Mumbai: Apollo Tyres Ltd, the Indian tiremaker partly owned by Michelin and Cie, will spend Rs 1,000 crore ($237 million) this year to raise capacity, as the country’s surging auto sales boost demand for replacement tires.

Apollo Tyres will expand capacity by 10% from the current 850 tonne a day, Sunam Sarkar, chief of corporate strategy and marketing, said on Tuesday. Seventy-eight percent of Apollo’s sales come from drivers replacing worn-out tyres, Sarkar said.

India’s passenger car sales doubled in the past six years as economic growth boosted demand in Asia’s fourth-largest vehicle market. Demand for new and replacement tires may gain further as General Motors Corp, Nissan Motor Co and other automakers invest a combined $6 billion in setting up Indian factories.

“We will get the benefit of the last 4-5 years of high growth as vehicle owners replace tires,” Sarkar said.

Sales in the year started April 1 will grow 16% from the Rs 4,700 crore achieved in the year ended March 31, Sarkar said. A year earlier, sales increased 9%. Sarkar declined to project net income for this year. Profit more than doubled last year to Rs 270 crore.

Apollo will generate most of the cash for the investment internally, while some will be raised through debt, Sarkar said.

Expansion will include adding production in factories in Gujarat and Kerala as the company expects sales to rise faster this year than a year earlier, he said.

Sales of cars, buses and trucks in India totaled more than 2 million last year as the country’s economy has grown an average 8.7% a year since 2003, the fastest pace since independence in 1947. That growth has enticed truckmakers such Daimler AG, Volvo AB, MAN AG and Navistar International Corp to set up ventures in the country.

Still, India’s economy may post its slowest pace of expansion in four years in the current fiscal year as a global slowdown hurts foreign investments and exports. Inflation, that’s accelerated to a threeand-a-half year high, and rising interest rates will likely damp demand. Industrial output in March rose by 3%, the slowest pace since 2002.

“Even if there is a slowdown in demand for new tires, the demand for replacements will continue to grow,” said S Ramnath, director of research at IDFC SSKI Securities Ltd.who has a “buy” rating on the Apollo stock.

Apollo Tyres, which has dropped 21% this year. The company will be able to maintain its profit margin in the current quarter if natural rubber prices hold at current levels, Sarkar said. Raw materials account for about 70% of the price of a tire.

Natural rubber has gained about 27% this year as of May 12 to Rs 118 a kg for ribbed, smoked sheet 4 grade in Kerala, the south Indian state that produces more than 90% of the commodity in India.

The commodity’s price is expected to fall as much as 9% in the next six months, Sandana Dass, MD of R1 International Pte, the world’s largest natural rubber trader, said on May 9.

“In April, we increased our tire prices by about 5%,” Sarkar said. “That should help us offset the increase in raw material prices.”

The company is also setting up a new tire plant in Hungary and another in Chennai.

Source : DNA