Apollo Tyres Limited
NSE:APOLLOTYRE
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Apollo Tyres Limited
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Okay. So good evening, everyone. My name is Ronak Mehta. I welcome you all on behalf of JM Financial Institutional Securities to this 4Q FY '23 Earnings Call of Apollo Tyres. We have with us today Mr. Neeraj Kanwar, Managing Director and Vice Chairman of Apollo Tyres. And we also have Mr. Gaurav Kumar, Chief Financial Officer; and the IR team. So as we do always, we'll start the call with a brief opening remarks from the management team followed by a Q&A session.
So with that, over to you, Mr. Neeraj. Thank you.
Thank you. Very good morning, good afternoon to my fellow colleagues. We are very pleased to provide an update on our company's performance and our outlook.
I'm happy to share that despite challenging environments, the team has delivered yet another excellent quarter. I believe we are firmly on track to achieve our medium to long term vision and goals as we continue to work on key pillars. I will touch upon these in the remaining part of my opening comments.
Coming to our performance. We reported a double-digit Y-on-Y growth in consolidated revenues helped by growth in top line across our geographies. More importantly, we reported strong improvement in our operating performance helped by benign RM costs, improved sales mix and tight control over costs. I'm confident that we will be able to sustain the momentum in near term, and we'll continue to have a far more efficient, balanced and resilient business model in the medium to long term. We are performing better than our peers in respective markets. Example, in India, we are reporting higher margins than all our relevant peers on a consistent basis.
In terms of outlook, we are seeing healthy demand in India market. In the replacement segment, we are starting to see recovery in the CV segment. Coming to Europe, we expect the demand to remain soft in the near term. Despite adverse demand environment, we expect the U.S. market top line performance to be healthy in the near term. However, more importantly, I expect the momentum in operating performance to continue in the near term driven by subdued raw material prices and consistent focus on our costs.
Let me now talk about key pillars for our Vision '26 and, as always, highlight some of the work done by the teams in the quarter.
Starting with R&D, we continue our focus on new product development and launches. During the quarter, we launched Vredestein Pinza AT in India. In Europe, we are working on commercialization of our electric vehicle range. In terms of tire technology, the team is focusing on incorporating technologies like silent tires and puncture-resistant tires. During the quarter, the team also showcased a sustainable concept, tire made from 75% sustainable material.
Moving to digitalization, we continue to work on new-age technologies as we optimize our current process, technologies and prepare for our future. Apollo Tyres now has a single data lake, which is underpinning all of our AI and ML initiatives. The data lake Industry 4.0 technology and the newly set-up digital innovation centers will play a very key role in helping to deliver our ambitious project of maximizing our asset utilization and minimal CapEx. For example, leveraging new-age technologies like AI and ML, we have been able to increase our efficiencies of mixes by high single digits. This, in turn, has helped us reduce energy consumption also.
Coming to sustainability, the team continues to scale new highs as we go ahead. I'm happy to share that our work on this front is also being recognized by external agencies. The company has recorded significant improvement in sustainability ratings. We recently registered improvement in S&P Global ESG score with Apollo Tyres now getting in top 18% of the companies compared to being in the top 35 companies as of last year. Similarly, our carbon disclosure score has also improved from a D rating to a B rating. In case any one of you needs more detail with respect to these ratings, please get in touch with the IR team.
Further, value chain is the extension of the business. And with this commitment, the company has adopted the ISO 20400 social responsibility framework for its supply chain. As part of this framework, 79% of the total raw material by value was sourced from ISO-certified suppliers globally.
Finally, reaffirming our commitment to becoming carbon neutral, the company has achieved a reduction of 8% in its Scope 1 emission in FY '23 as compared to the previous financial year. This is mainly due to some of our manufacturing plants using nonfossil fuels such as biomass in place of coal.
