India, how has been your market share movement in TBR replacement? And how do you see competition shaping up there [indiscernible]?
Pramod, unfortunately, we do not get the market share because right now, there is no published market data. Even earlier, it did not come in that kind of lead. We would expect that with the decline in Chinese EBR imports, and that on a full year basis have been down 40% vis-a-vis FY '17 with the actions on GST and then subsequently, antidumping duty. Even without counting the imports from China given our capacity expansion, our belief is we've taken up extra share from the market. But I would not have specific numbers to be able to say this is our market share.
And last, with regard to 2-wheeler tire business, how much was the sales for the full year? And have you been able to break even? What's the outlook going forward?
Just a minute. So our average on 2-wheeler tires would be slightly under 2 [indiscernible] tires per month. We continue to make volume gains. Again, we are looking at the segment to essentially supplement and become a full range player. But we are not going across that entire product segments to even attack volumes at the lower end. We intend that this segment has to be self-sustaining and profitable on its own. And hence, we would go after growth, but profitable growth.
Any comment of profitability from this segment this year, FY '18?
Overall, it continues to be at a level which is in line with our overall profitability.
The next question is from the line of Nishit Jalan from Kotak Securities.
Gaurav, you mentioned Hungary plant EBITDA loss of EUR 5 million. That was for the full year or for this quarter?
Full year.
Full year. And you mentioned in the call that Hungary plant, you expect the profitability to be more than Netherlands plant in FY '19. That's correct, right?
No, what I mentioned was that the Hungary plant through the course of FY '19 will start having a cost structure which is better than Netherlands. In terms of the profit distribution, that's a difficult one to say because Hungary plant will operate on a tax basis at a fixed markup on the [indiscernible]. And then rest of the profit, whether it's more or less would then be made by the Dutch operations because that is where they are taking all the risk on the market side.
That's fine, that's fine. And it's fair to assume that when you say that manufacturing margin is 10%-plus in the 4Q, in the -- since they're giving separate for Hungary and Netherlands, Netherlands plants will be significantly higher, right? Because Hungary would still be EBITDA breakeven or versus an EBITDA loss in this quarter?
Hungary, I do not have immediately the figures for this quarter. But yes, you are right that the Netherlands plant would be at a higher level.
Okay. And my last question is, what will the CapEx for '18 and how are you looking at FY '19 and '20 in terms of CapEx?
The CapEx for FY '19 is getting finalized. A large component of that depends on how much is going to be spent on '18. In terms of finishing up Chennai, that would be a few hundred crores. Similarly, finishing up the Hungary plant CapEx fully to have the TBR CapEx starting would again be less than EUR 100 million. So you're all in all, between all the existing operations, maintenance CapEx, you're looking at a CapEx slightly in excess of INR 1,000 crores. What depends on top of that would be the AP CapEx, which would be starting, and that will get finalized shortly.
And what was the total CapEx for FY '18?
For FY '18, it would be somewhere in the region of INR 1,700 crores, INR 1,800 crores.
The next question is from the line of [ Surat Jera ] from IIFL.
This is Joseph. I just had a couple of questions. One was, there's been a significant improvement in the euro versus the rupee, and that would have impacted on your balance sheet. I'm trying to figure out how much is the increase in fixed assets at the end of FY '18 versus FY '17 and probably because of euro appreciation?
Okay. Joseph, you want the fixed assets increase in the Europe balance sheet?
No, no. In the consolidated balance sheet, what is the impact of euro appreciation because of the -- you got my question, right? So in the consolidated balance sheet, there will be an increase in fixed assets purely because the euro has appreciated from '16 and at the end of FY '17 to almost INR 80 at the end of FY '18. I'm just trying to understand what that number would be. How much would consolidated fixed assets be impacted because of euro appreciation versus INR?
I don't have an immediate answer, Joseph.
But broadly?
The approximate movement on account of just the exchange rate is about 400 crores.
400 crores, all right. And the second thing I want to know is, I think you mentioned this, what's the India gross debt and net debt? I think I missed it.
Sure. The India gross debt number is INR 25.4 billion, and the net debt is INR 9.5 billion.
