India's Apollo Tyres Ltd. plans to raise capacity at its units in South Africa and the Netherlands on expectations of an increase in demand in Africa and higher orders from European auto makers, its vice chairman said.
The tire maker will invest $30 million in 2010 to raise capacity at its two factories in South Africa.
The company plans to raise passenger car radial manufacturing capacity in South Africa to 12,500 tires a day from the current 10,000, while truck and bus tire capacity will be raised to 1,200-1,500 tires a day from 800 now, Neeraj Kanwar, who is also Apollo Tyres' managing director, told Dow Jones Newswires in an interview Wednesday.
"Our South African operations have been expanding and have grown between 12% and 14% over the last few years," Kanwar said. "This growth has been achieved even though we were not operating our plants at full capacity due to the economic slowdown."
In 2006 the company acquired Dunlop Tyres International in Africa, which was later renamed Apollo Tyres South Africa. It has two plants each in South Africa and Zimbabwe.
"African markets are growing and we expect a healthy demand in the continent over the next few years," Kanwar said.
Apollo will also decide on expanding capacity at its Netherlands unit--Apollo Vredestein B.V.--in the next financial year that starts April 1, Kanwar said.
"Vredestein has been doing well and is extremely profitable for us. It had Ebitda margin of 23% during April-December 2009. The demand has been rising and we will have to invest in creating fresh capacity there as well," Kanwar said.
Vredestein has an annual capacity to make 5.5 million tires. Apollo acquired Netherlands firm Vredestein Banden B.V. in May 2009 for an undisclosed amount.
Rising Raw Materials Costs
Apollo expects rising raw materials costs, primarily natural rubber, to put pressure on its earnings before interest, taxes, depreciation and amortization margin during the January-March quarter.
"In the third quarter, we have seen an 11% increase in raw material prices and we expect another 10% to 15% increase in the fourth quarter," Kanwar said. "Even though this rise is not helpful, we will try and retain our Ebitda margin for the full (fiscal) year at 15%."
Apollo had an Ebitda margin of 16.8% during April-December 2009.
Kanwar said rising demand in both local and export markets, growth at its overseas units and cost-cutting measures will help partially offset the negative impact of higher input costs on profit margins.
Despite higher raw materials prices, Apollo doesn't have any plan to raise tire prices in the current quarter, he said.
"We raised prices by 5%-7% in January and by 7.5% between April-December 2009," he added.
(Source: irco.biz)
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