Talking about the brand, we continue to invest in brands across our key geographies. To start with, in India, we launched a new television commercial, Have a Wonderful Day. We were able to increase our reach and create high recall for the business. The team also worked on our campaign with our brand ambassador, Sachin, which was launched in quarter 1 of FY '24. To further strengthen our rural franchise, we closed the year with 42 lakh square feet of wall painting and participated in one of the biggest rural sports initiatives like Kila Raipur. During the quarter, we have also partnered with Telangana government for the electric vehicle deal.
Coming to Europe, we celebrate 30 years as pioneers in the all-season segment. We launched Quatrac Pro EV, the first all-season tire designed for electrical vehicles. We also sponsored the FIS World Ski Championships in France in the month of February of '23. This was broadcasted on national TV in our key strategic markets, reaching an audience of over 100 million viewers across Europe and the U.S. markets.
Finally, the last pillar of our strategy is people. We have started our journey for hiring women at all of our shop floor. Our Baroda plant has pioneered this journey on hiring women workers in its 2-wheeler plant this year. In March '23, we celebrated the International Women's Day across all our operations, strengthening our commitment to diversity and inclusion. We continue to focus on employee learning and development and have partnered with IIM Bangalore for our middle management program.
As always, we are keeping a close watch on the markets and our costs. We will continue to be judicious about CapEx, and we'll continue to focus on ROCE and free cash flow generation.
With this, I conclude and thank you all for coming. Thank you. Over to Gaurav.
Thank you, Neeraj, and good afternoon, ladies and gentlemen. Continuing from where Neeraj left, let me give some further details for our operations for the last quarter.
In India, we continue to see healthy demand momentum in the OEM segment. The volumes in the replacement segment was flattish. More importantly, we were able to maintain the price advantage gained in the last few quarters. Robust pricing, along with tight control over costs, helped us report a very healthy improvement in EBITDA margin, about 300 basis points on the sequential quarter and a 650 basis point year-on-year, and a healthy free cash flow. There was increase in capacity utilization. We are now at levels of a little below 80% capacity utilization in India.
In terms of our outlook, while the volume growth is expected to remain muted in near term, we are seeing signs of pickup in the replacement demand. Given our strong focus on business fundamentals, cost control, and free cash flow generation, we expect the operating performance to remain strong in the coming quarters.
Coming to Europe, the markets were subdued with passenger car and truck industry volumes showing a negative growth for the industry. Despite this challenging environment, we registered Y-o-Y improvement in top line and a 270 basis points improvement in margins, both sequential quarter and year-on-year basis. Our UHP-to-UHHP mix continues to remain at a healthy 43%.
In terms of outlook, the industry is expected to remain sluggish in the near term. However, we expect the market pickup to start coming through in second half. We expect the operating performance to remain healthy helped by the benign raw material costs and focus on cost control.
Moving on to financial results. The consolidated revenue for the quarter stood at INR 62.5 billion, a growth of 12% over the same quarter last year. The consolidated EBITDA for the quarter, at INR 10 billion, was a margin of 16% compared to 11.2% in the same period last year and 14.2% in the previous quarter.
Coming to the balance sheet. We have been able to improve our leverage ratios given the focus on cash flows and profitability. The net debt to EBITDA for the consolidated operations was at 1.4x. We crossed the double-digit mark for ROCE in this fiscal year. If you look at just the fourth quarter alone and annualize the same, the ROCE is now at a very healthy level of 13.4%.
In India operations, the revenue for the quarter was INR 43.7 billion, a growth of 9.5% over the same quarter last year and 3% on a sequential basis. The EBITDA for the quarter, at INR 7 billion, was a margin of 15.9% compared to 9.4% in the same period last year and 12.9% in the previous quarter.
Moving on to European operations. The revenue for the quarter was EUR 177 million, up 5% compared to the same period last year. Despite this challenging environment, we've been able to gain market shares in key product segments like passenger car tires. The EBITDA for the quarter for European operations was at EUR 32 million, a margin of 18.1% compared to 15.4% for the same period last year and the same number for the previous quarter.
