Apollo Tyres Ltd faced weak demand in the June quarter. Thus, its India volume growth was little changed year-on-year – low single-digit growth in replacement, mid-single-digit growth in the OEM (original equipment manufacturer) segment, and lower export volumes.
Replacement volumes were broadly in line with industry levels. Truck bus radial (TBR) volumes were slightly ahead, while passenger car radial (PCR) volumes lagged marginally.
Demand is set to improve from the second half of FY26, driven by the replacement segment and initiatives to enhance growth in TBR/PCR from Q2, the management said. But the expectations are not rosy.
“Our industry checks suggest that commercial vehicle replacement demand recovery (around 55% of Apollo Tyre’s standalone revenue), remains weak. Benign export outlook also remains a challenge,” said Nomura Research. The firm lowered its FY26 India volume growth estimate to 5% from 6%.
Also, Balkrishna Industries Ltd’s entry into the TBR/PCR segments may spur competition. Apollo Tyres’s estimated market share in PCR stands at 20% and TBR replacement at 30%. It lost market share in the OEM passenger vehicle segment.
Consolidated revenue grew about 4% year-on-year to ₹6,561 crore. The Ebitda margin fell 113 basis points (bps) year-on-year to 13.2%, missing estimates, dragged by Europe, which is battling severe input cost inflation. The operating margin for the India business was more resilient – flat year-on-year, but over 200 bps higher sequentially to 13.6%.
The management expects slightly lower raw material costs in Q2 sequentially. There could also be some currency movement benefit as a large part of the input materials are imported.
“Apollo Tyres is evaluating composition of the raw material basket to drive margin expansion (visible in Apollo’s Q1 margins being ahead/in-line with peers versus a lag in Q4),” said Emkay Global Financial Services.
Higher margins
Apollo Tyres has been strategically shifting focus from lower-margin segments to higher-margin premium products. It has expanded into higher-value markets such as Asia, the Middle East, and North America.
This, along with a more disciplined capital expenditure approach and manufacturing efficiency measures should enhance profitability.
The capex guidance for FY26 is maintained at ₹1,500 crore. Plus, net debt reduced sequentially to ₹2,100 crore at Q1-end from ₹2,500 crore.
Still, muted earnings lately have meant Apollo Tyres’s shares are down 11% in the past year. The stock trades at 13.5x FY27 estimated earnings, a discount to peers Ceat Ltd, MRF Ltd and Balkrishna.
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