INR 9.5 billion. And lastly, did you give the Europe volume growth for the manufacturing operations?
About 13% for passenger cars. We did not have much growth for the agri and the other categories.
The next question is from the line of Chirag Shah from Edelweiss.
So my first question is right around the AP plant. So what kind of capacity you're looking to put up in AP over a period of time [indiscernible], so that's one.
So we are -- we had already talked about looking at the car tire capacity, which usually at any starting point, is about 16,000 car tires a day. The truck one, given the recent strong demand, is getting finalized. Usually based on machine reconfigurations, it's in multiples of 1,500 tires per day, Chirag. But the exact one term based on the demand outlook, our own capacity will get finalized shortly.
But with your site, with your India operation sites going up also, does AP plant size could scale, could be bigger than the existing [indiscernible] tires a day? Will it have enough mark over there? Can it be [indiscernible] 22,000, 25,000 tires a day? Is that the kind of thought process there internally?
So that is being evaluated. That's on the drawing board. As I said, typically it would be 1,500. If that is not sufficient, then the next step number would be 3,000. A very broad level, it will not be like a 1,500, or a 1,700 or an 1,800. We would have step movements up in passenger car. That's typically step movements up of 8,000 tires a day. And in truck radial, you should assume step movements up of 1,500 tires a day.
That's so helpful. And the second question was, if I look at India operations, probably this is one of the best quarters we had where utilization is upward of 90%, replacement demand really rolling and cost pressures relatively benign versus what is expected. But despite that up profit, EBITDA is still not where it used to be in the previous cycle. So how should we look at the profitability aspect? Because operation-wise this could probably be the best quarter in terms of all aspects. At present, you [ aren't ] discounting or the pricing activity will not be that given the strong demand. So things would be favorable in all aspects from an industry perspective.
So Chirag, this was clearly in terms of the top line, our best quarter ever. And in fact, the heartening fact for us that we've had a sequential growth every quarter for the last fiscal year. That is Q1 to Q4, every sequential quarter was higher than the previous quarter. And our last 3 quarters successively were our highest ever for the Indian operations. [indiscernible] on the profitability. The profitability for the quarter was in excess of 14%. Now yes, they were not the best ever. But then, if you look at it in perspective, the raw materials were almost 20% higher than the time when you are talking about. So the raw material cycle-wise for the year was reasonably benign. In the first quarter, the raw materials had gone up with the previous year. Even if I look at it on a full year basis, the raw materials were higher by about 10% vis-à-vis the previous year. So that in itself is a straight about 7% hard knock on the margins if everything else remained the same. And that's the kind of operating leverage or other factors that the company has worked on.
This was really helpful. And in terms of mix, how should we look at -- with the capacities that you're looking at, is there a pre-commitment that you have for your OEM customers or it's flexible? So the mix of 53 replacements, can it inch up going ahead, or how should we look at that number?
There is no pre-commitment on either side. There are strong relationships and a long-term relationship with each of our OEM customers. But even today, for example, over the last couple of quarters, we've had to manage that mix carefully. We've not met every orders or reorder because there is also a certain commitment to the replacement segment. So we would look to maintain that mix, which is always impacted by market dynamics, but it's not as if that the mix will change substantially in the coming year.
And one last question, if I can squeeze in. On the truck, the OEM business, what kind of commentary you are you getting? What kind of number you are looking at for this year? For the full year for FY '19, what kind of growth you are looking at from OEMs? [indiscernible] perspective, from industry perspective, not -- if you would not like to say from your perspective.
The outlook being given is very strong. We don't have exact sort of a growth number given out, but both the segments are talking about a double-digit growth.
Both double-digit growth?
Yes.
And when you say double-digit growth, can we assume it would be in the higher teens rather than lower teens?
As of right now, we're talking at lower end of the double-digit or lower teens.
The next question is from the line of [ Atul Dwivedi ] from [ Equiris ] securities.
Sir, in the TBR for us, what would the mix of OEM and replacement?
In the...
In the TBR segment for us, what will be the mix of OEM and replacement?
Just a minute. It would be about 40% OE, 60% replacement.