We would continue our focus on free cash flow. The CapEx for this coming year would be a very limited INR 11 billion, out of which INR 6.8 billion would be for India operations. We will continue to drive improvements in ROCE and expect to start reaching our vision target parameters in this fiscal year for a full year basis.
With this, I conclude my opening comments. We would be happy to take your questions.
Thanks, Gaurav. We have the first question from Binay Singh.
Just a follow-up from the opening remarks. You made a point that replacement is flat in India. Could you give us a sense about CV replacement and PV replacement because I believe both declined by around 8% in December quarter? So are both flat now?
The second point is that in our presentation, we said that mix improvement will be one of the drivers for margin in FY '24. Could you share a little bit more detail?
And lastly, on the Europe side, how are inventory levels now? We had earlier highlighted that inventory in Europe is high and needs to come down, so if you could comment on that.
So Binay, on your first question on the replacement side, we have seen a pickup in TBR replacement. So the volumes were up in double digits compared to the same period last year. Even sequentially, TBR replacement was a positive. So we are seeing fairly good signs of pickup in TBR replacement demand. Passenger car was negative. Passenger car show -- had a negative double digit in the replacement segment in the current quarter, but it has been made up by good growth on the OEM side.
To your second question on mix improvement, it's a very important driver that each operation is focusing on. To give you some examples, for example, in Indian operations in passenger car tires, they continue to focus on sub-brands which are more premium. We continue to move away from the lower rim sizes to higher rim sizes. If 10 years back our largest selling size was a 12 inch, it moved to 13 inch. And now that's between 14 and 15-inch tire.
Europe inventory, Gaurav.
Europe inventory, yes, we have continued to correct it. The only product category where the inventory is still a little bit high is the agricultural tires where the demand was weak. But largely on the passenger car side, the inventory has been corrected.
We have the next question from Ashutosh Tiwari.
Congrats on a very good set of numbers.
Thanks.
Firstly, on the demand side, you mentioned that TBR has grown double digits. What about the buyer segment in truck?
Buyer segment was flat, Ashutosh.
Okay. So that's not declining. Okay. And exports, how much decline was there Y-o-Y?
Exports, we had a significant decline. Overseas markets have been tough. So overall, just a minute, I'll let you know. Overall, export volumes were down nearly 30%.
Okay. And OEM grew how much?
OEM grew by nearly 20%.
Okay. And can you provide some color on -- like you mentioned that overall India utilization is less than 80%. But can you provide segment by like PCR, TBR and TBB and how much utilization levels?
Just one minute. Currently, PCR utilization in India is about 80%. TBR, well, there's pickup in demand, went up to 85%.
Okay. And so whatever -- like say whatever CapEx we plan of INR 650 crores in India, what will be that with growth? Like say this is maintenance plus something, some growth CapEx also over there?
No, there is no growth CapEx. It is maintenance. And as we've highlighted, we continue to invest in areas of digitalization, sustainability, et cetera. So there is no growth CapEx planned. We -- on the current utilization levels, as I mentioned, which is below 80%, we have sufficient headroom to cater to the growth of the market.
But TBR is higher, so can we increase [indiscernible] through [indiscernible] and all in TBR?
We are undertaking productivity improvement programs across category. Neeraj has time and again mentioned that we are looking at AI, ML, et cetera, to drive improvements in capacity. And hence, we believe that itself will provide the cushion if the market growth is beyond a certain level. But as of now, there is no growth CapEx planned for this coming year.
Okay. Sure. And lastly, on the RM side, how much increase will be there in Q1 or really flattish kind of thing?
We expect the RM situation to be flattish in Q1.
We have the next question from Pramod Kumar.
My first question is on the business outlook in terms of growth both in Europe and India because the OEM growth has been a big support for us last year in the Indian market and replacement in Europe. But both are expected to see a meaningful moderation this year. So given this, how should one look at demand on the volume side for both the markets?
