The plunging demand has hit automotive companies hard and Apollo tyres is the latest one to disclose a cut down in capital expenditure and expansion plans for this financial year.
The second-largest tyre maker in India has decided on cutting down its capital expenditure (capex) and also deferring the expansion of its new plant as the companies prepare themselves to deal with a completely different set of circumstances post corona. Most companies are taking the safest way possible and rebuilding their strategies so that they are better prepared for the future.
Many companies all over the world have had to go back to the drawing board once again and completely revise their financial and marketing strategies for the year. There are many any companies in India, especially in the automotive sector which are either planning to cut down their capex or have already revised their spending plans ahead of announcing the March quarter financial numbers.
Mahindra & Mahindra, Bajaj Auto, Hero MotoCorp, Honda Motorcycle and Scooter India, Mahindra CIE are a few who have either frozen their capex completely or started trimming them, approving only priority spends.
For the financial year 2020-21, Apollo Tyres has set a capex of Rs 1,400-1,500 crore, a drop from the Rs 1,700-1,800 crore that was decided in FY20. In fact, if the low demand continues to stagnate, the company hasn't written off the possibility of more cuts being made in the coming period.
Satish Sharma, the whole time director and president (Asia Pacific, Middle East and Africa) - Apollo Tyres, said, “We will also be reducing capex. There is no point in continuing with it as there is no demand in the system. We are working out on what should be the reworked capex. We have been looking at reducing capex almost every day and the number keeps shifting. It also depends on how much we are able to cut, what orders have been placed.”
Also See: Apollo Tyres: Getting Ready For Coronavirus-Safe Production Is The Challenge
It was revealed that a majority of Apollo's FY20 capex of Rs 2,400 crore was spent on setting up a new greenfield plant in Andhra Pradesh, its fourth in the southern states and seventh overall in India. The new plant was poised to come up towards the end of 2020 and was scheduled for gradual production expansions till it reached full capacity by 2023.
“The whole capex for FY21 was for the Andhra Pradesh plant. For the first phase, by and large, the capex is already done. As and when the plant opens maybe we will take a month or two to start making the first products out of that plant. But to expand to a particular capacity, that’s what we will push it (further) by a little bit,” added Sharma.
Industry estimates suggest that Apollo tyres has a majority share in the commercial vehicle and passenger vehicle tyre market, especially in the OEM segment. The company supplies almost one-third of the OE supplies to the CV segment and nearly one-fourth of the OE supplies to the PV segment.
Demand in the replacement market is expected to pick up, however, the OE market is expected to take time to recover. CV and passenger vehicle demand is expected to stay low, in light of the uncertainty that has been caused because of the slowdown. However, a revival in demand is sure to uplift sales figures massively.
As of now, only one of four off-highway tyre plants of Apollo has started fresh production in India.
“I don’t see revival in demand from the original equipment manufacturers (OEM) being strong. Demand from OEMs will be lower than last year. On the aftermarket side, the commercial, infrastructure and farming-led sector, there will be a better revival as opposed to a passenger vehicle segment,” added Sharma.
