Apollo Tyres sees Europe stability next year after shift

Apollo Tyres expects largely stable European operations from next financial year after ending Enschede production at the end of the first quarter and shifting supply across Hungary and India. Management said manufacturing supply should be ready within the next two quarters, while agricultural and off-highway tyre supply is expected to start stabilising next year.

When will Apollo Tyres' European operations stabilise?

Apollo expects largely stable European operations from next financial year, subject to completing supply-chain and operating-model work during the current financial year or by the first quarter of the following year. Management said the manufacturing facilities should be ready to support supply within the next two quarters, while the initial two quarters are focused on putting the supply chain in place.

The operating timetable differs from the physical closure timetable for Enschede. Apollo stopped plant operations at Enschede at the end of the first quarter, but management said dismantling equipment and arranging its sale would take another two to three quarters. The company closed the site to move away from what management described as a high-cost manufacturing location.

Apollo is also reorganising warehouses in different parts of Europe, changing its business model and implementing SAP S/4HANA in Europe. Management said those workstreams should be completed during this financial year or, potentially, by the first quarter of next financial year. It said the intended result is stable operations and a return to the normalised European margin it had previously achieved, without providing a margin target.

How is Apollo Tyres replacing Enschede production?

Apollo is replacing Enschede output through a split Hungary-and-India footprint, with Hungary remaining its only operating European plant. Management said it relocated TBR manufacturing from Hungary to its AP plant in India, allowing Hungary to focus on other products while India takes the transferred TBR supply.

For passenger-car tyres, Apollo said smaller sizes will be supplied from India and high-end tyres will be produced in Hungary. Management said this plan was already in motion for the seasonally important third quarter for winter tyres. It described the passenger-car segment as one of the most profitable in Europe, which explains the focus on maintaining supply during the transition.

The company did not disclose production capacity by plant or the share of European demand to be met by India. However, management said capacity utilisation across its plants was about 85% to 90%. It said timely capital expenditure is necessary when demand is rising at those levels, because delayed capacity additions could result in lost market share.

Which Apollo Tyres products are still losing volume?

Apollo said agricultural tyres and off-highway tyres, or OHT, were the product areas that lost volume during the European transfer. Management expects supply for both categories to start stabilising next year, rather than giving a quarterly recovery target for the remaining months of the current financial year.

That volume loss contrasts with the second quarter, when management said Vredestein passenger-car tyre volume increased. Apollo linked the difference to its passenger-car supply plan, under which smaller sizes come from India and high-end tyres come from Hungary. The company did not disclose the size of either the second-quarter passenger-car volume increase or the agricultural and OHT volume decline.

The third quarter is typically important for winter tyres and specialty tyres, according to the analyst who raised the question. Management responded that the passenger-car plan had already been put in place because of the segment's importance in Europe. Its remaining operational priority is to establish agricultural and OHT supply from the India and Hungary plants, with stabilisation expected next year.

What Enschede costs will Apollo Tyres still incur?

Apollo said Enschede no longer carries plant operating costs because operations stopped at the end of the first quarter. Management nevertheless expects some costs over the next few quarters for dismantling equipment and moving it out, but said it does not expect those cleanup costs to be significant.

Management said the company had already taken the large part of the cost impact into its accounts. It cited an exceptional item in the European operations during the quarter, largely related to employees who remained in a different legal entity, and said that item had also been recognised. Apollo did not disclose a total cost for closing Enschede or an estimate of remaining cleanup spending.

This distinction matters because Enschede's physical closure will continue for another two to three quarters even though its operating costs have stopped. Hungary is now the only operating European plant, while India has taken the transferred TBR manufacturing and smaller passenger-car tyre supply. The company has not disclosed a final date for legal closure or equipment disposal.

How does Apollo Tyres balance expansion and returns?

Apollo said its capital-expenditure cycle may have a short-term effect on return on capital employed, or ROCE, but management continues to target a mid-teens ROCE in a stable operating state. It said the company is prioritising growth because plant utilisation of about 85% to 90% indicates that capacity must keep pace with demand.

Management did not give a fixed 12-to-24-month ROCE forecast. Instead, it said returns should come back after Apollo captures the growth opportunity supported by the investment cycle. The European transition is part of that broader response: India is taking TBR and smaller passenger-car tyre supply, Hungary is making high-end passenger-car tyres, and Apollo is considering capacity needs against high utilisation.

Conclusion

Apollo is using India and Hungary to replace Enschede production rather than retaining manufacturing at the closed Dutch site. The transition has protected the passenger-car supply plan, including winter tyres, and management reported a second-quarter increase in Vredestein passenger-car tyre volume. Agricultural and OHT products remain the areas where volumes were lost during the transfer.

The next milestones are supply readiness within two quarters, completion of warehouse, business-model and SAP S/4HANA changes by this financial year or the first quarter of next financial year, and agricultural and OHT supply stabilisation next year. Management also plans to balance expansion spending with its stated mid-teens ROCE target at a stable operating state.