InvestorQ : Why has Apollo Tyres decided to cut down on its capital spending for the year?
Anjana Aiyar made post

Why has Apollo Tyres decided to cut down on its capital spending for the year?

Arya Nanda answered.
3 months ago

Apollo Tyres will cut its CAPEX by Rs.400 crore as it grapples with a challenging environment due to weak demand in the OEM sector and the downstream impact of COVID-19. As a result, Apollo decided on the capex cut to ensure that the company is not stressed from a cash flow or a liquidity perspective. The original capex allocation was Rs.1500 crore.

Apollo Tyres has also decided to cut down on the capex investment across its European operations. The domestic capex has been cut from Rs.1500 crore to Rs.1100 crore and the European capex has also been cut due to the uncertain scenario on the back of COVID-19 cases. The focus of the company has shifted control cost to the extent possible.

Apollo Tyres, apart from the capex cut, has cut down on increments, announced pay cuts for top management, cut down on sales promotion expenses. This is part of the company’s larger plan to focus on conserving working capital and capex. The company will look to plough back the capex later when the sales guidance is more robust.

Despite the cut in capex, the outlook is not all that bad for Apollo Tyres. It is only the passenger car tyre segment that is under pressure. Other product segments like truck tyres, farm tyres, two-wheeler tyres are seeing robust demand in the replacement segment. The replacement market is likely to compensate for the slowdown in the OEM market.