Apollo Tyres Ltd was evidently riding on a rough patch in the March quarter. Its operating profit margin narrowed below the 10% mark, from 12.8% in the year-ago quarter.

Like MRF Ltd and Ceat Ltd, which announced their results a few days ago, an increase in raw material prices was responsible for the drop in Apollo Tyres’ margins. Rubber prices were about 12% higher year-on-year. Volatile prices of crude oil derivatives, such as synthetic rubber and carbon black, also weighed on margins.

But Apollo Tyres’ biggest setback was the 46.5 crore Ebit (earnings before interest and tax) loss posted by its European subsidiaries last quarter. This compares with a 25 crore profit in the year-ago period and a 69.5 crore profit in the December quarter. The management clarified that the March quarter is normally a weak one compared to December, which is far better given that the company sells a large number of winter tyres in Europe. But even on a year-on-year comparison, which negates seasonality factors, the Ebit margin shrank to -3.8% from 2.1% in the year-ago period. With the European business contributing about 30% to its total revenue, weakness in this region dragged consolidated profitability.

It was also not an easy ride on its home turf. Ebit margin of the Asia-Pacific, Middle East and Africa business fell from 11.9% to 8.6% year-on-year. So, even though revenues in these regions rose 8% year-on-year, Ebit fell to about 22%.

Coupled with the loss in the European business, consolidated Ebitda (Ebit plus depreciation and amortization) was 20% lower year-on-year and way below the Street’s forecast. On top of it, the tyre maker wrote off another 100 crore worth of investments (total of 200 crore in FY19) in the beleaguered Infrastructure Leasing and Financial Services Ltd during the quarter. Even after adjusting for this, net profit dropped 26.4% from a year ago. It’s little wonder the stock fell 3.6% to 184.90 on Thursday.

The management is still optimistic about recovery in the economy and the auto sector after the polls. But the outlook looks bleak. Apart from the domestic auto slowdown, overseas markets are faced with challenges on the changes in emission norms, and political risks that could weigh on sales.

Apollo Tyres has underperformed the Nifty 500 index by a wide margin last year. The current stock price of 185 discounts FY21 estimated earnings by around nine times, which reflects the pain in the sector and the falling profitability.