And in that context, how should one expect the industry to behave? Given the excess -- or the normalized margins which are back, will -- is there a risk that we should -- we could see some deterioration in the pricing environment, especially in the replacement Europe side for Tier 2 brands and in India across most of the brands? That's the first question.
Yes. So on the second part of your question, there is no growth CapEx planned by any of the peers that we have heard of. So to that extent, the capacity utilizations with the growth that is going to come in, in the current year is only going to improve. So we don't expect capacity surplus situation to be worse than what it is today. And the pricing environment has held up.
The first part of your question, we are aiming to see pickup in the replacement demand early days in the current year. But we believe that we should be seeing decent growth numbers, not a heavy growth number, but we should be having growth of high single digits to a double digit, which would be largely volume led in the current year.
Europe is still a bit of a wait and watch and, as mentioned in the opening commentary, probably 1 or 2 quarters away from demand coming back.
So in a way, if everything goes fine, commodity basket remains steady, I think we should be able to -- the industry should be able to sustain the margins what we've seen in 4Q. Is that a fair understanding, sir?
Pramod, we do not give out margin guidance, but yes, the raw material situation is -- the outlook is stable. And at least as of now, we are not looking to take any pricing action.
Fair enough. And second question, Gaurav, is on the balance sheet. Given the kind of improvement in profitability what we are seeing, how should one look at, say, FY '25 balance sheet numbers for Apollo in terms of -- what's the deleveraging target you have there, if you can help us understand on that?
From a long-term vision stated, Pramod, we are already well below that, which was the 2x which was set up as an upper cap. Based on the current plans, we will continue to deleverage because even in the current year, as I mentioned, there is a limited CapEx, we will be free cash flow positive. A little too early to say for FY '25. We need to see at least for a couple of quarters as to how it unfolds. But the focus on being free cash flow positive, focus on even further upping the ROCs from current level will continue. So we expect the balance sheet strength to only improve, including the leveraging parameter that you mentioned.
Next is Siddharth Bera. I think he left. Next is Jinesh Gandhi. I think we can't hear him. Okay, Siddharth is back.
Sir, congrats on achieving some of the vision targets on the margins and ROCE sides. Sir, I have a question on the revenue part of that vision where we had expected to touch close to $5 billion by FY '26. So given the current outlook now on the growth side and commodity, do you think that also remains on track? Or do you think there can be some changes to that?
Yes. So Siddharth, I don't think we are so concerned about the $5 billion revenue target. My main focus remains on balance sheet ratios and on improving EBITDA margins. We -- our target is to get to $5 billion, no doubt. But I think first comes ROCE, free cash flows, my net debt numbers to be what we have already mentioned in our vision statement. So that's very, very key importance for us.
Understood. And sir, second on -- just a clarification on the CapEx side. You mentioned about INR 6.8 billion CapEx for the India business, so close to INR 4 billion will happen then in the Europe business. Is that the right assumption because then it's much higher than what we have seen in the past?
You are right, Siddharth. The number is a little higher than what we have seen in the past, but it's also because when in the first half the margin profile, et cetera, was looking tougher, we curtailed on some CapEx. So Europe actually spent less, and to that extent, there is a CapEx rollover. And that's why the number is a marginally higher number. Again, in Europe, there is no growth CapEx happening. It's only maintenance CapEx, molds and investment into digitalization or sustainability.
And part of this would also be R&D.
Yes.
So part of the 400 would also be total R&D.
Understood. So that is probably the sustainable number to look at? Will that be the right assumption for Europe now?
The sustainable number should be slightly lower than this. This is more also a rollover effect. So I would say the number should be slightly lower than this number.
Got it, sir. And lastly, sir, on the outlook side, you mentioned high single-digit growth for the industry. So I mean, how do you look at the exports? Because we also wanted to grow exports meaningfully, and last year was not much of change on a Y-o-Y basis, so can you just talk about the areas where you are looking to grow exports and if you have any number of growth for this year?
