Leading tyre manufacturer, Apollo Tyres, expects that the demand for replacement tyres is going to increase in the future with the company expecting a faster recovery in the coming weeks.
The company has already seen an increase in demand post the partial relaxation announced by the Government of India.
Due to the COVID-19 pandemic, the automobile industry saw a decline in sales of vehicles as well as spare parts in the month of March. Zero cars were sold in the month of April due to the lockdown and even the production of spare parts was shut down.
Apollo tyres has estimated its loss in the month of March alone to be 500 crore in sales due to the COVID-19 lockdown.
However, as the Government of India has announced a relaxation and allowed resumption of services and production post April 20, businesses and industries have been slowly getting back to their feet with various safety procedures and SOPs being implemented to prevent any further outbreaks. Most of the original equipment manufacturers have resumed operations and are gradually scaling up their production.
Also read: Replacement Tyre Demand To Improve, OE Sector To Take Time To Recover.
In a conference call with Q4 analysts, the company management said, "While OEM demand will remain under pressure, the company expects a faster recovery in replacement demand with some positive signs in the initial weeks after the government's partial relaxations."
The management added that most of the sales are in the replacement segment and the company positively hopes to see a gradual growth of 50% and a further increase by the month of June.
The company derives about 65 per cent of its domestic revenues from the replacement segment. The replacement share is higher in TBR (truck and bus radial) at about 75 per cent.
Although there seems to be a positive upturn in demand in the replacement market, Its 75% share in the CV market, which is hands down, one of the worst-hit segments due to the lockdown is definitely a cause of worry.
Some cargo movement from the agricultural segment and food distribution programmes did take place during the lockdown period. However, a large majority of truckers and their fleets had come to a complete standstill due to lower freight demand owing to the regulations during the lockdown.
Now that restrictions are being eased, a gradual increase in freight demand and fleet utilisation of commercial vehicles is being expected. Improvement in fleet utilisation levels will definitely bode well for the company by increasing replacement demand.
Due to COVID-19, the company has reduced the capital expenditure by 400 Crores and the revised data of the company suggests Capex to be around 1000-1100 Crore for this fiscal year.
Some relief on the cost front is also expected to come in the form of reduced commodity prices while Apollo Tyres is also targeting a 20 per cent reduction in its fixed costs for this fiscal by freezing hiring, wage hikes and non-essential travel.
