Apollo Tyres to cut capex by Rs 400 crore this fiscal to preserve cash flow

Apollo Tyres has decided to cut its capital expenditure (capex) by Rs 400 crore this fiscal amid challenging business environment due to the coronavirus pandemic, according to a senior company official.

"Given the overall demand situation, we have cut back on capex to the tune of another Rs 400 crore in 2020-21 to make sure that we are not stressed from a cash flow or a liquidity perspective," Apollo Tyres Chief Financial Officer Gaurav Kumar said in an analyst call.

The company had earlier earmarked a capex of around Rs 1,400-1,500 crore for the domestic operations for the current financial year.

Apollo Tyres has also taken a cut in the capex investment across its European operations, he added.

"We would have talked if I remember correctly the figure in India of Rs 1,400-Rs 1,500 crore. That number for the current year would be about somewhere between Rs 1,000 to Rs 1,100 crore. And, similarly, we have taken a cut in the European operations as well," Kumar said.

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With uncertain scenario due to rising Covid-19 cases, the company has taken various steps to control cost as much as possible, he noted.

"These range from announcing no increments for the year, top management taking salary cuts, cutting down on sales promotion, advertising and promotion expenses, improvements that were visible last year on the working capital side and we will continue to monitor that very actively," Kumar said.

On the outlook for the current financial year, he noted, "In terms of what we see looking ahead, while we will probably have a sales decline in FY21 compared to FY20, because the OE (original equipment) business is still looking fairly weak and there is no promising outlook as well."

But, the fact that a majority of business is replacement, it is a significant plus for the company, Kumar said.

"Barring passenger car tyre segment, on all other product segments -- truck tyres, farm tyres, two-wheeler tyres -- we are seeing a good recovery in the replacement segment," he added.

All the company plants in India have started operations under the state government guidelines, Kumar noted.

They are running at lower levels of utilisation and as expected would be gradually ramping up, Kumar said.

Commenting on European operations, he said: "We expect a sales decline given the situation...But, there is a possibility that sales could recover sharply. Both our plants in Europe are operating and going up in capacity utilisation in Hungary and Netherlands."