OE, okay. And because we're running the plan on TBR side at very high inflation levels, will it be fair to assume that in TBR, we are currently making more margins than TBB despite the fact that [indiscernible] than TBB?
That's a fair assumption, but the fact that in TBR, we make better margins than TBB has been a constant phenomenon. So right from across many years, given the fact that it's a superior product and its pricing even though it's a costlier thing to make a TBR over TBB, we make better margins. And yes, in spite of the OEM proportion being much higher, it is still a better margin product than TBB. One thing which is in favor of the industry, and you need to keep in mind that right now, the proportion of 40% OE and 60% replacement is not a stable scenario for the truck operations. Typically, this would move to a more stable 25-75. So fundamentally long-term growth profitability of the segment will keep improving as utilization keeps increasing.
[indiscernible] growing if you TBR proportion, keeps on increasing with the higher growth in TBR [indiscernible]. In that case your margin [ pressure ] get better [indiscernible], right?
That's correct.
Okay. And secondly on the -- we have seen a fair bit of increase in employees cost in both India and European operations in the quarter-on-quarter basis of around 8% to 9%. So this is something because of the increased production level or there's something abnormality or are there seasonality issues?
There is no abnormality or seasonality. In both the operations in Chennai and Hungary as we were ramping up, more manpower was hired. This was in line with the plan. And so in both of those operations, we've not reached the final stable state. And hence, the increase that you see is essentially on account of increased manpower.
And sir, on a consolidated [indiscernible] gross debt levels [indiscernible]?
The gross debt on a consolidated level is INR 46.5 billion.
The next question is from the line of [ Visha Sage ] from [ Anvil ].
Sir, I just wanted to check that when is the last time you took a price hike? There was news that 3% all the players took price hikes just last week.
We've just recently announced a price hike, I think, in May.
And that has been the 2% now?
That is about 2%.
2%. And sir, that was surprising given raw materials.
That's taken as of now on TBR. We had taken last quarter, an increase on TBB and also farm. Whether it has sufficed or not is a difficult one to answer because even the raw material side is a moving thing. Even if we have contracted prices for raw materials, they would be, in some cases, done on a dollar basis, and there is a constant movement on the rupee dollars. So as of now, I can't have an exact fix on how much the raw material cost would increase for the quarter. The attempt, obviously, is to try and cover up as much of it as possible.
Okay. And in terms of margins, in Q1, do you feel that there will be a slight increase over quarter-on-quarter?
Slight increase of what?
In raw material costs, so margins would be lower?
There would be an increase in raw material cost. We do not give out margin guidance, so I cannot comment on where the margin for Q1 would be.
Okay. And sir, what is the outlook for current Indian business? I'm not sure if I missed this question. At what [ way ] do we plan to grow in terms of volume?
The current outlook that we see from the Indian market is very strong. Our attempt would be to try and have growth rates similar to the kind that we've ended up in this year.
And do we give rubber prices, carbon black prices? Can you share for the quarter?
Sure, we can do that. The rubber prices for the quarter was just upwards of INR 130; carbon black was INR 70; synthetic rubber was around INR 120 a kg.
And sir, carbon black have shot up currently, am I right on that one?
That's correct. The maximum increase that we have seen on the raw material prices has been on carbon black.
And that would be right now, what it could be currently?
The current levels are in excess of INR 70 a kg.
INR 70?
Yes.
INR 78?
7-0. In excess of 7-0.
Okay, you don't know the exact -- I mean, you're not aware on the exact price?
I don't get the daily prices.
The next question is from the line of Jasdeep Walia from Infina Finance.
So what kind of production run rate were you able to achieve on the Hungary plant, both on an average basis in 4Q FY '18 and on exact basis?
Not much difference there, Jasdeep. On a 4Q average basis, it would be slightly in excess of 5,000 tires per day. On an exact basis, that number would have been closer to 6,000.
And what kind of run rate do you expect to hit by end of the year?
End of this fiscal year?
Yes.
For the full year, we expect to produce about 2 million units in Hungary, which on a full year run-rate basis...
No, year-end run rate, not full year average run rate.
Year-end run rate, we should be in excess of 12,000.
Got it. Could you give me the volume growth number in the India business for the car tire segment?
