Raw Material Costs Prompt Apollo to Consider Further International Investments

Upon announcing Apollo Tyres Ltd’s results for the second quarter and first half of the current Indian financial year, company chairman Onkar S Kanwar commented “it’s been a very difficult six months managing the unprecedented rise in natural rubber prices.” This is perhaps an understatement; Kanwar noted the company’s natural rubber costs have risen 70 per cent in the last year and 150 per cent in the space of two years – a significant amount, considering the commodity accounts for 60 per cent of Apollo’s raw material costs. “This has affected all aspects of our operation.” Kanwar added. “I do hope the Government will look at some measure to check speculation, as well as bring down the unreal duty structure we have.”

An apparent inactivity at government level may nudge Apollo Tyres in an even more global direction, Kanwar suggested: “With no action over so many years, despite understanding the plight of the Indian tyre industry, even an optimistic person like me is forced to consider greater investments outside India, rather than at home.”

Such hefty raw material cost increases put a dent in Apollo’s performance. As Onkar Kanwar pointed out, “it is impossible to pass on a near 50 per cent increase in the course of one year.” During the half-year to September 30, net sales amounted to Rs 37.7 billion (£525.6 million), a year-on-year increase of only 2.45 per cent. Operating profit during this period dropped 22.1 per cent to Rs 3.8 billion (£53.0 million), while net profit decreased 37.4 per cent to Rs 1.2 billion (£16.7 million). During the second quarter between July and September, net sales declined 4.74 per cent year-on-year to Rs 19.5 billion (£271.9 million). Operating profit dropped 35.9 per cent to Rs 1.86 billion (£25.0 million) while the Q2 2010 net profit of Rs 532 million (£7.4 million) was less than half of that earned in the same quarter of last year.