Apollo Tyres net up 46%, braces for demand dip

Apollo Tyres net up 46%, braces for demand dip

New Delhi: Apollo Tyres Ltd on Wednesday reported a 46% rise in quarterly profit, almost in line with expectation, but warned softening demand could hurt profit in coming quarters.

A Reuters poll of analysts had forecast net profit jump of 48% to Rs78.7 crore on a sales of Rs2,760 crore.

“Concern is certainly lower on rubber now, but we also have a situation where demand has slowed down," Apollo’s chief financial officer Sunam Sarkar told Reuters by telephone.

A raging rubber rally, which had been hurting margins at tyre makers for the past many quarters, has now come off and the price of natural rubber that makes up more than 40% of the cost of a tyre dropped to a 8-month low on Wednesday in India.

Rubber prices in India are still far higher than global levels, Sarkar said, adding that Apollo was not looking at cutting tyre prices in the October-December quarter.

The operating margin remained flat at 8.4% from a year ago and was lower from 8.8% in the June-quarter.

There is a ‘distinct possibility’ of margin expansion in January-March as rubber prices continue to fall, but the new headache of slowing demand may ‘complicate things,’ said Sarkar.

Declining car sales has dented demand for tyres in India and its output growth is expected to almost halve this fiscal year to 12%.

Car sales fell 23.8% in October, the biggest monthly drop since December 2000, but sales of commercial vehicles rose 18.5%.

Car sales have been on a decline since July, after rising a breakneck 30% in 2010-11, as rising interest rates and fuel prices squeezed demand from buyers, who largely depend on credit for purchase in the Asia’s third-largest economy.

The Reserve Bank of India has raised rates 13 times since March 2010 to tame a stubbornly high inflation and cool off the economy.

India makes up for about two-thirds of Apollo’s revenue. Slowing industrial output and curbs on mining has softened demand for truck tyres in India, Sarkar said. Truck tyres contribute 60% to India and half of its global sales.

Strong replacement demand and new product launches have driven sales in the Europe, while demand situation is challenging in South Africa, Sarkar said.

At 3:24 pm, shares in Apollo Tyres, valued at $616 million, were trading 0.84% lower at Rs59.40 on Wednesday in a Mumbai market that was down 1.16%.

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