Just a minute.
And also with the 2-wheeler tire segment on a Y-o-Y basis.
For the car tires, our volume grew by 10% this quarter and for 2-wheelers, the growth was 60%. But again, there is a base affect.
All right. And what kind of volume growth are you expecting in car tire segment in FY '19? And how are you placed with respect to capacity to achieve that?
So there has been, as I mentioned, the small debottlenecking at [indiscernible] which will increase the capacity to give us, again, a double-digit growth. So we will probably go in line with the market on car tires, look to press our advantage on the truck radial side given that the capacity ramp up is happening. And then more substantial capacity expansion would keep coming in on the car tire side because of a [ once ] again a brownfield expansion that is underway. And then in FY '20, the AP greenfield starts kicking in.
What's your capacity right now in car tires? And what kind of capacity would you add next year?
We are at broadly 34,000 tires per day.
That's the capacity right now?
That's the capacity right now. We would add a few thousand tires to that, so next year. I do not have the scheduled increase of AP. As I mentioned, that's on the drawing board, with a broad outline that in the second half of FY '20, we will start seeing output from this.
I was asking more the capacity that you plan to add through debottlenecking.
That's about 2,000, 3,000.
And when would your 2-wheeler tire capacity come online in the AP plant?
There is no 2-wheeler tire capacity now being planned in AP. We continue to plan to continue with the outsourcing model on the usual sizes. What we have set up is a pilot plant for 2-wheeler radials. And that would start production, and we will after the necessary testing, start selling the 2-wheeler radial with our own production. On the other sizes, we will continue with the outsourcing model on the 2-wheeler side.
And when would you start selling 2-wheeler radial tires?
As of now, again, that is difficult for me to give a timeline on that.
But this is a very small part of the 2-wheeler tire market, right? It will be hardly 1%.
Right now, the 2-wheeler radial is just 1% to 2%. And even the capacity as I mentioned, is a pilot plant. We will not put in a big capacity till we start the radialization moving in.
What's your expectation on radialization in 2-wheeler tires?
As of now, for a number of years, it will continue to be small. So we do not expect that in the next 3 to 5 years it to reach double digits.
And what kind of lever do you have in terms of expanding sales volumes based on outsourcing outsourced capacity for 2-wheelers?
We can easily keep at least for the next couple of years where we have [ tie-up ], we can easily continue to maintain the kind of growth rate that we've talked about in the current year.
The next question is from the line of [ Ed Rumeta ] from [ ICSA ] Securities.
My question was broadly on the raw material front. I just wanted to understand your outlook on the natural rubber front, because most of the countries like Thailand, Indonesia and Malaysia, they had reduced their exports. And the term that -- agreement which ended in March 2018. And hence, there is a higher supply of natural rubber in the overall global market. So what's your outlook on the NR front going forward, like do you expect the broad range of INR 120, INR 130 to remain?
The expectation is these agreements, et cetera, have been there in the past also. But still, the overall demand-supply sort of dictates the pricing more effectively. There may be short-term impacts, but eventually very quickly, the prices come to what is the norm based on the demand-supply. There may be a slight increase in natural rubber prices through the year, but overall that's not a cause of worry.
Okay. And on the carbon black front, like some of our peer is doing backward integration in terms of setting up a carbon black plant, and with the government imposing antidumping duty on carbon black import. And as such, there is a shortage of carbon black in India. So what's your outlook on carbon black prices as such? And are we looking for any backward integration on CB front?
As of now, there is no backward integration on the table, given that we have a significant CapEx need to meet the market demand on the tire side itself. The outlook is that carbon black availability will continue to be tight, and we will have to factor in the kind of prices that prevail today. We also hear of plans of expansion that the existing peers have announced, given that their own profitability has gone up. So is there a crisis which mandates that we should be looking at immediately setting up our own capacity, et cetera? No.
And sir, agreement is on a quarter lag basis or how the agreement of carbon black is being done with the supplier?
I don't have access to specific agreements. But in general, volume levels are agreed with various suppliers through the year, and there are quarterly commitments. The pricing is what changes on a quarter-to-quarter basis.
And we source carbon black from local manufacturers, or do we import?
