We attended the Apollo Tyres’ investor conference and Andhra Pradesh (AP) plant visit last week. The AP plant impressed us with its well-planned layout and utilisation of machines sourced from Europe. Currently, the plant is operating at near-full capacity, but there is potential to increase its capacity by three times in the future. The management reaffirmed their Vision FY26 targets, which include a revenue goal of $5 bn, implying a CAGR of approximately 17% for the period from FY23-FY26. Additionally, they aim to achieve an Ebitda margin exceeding 15% and a return on capital employed (ROCE) ranging between 12-15%, while keeping the net debt/equity ratio below 2x.
The company’s main focus will be on improving ROCE and profitability rather than gaining market share. The passenger vehicle segment, which offers better profitability, is expected to experience strong growth. Additionally, premiumisation in the industry, such as the sale of higher rim sizes, and market share gains in the premium PV categories, will act as catalysts for margin improvement. The company’s current production capacity is sufficient to meet demand until fiscal year 2025.
Stable commodity and profitability focus to enhance the ROCE to 13% by FY25F. It is worth noting that the low capex intensity contributes to this improvement. However, during the upcoming phase of capacity expansion, the capex intensity appears to be higher, which may potentially impact short-term ROCE due to any substantial spending.