You are using an older browser version. Please use a supported version for the best MSN experience.

Strong Europe sales, low rubber prices benefit Apollo Tyres

LiveMint logoLiveMint 15-05-2014 R. Sree Ram

Despite weak demand in the domestic market and the sale of a tyre factory in South Africa, Apollo Tyres Ltd reported a strong financial performance for the March quarter. Consolidated revenue increased 6% to `3,229 crore and volumes are up 2%.

The growth is driven by European operations. The firm continues to see good demand for its products in the region, where revenues rose by a robust 44%. Also, according to a company spokesperson, replacement demand was good in India and Europe. Revenue from South Africa, which has seen a plant divestment in the third quarter of 2013-14, halved and India grew by only 8%.

The subdued India business, however, didn’t prevent operating profit margin from expanding by a robust 244 basis points, as Apollo Tyres continued to benefit from low rubber prices, the major raw material for tyre manufacturers. A basis point is one-hundredth of a percentage point.

Compared with a year ago, rubber prices in the domestic market were lower by 7% in the March quarter. This helped the company lower material costs, which countered the impact of higher other expenses and employee costs. Overall, operating profit grew by a strong 28% and net profit doubled to `280 crore.

The strong operating performance sparked a rally in Apollo Tyres’ share price, which rose 6% on Thursday.

Low rubber prices should continue to help the company. Rubber prices are on a downtrend due to subdued demand and oversupply fears.

Since the beginning of the current fiscal year, rubber prices in India are down 4%. The fall in price is even more severe in overseas markets. Threat of oversupplies from Thailand, a major rubber producer, has sent global prices to multi-year lows.

Speaking to the media after releasing the results, the company’s management said it expects rubber prices to be stable for at least six months. A pickup from there on will depend on economic recovery in China and developed markets like the US.

The low prices, nevertheless, can aid Apollo Tyres’ margins. The company is a net importer of goods. Add to this the firm rupee and one can expect the margins to be in expansion mode.

It’s not clear when revenue growth will pick up in India, which is the biggest revenue generator for Apollo Tyres. The company continues to see good demand in Europe. To cater to it, the firm plans to build a new factory there.

In India, Apollo Tyres expects marginal recovery in the commercial vehicle segment. The recent lifting of the mining ban and replacement of old vehicles will aid sales. But for Indian operations to see a return of strong demand, the government has to give a firm push to infrastructure spending.

More From LiveMint

image beaconimage beaconimage beacon