Gradual margin recovery to keep Apollo Tyres on tough terrain

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Subscribe to enjoy similar stories. Apollo Tyres Ltd is grappling with acute margin pressure amid weak demand. Elevated raw material expenses and higher-cost inventory hurt the December quarter (Q3FY25) earnings.

Raw material cost rose 15% year-on-year (y-o-y) and 2% sequentially in Q3 to ₹175 per kilogramme. Thus, the consolidated Ebitda margin fell 465 basis points y-o-y to 13.7%, missing consensus estimates. Raw material cost is expected to be sequentially flat in Q4, the management said, adding that natural rubber prices have slightly eased.

Some part of the high-cost inventory was consumed in Q3, and the remaining will be used in Q4. However, demand and the competitive environment in domestic business are not currently favourable enough to take more price hikes. Earlier price hikes in truck and bus radial (TBR) and passenger car radial (PCR) segments and an improving product mix could aid margin recovery.

Here, Apollo Tyres is exiting the low-margin 12-13-inch OEM (original equipment manufacturer) tyre segment and remains focused on the high-margin 16-inch+ category. Note that the earnings of tyre companies are more sensitive to margin movement as they do not usually pass on the full impact of the increase/decrease in raw material costs in the replacement market. “We have cut our FY25-27 consolidated earnings per share estimates by 3-4% due to lower revenue growth (India) and Ebitda margin (India and Europe) assumptions," said a Kotak Institutional Equities report on 8 February.