Home >News >India >Auto sector needs govt help to sail through covid-19 crisis: Apollo Tyres MD

NEW DELHI: As automobile manufacturers and their component suppliers had to shut production indefinitely due to the covid-19 pandemic and are staring at huge losses, the government should announce a bailout package for the sector to tide over the current crisis, Neeraj Kanwar, vice chairman and managing director, Apollo Tyres Ltd.

In an interview to Mint, Kanwar said India could be in an advantageous position to attract investments post the crisis, provided there is improvement in ease of doing business and infrastructure. He also said Apollo Tyres’ promoters would not sell any further stake to reduce debt. Edited excerpts:

What do you make of the recent steps taken by the Reserve Bank of India and the union government to combat the covid -19 pandemic?

We were waiting for some more steps to be taken from the RBI. So, I see this as a very positive move by the central bank to create liquidity of 3.5 lakh crore which is required. On the other hand, we are still waiting to see what the government does for companies like ours. They have looked at small and medium businesses by creating this liquidity but my request is that the government has to look at corporates (entities) like ours. We are creating jobs and have work employees to look after and all our plants are shut. We have proactively shut our plants since safety comes first but in that case companies can look after themselves for some time but after that the government needs to help us.

How are you placed when it comes to your European and other international operations?

In Europe, the incentive packages (fiscal stimulus) were already in place (since second week of March). We have seen the US give $2 trillion in various formats, UK also pumped in 330 billon pounds in various formats and even the Dutch government is giving a fiscal stimulus package. Then, they are looking at wages for workmen wherein the government is supporting corporate entities. That obviously helps companies tide over such trying times. Also Europe plants are not shut down fully since there is some demand which is a positive sign specifically in passenger cars. Both Hungary and Holland plants are running, but at a much lower scale. On another positive sign, in the agriculture (machinery) business, pent up demand is there. Europe is not in a similar situation like India where plants are locked down.

With the RBI encouraging banks to buy more commercial paper from corporate, is that a relief for companies like yours?

It is a very marginal relief and we have long-term borrowings from various banks. It’s good that RBI has decided to reduce the interest rates (by 75 basis points) which is good, but in some cases they have deferred interest payments for three months or even cancelled payments. Those kinds of stimulus packages needs to come into the corporate world. Today what RBI has done is created liquidity in the market and it will help small and medium business. A company like ours has many workers and long-term loans and that’s where something needs to be done, especially related to the wages. A lot of governments like the US, UK and others have said they don’t want to see any company go bankrupt in their respective countries. Hence, they are giving the fiscal stimulus.

Amid this kind of an uncertainty, what do you expect the first two quarters of FY21 to be like?

For us what is going to be very critical is cash flow. In these trying times cash is king. We have put various committees in place in each country and every week we are reviewing the collection cycles that’s coming into the company since we have to take care of our employees. So it’s a weekly planning. Whether in India the lockdown is going to continue, it will depend on how the lock down will pan out. We can’t say what is going to happen in Europe. I obviously see quarter one getting affected. How much, it’s too early to say. If things start smoothing out, we might see some pent up demand in quarter two, provided we sail through this journey.

Last fiscal you had guided for reduction in capex. What are the plans for this fiscal?

Currently, capital expenditure is on hold. Once we get an idea (of things improving) we will get back to our last year’s capex plan which was deferred in any case. The auto industry in India has been suffering for a year now. Now, with the pandemic coming in, the suffering has exacerbated. The government needs to give some stimulus for the vehicle industry since auto and real estate are the two sectors that have been suffering and lot of companies have gone down and under. We have been taking it up with the government but we haven’t received anything. The auto industry drives the economy and the gross domestic product.

Beyond the pandemic, can India emerge as an alternate destination for companies that would like to shift some part of their supply chain network from China?

After the covid-9 pandemic is over, companies will have to have contingency plans for the future given what has happened with China. That’s where we need to get the first mover advantage and should not let these businesses go to Thailand, Vietnam or Malaysia. We still need to have policies in place for land availability. Cost of capital and duties are very high and infrastructure needs to improve. Our ports are getting better but not up to the international standard. So we need to fix all of this and our labour laws. We still don’t have a one-window clearance (for setting up projects).

Will you consider selling more stakes in the company to reduce debt?

After Warbug Pincus comes in with a 10% stake, it eases out our balance sheet and ratios. That’s one reason to get them on board. Another reason for the partnership with them is the synergy that’s there given the global footprint of both the entities. It’s a long-term partnership and is related to the long-term strategic intention that the company has. We aren’t looking at any mergers and acquisitions and are in a consolidation phase. Now it’s time to create more demand, more supply; go after market share and create more cash flows. We are just ten years young in Europe and that’s hardly any experience, whereas Warbug has been there for decades. It will open up new idea on financing and will give us more options on how we can expand our profits, EBITDA and margins.

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