So quarter 1 is going to be a bit challenging. But as quarter 2 comes in now, so our main markets are Europe and the U.S. and Middle East, all these markets in the month of April were a bit low. But we are seeing May, June pickup is happening. And so I'm pretty sure that by -- in H1, we will have covered up our last year figure, and we will be close to our budget for H1. So only quarter 1 remains a bit challenging, but I'm seeing all the 3 markets will open up as we go along.
Got it. And sir, I have some housekeeping questions on the volume side. What will be the overall volume growth in the stand-alone business in Q4?
The overall Q4 number is flattish on volume, Siddharth.
Flattish Y-o-Y. Okay. Okay. And the reifencom numbers, the revenue and margins, if you can share?
Just one minute. So reifencom for this quarter reported a EUR 35 million revenue and just a small positive on the EBITDA margin. For the full year, reifencom numbers were a EUR 208 million turnover and a 4% EBITDA margin.
Next, we have Jinesh Gandhi.
Yes. Am I audible now?
Yes.
So my question pertains to the replacement demand in India. We are indicating about high single-digit to low double-digit kind of a growth in FY '24. So what is giving us this confidence of this kind of a growth especially considering that most of the segments are either sluggish or at very early stage of recovery?
No, the indication, Jinesh, we've got is from the OEMs. The CV cycle is back. Also the passenger car segment is coming back. So we are seeing good numbers coming in both CV and PV. Agri is yet to pick up, but season is coming in. And as you know, we've had delayed rains, and so we do believe that agri will be a good season.
So given that plus given the infrastructure spend that is going on in India, that is going to drive the economy, that is going to drive all the segments. So we are pretty optimistic about all the 3 segments coming into replacement. And you will see in quarter 1 there will be volume growth as well as revenue growth.
Okay. Okay. And secondly, can you talk about our market share trends for fourth quarter? Have you seen increase in market share in India as well? Or it was largely restricted to Europe?
We would have gained some market share on the TBR side. PCR, we probably would have underperformed a little vis-à-vis our competition as we held on to the prices. So it's a mixed bag. We -- even if we look at what our peers have announced, our revenue growth is probably 100 to 150 basis points behind them, so there might be a small decrease in overall market share.
And Jinesh, you have to keep in mind that we are -- our whole focus is moving towards profitable sizes. Like Gaurav mentioned earlier, our product mix is very important. So we are looking at what sizes we need to focus on and what sizes we need to get out from in all segments of our clients. And so therefore, while I do look at market share, my main focus is still remaining on profitable growth. And so only profitable products is what we are looking in.
Sure. That's a very important focus to have.
And that then drives my ROCE. That drives my asset utilization. That drives a lot of my balance sheet ratio. So the entire focus of the company, like I've been saying now for -- over the past 18 months to 2 years, is driving growth but profitable growth.
No, that's very good to see. And last question pertains to the India operations. We have seen a substantial increase in other expenses in fourth quarter on Q-o-Q basis as well as Y-o-Y basis. So is there any one-off there or bunching up of year-end-related expenses? Can you clarify on that?
No, there is no one-off. There were spends on brand promotion, particularly advertisement and publicity, et cetera. It is to drive building up the brand. There is no one-off specific thing.
Sure. And lastly, can you quantify the RM cost savings which we saw in 4Q?
The RM basket came down by -- just one minute. By 6% year-on-year. And sequentially, it came down by 8%.
Got it. Got it. And no price increases in this quarter as well on the replacement side?
No.
Next is Amyn Pirani.
My first is actually a small accounting question. In the other segment in the segmental reporting, we've seen EBIT actually turning significantly negative from positive, which is actually reducing the strength of the consol. So is there something happening there? Is it a one-off? If you can just help us on that.
