Apollo Tyres Ltd. (ATL) has decided to scale down its capital expenditure (capex) for FY21 by ₹300-400 crore due to prolonged economic slowdown.
“We started the year with an estimated capex of ₹2,700 crore and that has been scaled back to ₹2,400 crore. In the last nine months, we had invested ₹2,000 crore,” said Gaurav Kumar, chief financial officer,ATL, in an earnings call.
“For the next year, the number should be in the range of ₹1,400-₹1,500 crore, from the earlier plan of ₹1,700-1800 crore,” he said.
He said major players, including ATL, were surprised at the drop in original equipment manufacturers’ business, adding almost every company had cut capex.
“Based on the market information that we have got, almost all the players have slowed down the capex So, is there specifically some capacity coming up, which will alter the demand‐supply economics in near term,” he said.
Asked about ATL’s greenfield plant coming up in Andhra Pradesh, he said it was set to start production by this quarter. Depending upon the demand situation, the production would be ramped up over a period of two years. Production may be raised to the plant’s full capacity of 15,000 car tyres and 3,000 truck radials by the end of FY2022.
Talking about the European market operations, he said the market conditions were sluggish and the passenger car segment market was down by about 3% to 4%. Yet, Apollo Tyres had posted a 3% growth. ATL made a significant improvement in truck volumes and was continuing to make inroads.
According to him, the European operations, currently, were small at about 2,00,000 tyres. ATL was in the final stages of beginning supplies to some of the premium original equipment manufacturers, besides VW and Ford.
“Over a five-year horizon, this number should go up three to four times from the current level. It would still be a small chunk of the overall business. Even three to four years down the line, it would still be only 10% of our overall volume,” he said. Meanwhile, an affiliate of Warburg Pincus, a leading global private equity firm focused on growth-investing, has decided to infuse ₹1,080 crore (approximately $150 million) into Apollo Tyres.
The board of Apollo Tyres Ltd. approved an issuance of compulsorily convertible preference shares worth ₹1,080 crore to Warburg Pincus.
The investment represents a primary capital infusion into Apollo Tyres and is subject to shareholder and regulatory approvals, said Apollo Tyres in a statement.
“I am delighted to announce Warburg Pincus’ investment in Apollo Tyres. Their investment is a strong vote of confidence in our business, management team and growth prospects. I believe the company will benefit from the backing of a large financial investor of their pedigree and our partnership will further strengthen Apollo Tyres’ board and governance,” said Onkar S. Kanwar, chairman and managing director, Apollo Tyres Ltd.
“We see a compelling growth story in Apollo Tyres and believe the company is well-positioned to build upon the strong leadership position it has carved out within the industry. Warburg Pincus is excited to partner with the management team of Apollo Tyres in this journey and looks forward to supporting them during the next phase of the company’s growth,” said Vishal Mahadevia, managing director and head, Warburg Pincus India.
