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Apollo Tyres cuts FY21 capex further to Rs 1,100 crore, plans virtual product launches

The Delhi-based tyre maker had announced FY21 capex target of Rs 1,700-1,800 crore in FY20. However, in the December quarter, the company cut it down to Rs 1,400 - 1,500 crore.

May 20, 2020 / 06:23 PM IST
 
 
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Apollo Tyres, India’s second-largest tyre maker has cut its capital expenditure (capex) plan for FY21 by another Rs 400 crore, as the COVID-19-led slowdown continues to impact business operations.

The Delhi-based tyre maker now plans to incur a capex of Rs 1,000-1,100 crore for FY21 from Rs 1,400 - 1,500 crore it had targeted at the end of the December quarter. With this cut, the capex is down nearly 40 percent from Rs 1,700-1,800 crore the company had first announced in FY20.

Apollo is one of the several automotive companies that are expected to cut down heavily on capex spends. Maruti Suzuki, India’s largest carmaker, will incur its lowest capex this year in five years at Rs 2,700 crore as against the usual Rs 4,500 crore.

Speaking to analysts Gaurav Kumar, Chief Financial Officer, Apollo Tyres said: “We would have lined up capex of Rs 1,400-1,500 crore for the year. We will continue to monitor this figure. Given the overall demand situation, we have cutback capex to the tune of another Rs 400 crore in FY21 to make sure our cash flows and liquidity are not stressed. It will now be Rs 1,000-1,100 crore.”

Kumar was talking to analysts after announcing the March quarter financial results. The company posted a 7 percent decline in net profitto Rs 78 crore compared to the same quarter last year.

A majority of last year’s capex of Apollo of Rs 2,400 crore was spent on setting up a new greenfield plant in Andhra Pradesh, its fourth plant in the southern states and seventh overall. This plant, which is supposed to come up by the end of this year, was scheduled to see a ramp-up in production before reaching full capacity by 2023.

Apollo has restarted production in all of its plants. One of its two plants in Kerala was the first to get a go-ahead in India from the local administration to restart production but in a limited manner. Apollo’s two other plants in Gujarat and Chennai are currently running at lower utilisation rates than the plants in Kerala.

“One of our challenges is to make sure our plants continue to operate. In Kerala, our utilisation is already up. Gujarat and Chennai are impacted where our utilisation is lower. It is difficult to say when they will come back to high levels”, Kumar added.

The company did not provide guidance on demand and growth for the year given the unprecedented disruption caused by the coronavirus pandemic. In a recent interaction with Moneycontrol  a company director stated that demand for vehicle makers will expectedly be lower compared to aftermarket.

“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,” said Satish Sharma, Wholetime Director and President Asia Pacific, the Middle East and Africa, Apollo Tyres.

Outlining some of the COVID-19-induced changes that Apollo will have to make Kumar said the company will look at pruning costs wherever required to keep liquidity levels adequate.

“We are looking at virtual launches of our products rather than a trade fair. We will be doing online training programs instead of a physical one where people had to travel. Advertising and sales promotion has reduced sharply. We are continuing to work with the revised budget,” Kumar added.

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Swaraj Baggonkar
Swaraj Baggonkar
first published: May 20, 2020 06:23 pm

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