So Amyn, this is largely related to some of the overseas markets. In U.S., as the market slowed down, we were trying to make sure that we liquidate some of the inventory and don't build up the inventory. So the U.S. operations had a significant reduction as we wanted to make sure that there is not just pushing up of sales, and that had a certain scale effect. Also, as we focused on inventory, the other big region is Singapore, which is a purchasing entity. That also had the same scale effect in terms of reduction in revenue size, and that is what has caused this thing. It's a one-off for this quarter, and it will normalize going forward.
Okay. That's helpful. Second question is on the ROCE. So as you mentioned, this quarter, you have already sort of hit the midpoint of your Vision '26 range of 12% to 15%. So my question is, given whatever we have discussed until now regarding next year and the kind of free cash flow you're expecting, do you think that there is a potential that the 15% upper end can be beaten? Or do you think that there are potential risks which can keep you within this range?
Amyn, the attempt would be the kind of progress that we have made over the last 2 years from a number which was mid-single digits to now getting into as our vision target range. The attempt would be to get to the higher end of that range or even breach it. The intention is not to be satisfied because we set the 12% to 15% range to be there. It will depend on market conditions. But as even highlighted by Neeraj, the operations are all now focused towards the key financial parameters like ROCE, free cash flow, et cetera. And yes, if the market conditions remain favorable and given our spend on CapEx, et cetera, we could reach even the upper end of our target.
Actually, the performance is actually quite great because when the 12% to 15% target was given, actually, it seemed very difficult to achieve, and we've already hit the midpoint. But if I just could extend the argument now, obviously, this year, CapEx was below INR 800 crores. Next year, you're saying INR 1,100 crores, which remains significantly below the INR 15 billion to INR 20 billion that we have seen in the previous 3 to 5 years. Now I'm guessing that at some point of time, you will have to come with some growth CapEx, right, because of the utilization mix.
So I'm not asking for the guidance, but how should we think about what can be the quantum of that CapEx whenever it comes? And how should we think about beyond -- assuming that demand environment remains stable, there are no bigger positive or negative surprises. Like how big can that be? And how should we think about the time lines?
So I want to tell you one thing, Amyn. Right now, I would not even think about that. As I'm very clear in my opening remarks, we are going for the next at least 2 years on a CapEx-light model, which would be mainly maintenance CapEx and IT digitalization related and sustainability related. So you will have seen the range of what Gaurav has already mentioned, in that range going forward.
When I need growth, all the CapEx that we are putting in now in digitalization, AI and machine learning is going towards enhancement of productivity. And that's why we are looking at a CapEx-light model, to try and see how we can free up more capacity in both PCR and in Truck-Bus Radial. And that's how the growth is going to come. When I need -- I'm not even going into looking at a brownfield expansion right now because the entire focus is on enhancing productivity and debottlenecking some of our plants.
That's quite helpful, sir, and hoping to see the 15% number also soon.
15% would be -- like we said, in all likelihood, we should reach the 15%.
Next is Basudeb Banerjee.
Yes. Congrats for a great set of numbers. A few questions starting -- one for Gaurav. If I look at your consolidated balance sheet numbers, your receivable numbers looks quite elevated Y-o-Y, which if it was normal, your FCF would have been much higher. Is that the right observation, Gaurav?
Ravi, you want to comment?
Yes. So that is basically in -- under the accounting norms, we had to -- it's more of an accounting entry. There is nothing which is adding on to the receivable balance. So under some guidances, we had to reclassify certain adjustments, and that is reflected in the accounting balance.
So just to understand that the receivable days now on this new normal, is such accounting is a onetime treatment or that is going to remain at these accounting level?
So there was -- this amount will definitely come down because it was one time to also take care of past balance. Going forward, this number is going to be much smaller.
Understood. Sure. Second, Gaurav, as you said, on a sequential basis, RM basket is down 8%. So as you mentioned, for this quarter, if you can give your rates for the key commodities?
Sure. Basudeb, natural rubber was around INR 160 a kg; synthetic rubber, at around INR 170; carbon black, INR 115; and steel core, INR 185.