We do both.
The next question is from the line of [ Jenmai Sapri ] from the DSP BlackRock.
Just want to take -- if I look at your consol numbers, the other expenses and I subtract the standalone expenses on that, then that number is quite flat. For Vredestein, where does the Hungary startup cost show up, and is this the right way of looking the other expenses?
That should be the right way of looking at it. To be able to immediately answer where does it reflect, I'll also have to get enough details. But broadly, what you're saying is the right way of looking at it, which is we consol other expenses, and subtracting the India other expenses will give you the European business.
Okay. And similarly, so employee coast has seen a significant jump. That's entirely attributable to Hungary...
Come again, which expenses are you saying?
Employee expenses.
That would be entirely attributable to Hungary. The typical increases in our Dutch operations, et cetera, are low single digits.
But does base of Q4, that should -- going forward into FY '19, most of the employee raising has been done, or should we expect a further increase?
No, you should expect a further increase because if we are to go up in production levels from about 6,000 as I mentioned, exit level to 12,000, while there'll be some manpower in the pipeline getting trained, there would still be addition of manpower in Hungary.
The next question is from the line of Shyam Sundar Sriram from Sundar Mutual Fund.
Gaurav, when you shared 17% volume growth in the India business, was it for the quarter, or was it for the full year?
17% was for the quarter.
Can you please share your full year volume growth and some color on the segment-wise growth on a full year basis?
So for the full year, the volume growth would be more in the region of 13% to 14%. So bulk of the entire full year growth would be coming through volumes. And what was your second question?
Segment-wise color between truck and passenger vehicle on a full year basis.
Just one minute. I'll have to come back to you, Shyam. I don't have the numbers readily.
Okay, no problem. I'll take it from your team later. Gaurav, generally between OE and replacement, so obviously, you were stating that replacement growth for the full year was like 15% for the India business. So this is largely coming from the truck business or how do we look at that per se?
Yes. The larger growth this year has been from the truck business. Clearly, there's a very strong revival there. As I mentioned, the passenger car growth on a full year basis probably would be in single digits. So the larger growth has been lagged by the truck segment.
Okay, so passenger replacement growth would be in single digits?
Yes, on a full year basis.
On a full year basis. In Europe, have we added -- we bought any of the new auto [indiscernible] and any update on the OE suppliers that we had earlier talked about?
No. As of now, we continue to be with those 2, 3 OEMs that we had earlier talked about. There are tests, et cetera, in -- underway, including for the same OEMs even for the Hungary plant. So that will be something which will continue to progress. Now our focus is also to get the Hungary plant approved by these OEMs rather than the Dutch operations.
Okay, okay. So generally, Michelin shares the OEM replacement market trends in the passenger vehicle segment. So for the first 3 months in this calendar year, I mean, both OE and replacement has been seeing a significant decline. So any thoughts on how we are seeing the market per se?
Michelin has seen a significant market decline in the first few months you're saying in India?
Not in India, in Europe. Michelin shares the Europe market outlook, both in the OE and replacement. So there, they are talking about the import OE and replacement market sort of being weak. Also from the March -- from February that started a sort of weakening. How are we seeing the same?
In the Q4, which is the first quarter of this calendar year, the replacement volumes have been okay. They have grown at mid-single digits and our volume growth on the car tires has been, as I mentioned, 13%. OE, we do not have that kind of visibility, given that our exposure or interaction with the OE is much smaller. Overall projection out for 2019 calendar year also for Europe is still positive across both OE and replacement.
Okay, okay, okay. And one last housekeeping question. For the full year, what would be your manufacturing euro revenues in the Europe operations?
Over EUR 70 million.
Over EUR 70 million, okay, okay, okay. And the aim for reifen would be?
Aim for?
Reifen comp?
EUR 155 million.
Ladies and gentlemen, this was the last question for today. I now hand over the floor back to the management for the closing comments. Over to you, sir.
Thanks, everyone. And there were a few questions where we didn't have immediate figures. I would request if you could write to our Investor Relations team, Himanshu and his team, and we can get back to you with those answers. Thank you.
Thank you very much, sir. Ladies and [Audio Gap]