Okay. Next is, typically, if we see that post-winter quarter, December, where Europe margin is highest for the year, followed by a tepid margin in the subsequent quarter. So if I missed out anything earlier, this quarter seems margin is far better than December quarter. So if you can highlight anything one-off in that or it's directionally benefiting from lower power cost and lower commodity cost only?
So you are absolutely right, Basudeb. This is a deviation from the normal seasonality. As it is the last quarter, the winter was quite a mild one, so we didn't have that much of an upside in the December quarter. The current quarter profitability is higher than the previous quarter on account of raw material and energy cost benefits.
So even at this scale, such 17%, 18% margin can sustain?
That's correct, Basudeb.
That's great. And last question, if I can ask. What's the current utilization of Hungary plant and how much it can further produce from these levels? And what is your strategy on the Dutch plant at current structure?
So for Hungary plant for the passenger car category, the utilization levels are just above 85%. Apart from the headroom that is available, that is one of the focus areas as we grow in Europe for our productivity improvement programs. And we think that we should be able to up the capacity with those programs as we need the capacity.
For the Dutch plant, they will continue producing the specialized sizes which they have been doing in the last year. On the passenger car, their utilization was almost close to 100%. And they will continue to produce the high-end specialized sizes and the high-end agricultural tires. So it would be a continuation of that strategy.
We have the next question from Jay Kale.
Congrats on a good set of numbers. My first question is regarding your outlook on demand environment given your CapEx plans for the next couple of years. We've seen that historically, if you see last time, the CV cycle peaked in FY '19. And probably before that, most of the tie-up players started an aggressive growth CapEx, assuming that there will be a continued upcycle. This time, probably we are reaching the CV cycle peak probably in this year or max next year. So have you all taken a conscious call, since out of your TBR, probably around 50% goes to the OEMs, this time to be a little more vigilant on the CV cycle and, hence, be a little more cautious on your growth CapEx? Or you believe that probably 5% to 7% growth rate is something that you are budgeting for with some bit of debottlenecking in the replacement market?
Okay. So firstly, we only supply 20% to 25% of our truck-bus radial to OEMs. That's point number one. Point number two is that, yes, we will, we are, again, doing productivity increases through digitalization on TBR. And so we will have excess -- we will have new productivity improvements and, therefore, new capacity. And also, you have to bear in mind that our TBR utilization was some 80% utilization. So there is capacity available if we were to grow.
Keep also one thing in mind that we are in the replacement market around 30% to 31% market share leaders. And therefore, with this capacity, we can only go up if the market starts growing. Yes, we will look at India as the first thing that we have to look at. And if more capacity is required for India, then I will change my exports into India. Okay? So we will not let go of our capacity, of our market share in India.
Understood. Understood. And second question is regarding your exports. Just one clarification. You mentioned the 30% drop. Your exports also includes some part to your European entity, right? How much of your exports would be to the European entity? And would that be seeing a bigger drop or if you can just share the mix of European versus end market?
So as you know, Europe is going through a challenging time. For us, yes, there has been a drop. And we do supply over 1 million passenger car units to the European market. But now we are seeing gradual pickup happening. And so we will be back to last year numbers in the coming quarter.
We have the next question from Jyoti Singh.
Congratulations on the good set of numbers. So my question is on the margin front. So as overall, we saw the raw material price correction and now expecting to stabilize. And also, we stopped taking price increase because of the stabilization in the raw material prices. And apart from that, we are doing cost control to support our margin. So my main question, that is what will be the strategy going forward to maintain our margin at this level as raw material prices will be stable.
Yes, the strategy is very clear. Because now a lot of cost controls, like you have said, have gone in, we see, again, the stabilization of raw material happening, so margins, due to all these things that I've been talking about, productivity enhancement, energy consumption in all the plants, so we are looking at a lot of improvements in our plants and our supply chain. Supply chain was a challenge during COVID. And through a lot of AI and machine learning, we've learned a lot on supply chain. So I see costs coming down overall. And therefore, I'm pretty optimistic about saying that one is to sustain these margins, and it can only go up from here.
Okay. And second thing that overall industry is saying that we will see better traction from H2 FY '24 onwards. So it is because of we have concern about macroeconomic situation or, apart from that, we are doing anything else in the company that because of that we are seeing good traction?
No, it's a mixture of both. You can't see one thing at a time. It is a mixture of -- after all, India's GDP is going to be 6%, 6.5%. There is a lot of infrastructure spends that are going into the country. And with our new products that we are launching in -- specifically in the CV and in the PV range, we will gain more market share. And that's why we are optimistic about the numbers.
And also, we are seeing a better traction in the CV side and decline in the PV side. So how much margin contribution we have from CV side as compared to -- I mean, which one is higher?
Which is higher, CV or PV?
So at an absolute number, CV would still be higher, Jyoti, because it's close to 60% of our revenues versus PCR at 20%. Profitability in terms of margin is much higher for PCR. But in terms of an absolute contribution since the CV proportion is 3x, it contributes in.
And also just to clarify, the PCR numbers being negative was at fourth quarter. If you look at the full year, the number of PCR is a healthy double-digit growth on volumes. It's only a fourth quarter phenomenon.
Okay. Okay. Great, sir. And on India utilization, if you can comment, which is at 76%, so going forward, we are expecting at a higher level or a similar level we will see?
No, we expect, given that this year the entire top line growth would be volume driven, we would see upping up the utilization levels in the current year.
So next question is again from Ashutosh Tiwari.
So if you look at inventory levels, in stand-alone, it has come down on a Y-o-Y basis. So is it normal inventory or we -- there are some bit of lower than normal that we have today? So I just want to understand if the working capital can increase in terms of number of days in next year, like in FY '24.
No, the inventory level is fairly normal, Ashutosh. And as we see over an extended period of last 8, 10 quarters, the number may be 1 day lower than what we have even had in the past. So no significant change in all vehicles.
So that would mean that, because the CapEx is much -- let's say, will remain around INR 1,100 crores in this year, there will be a decent amount of delevering that will happen in '24?
That's right. That's right.
Okay. And on this PCR side, you mentioned that the growth in Q4 was a bit lower. Let's say, decline was there, so is it like -- let's say, we have taken price increases and competition has not. Is that the reason? Or the reason is that you mentioned that in certain SKUs where our margins are lower, intentionally, we are doing less volumes?
No, it is -- and we did take a price increase in the current quarter, but there was a price gap vis-à-vis the competition, and that impacted volumes more than normal. So we did lose a little bit, but there has -- but as Neeraj has continuously highlighted, the operations are clearly focused that profitability is a key parameter. And hence, to that extent, if sometimes a little bit of growth is sacrificed, we are okay with it.
So I want to understand whether this decline in market share in this quarter particularly was mainly in the 12, 13 inches or higher sizes as well.
We'll have to get back to you, Ashutosh. We'll need to get the operations' more details. I don't have that ready.
We have the last question from Raghunandhan.
Congratulations on stellar numbers. Two questions. Firstly, how much capacity addition is expected due to debottlenecking and productivity improvement measures in India and Europe? Secondly, margins are strong, but replacement growth is moderate. Do you expect pricing cuts in industry ahead or increase in marketing efforts going forward?
Raghu, the second part, we are not looking at pricing cuts. What competition does is difficult to predict. But we've gone through now a couple of quarters of RM coming back to somewhat normalized levels, and the industry has held firm, so we don't expect that. It would be difficult to give you a quantum on how much we would gain out of the productivity or focus on AI/ML. But a broad number, a safe number would be mid- to high single digits is what we would target to have improvements on capacity.
Yes, thank you. So I think that was the last question, so I would like to thank all the participants and the management of Apollo Tyres for giving us this opportunity. And wish you all a great evening. Thanks a lot. Take care.
Thank you.
Thank you.