Apollo Tyres Ltd (NSE:APOLLOTYRE) Q2 FY23 Earnings Concall dated Nov. 15, 2022
Corporate Participants:
Neeraj Kanwar — Vice Chairman and Managing Director
Gaurav Kumar — Chief Financial Officer
Analysts:
Ashutosh Tiwari — Equirus Securities — Analyst
Siddharth Bera — Nomura Securities — Analyst
Raghunandan NL — Emkay Global — Analyst
Amyn Pirani — J.P. Morgan — Analyst
Disha Sheth — Anvil Shares & Stock Broking — Analyst
Nishit Jalan — Axis Capital Limited — Analyst
Jinesh Gandhi — Motilal Oswal Securities — Analyst
Arvind Sharma — Citigroup — Analyst
Devang Shah — Angel Broking — Analyst
Joseph George — IFL Securities — Analyst
Presentation:
Joseph George — IFL Securities — Analyst
Hello everyone, good morning, good afternoon. On behalf of IIFL Securities, I welcome you all to the 2Q FY ’23 Results Conference Call of Apollo Tyres. From the management team, we have with us Mr. Neeraj Kanwar, Vice Chairman and Managing Director; Mr. Gaurav Kumar, Chief Financial Officer; and the Investor Relations team. I’ll now hand over the call to Mr. Kanwar for his opening remarks, post which we’ll start the Q&A. Over to you, sir.
Neeraj Kanwar — Vice Chairman and Managing Director
Good morning, good afternoon everyone and a very warm welcome to Apollo Tyres quarter two earnings call. Let me start the call by thanking you all for your interest in the company and taking the time out for today’s call. I’m proud to share that our biggest plant in India, which is in Chennai, has been awarded The Deming Prize this year, the most important recognition in the field of quality. This once again highlights our absolute focus on world-class quality. We at Apollo are relentlessly working on delivering superior financial performance in terms of profitability, free cash flows, and return on capital employed both in the mid-term while also preparing for the future.
The business model today is far more balanced and resilient. This has helped us report double-digit YonY growth in both consolidated topline and consolidated operating profit despite a very, very challenging environment. The current quarter was once again impacted by increase in RM prices both in India and in Europe. In addition, we also witnessed steep increase in energy costs, especially in Europe. Despite these challenges, the company has reported sequential improvement in operating margin performance both in India and in Europe. We have been extremely judicious about capex and have curtailed the same in the first half given the challenging business environment. This has ensured that our balance sheet leveraging remain within reasonable levels.
I would now also make a brief mention of work being done on our key pillars of our Vision 2026. Starting with R&D, we are working on new age technologies to support our premiumization journey. We are leveraging advanced technologies like foam technology and sealants to support our electric vehicle journey. The teams are working on further improvements in rolling resistance and noise reduction to support development of EV tires. I’m also pleased to share that in the quarter, we were the first company in India to get a five-star rating for commercial vehicle tires.
Moving to digitalization, we are leveraging technology to transform ourselves on various fronts. We have started seeing initial efficiency gains from artificial intelligence and machine learning and have further increased our focus on data science to drive improvements on productivity and sweating of our assets. This initiative will again help us in improving our ROCE and reduce our growth capex. Another key area of focus is sustainability. Apollo Tyres has a commitment of becoming carbon neutral by 2050, aligning with the European Green Deal. We are committed to a target of 25% renewable energy by 2026. This will translate to 25% reduction in Scope 2 intensity for the company in FY ’26. We are also committed to target 25% reduction in water withdrawal intensity by 2026.
We continue to focus on enriching our product mix and superior price positioning of our product across geographies. We are seeing signs of recovery in the commercial vehicle cycle and a strong momentum on the passenger vehicle side in India. Given the recent corrections in commodities and our continued focus on price and profitable growth, we expect revenue growth and recovery in operating margins going forward. Thank you once again, stay safe. Now I’ll pass on to Gaurav, our CFO. Thank you. Gaurav, over to you.
Gaurav Kumar — Chief Financial Officer
Thank you, Neeraj and good afternoon ladies and gentlemen. Continuing from where Neeraj left, let me move now to the performance for the last quarter. In India, the quarter started on a weaker note with replacement demand in July and August impacted by subdued market, unfavorable rain distribution, and steep price increases. On the other hand, we saw healthy demand momentum in the OEM segment. However, more importantly, we were able to take pricing actions during the quarter linked to our mantra of profitable growth, which helped us negate the impact of higher raw material cost and also partially impact the sequential drop in revenues.
The European operations reported another healthy quarter with significant revenue increase. We registered market share improvement across all product segments. Operating margins in Europe improved sequentially despite increase in RM cost and a steep inflation in energy costs. European markets is beginning to show some signs of slowdown. We however continue to follow our strategy of premiumization with a focus towards increasing the UHP mix and gaining market share. In terms of outlook, as Neeraj mentioned, we expect the demand in India to pickup in the replacement segment and a growth in volumes and revenues going forward.
Moving on to the financial results, the consolidated revenue for the quarter stood at almost INR60 billion, a growth of 17% over the same quarter last year though flattish on a sequential basis. The consolidated EBITDA for the quarter was upwards of INR7 billion, a margin of 12% compared to 12.6% for the same period last year, but an improvement sequentially which was 11.6% in the last quarter. Coming to the balance sheet, we’ve been able to maintain our leverage ratio given the focus on cash flows, curtailing of capEx. The net debt-to-EBITDA for the consolidated operations was under two, in line with our vision target.
In India operations, the revenue for the quarter was INR42.5 billion, a growth of 17% over the same quarter last year. This growth was largely driven by improvements in mix and the price increases taken. Sequentially, the revenue was a decline of 4%. The EBITDA for the quarter stood at INR4.4 billion, a margin of 10.3%, which was same as what was reported for last year and an improvement from the sequential quarter, which was 9.7%.
Moving on to European operations, the revenue for the quarter was EUR181 million, up a significant 31% compared to the same period last year. This was the result of 10% growth in volumes and the balance coming through price and mix improvement. We continue to make inroads into the market and grow. The EBITDA for the quarter stood at EUR28 million, a margin of 15.3% compared to 14.5% in the last quarter. With this, I would conclude my opening comments. Thank you. We would be happy to take your questions.
Questions and Answers:
Joseph George — IFL Securities — Analyst
Thank you, Mr. Kanwar. Thank you, Gaurav for your opening remarks. So now we will begin with the Q&A. [Operator Instructions] We will start with the first question from Ashutosh Tiwari. Ashutosh, you can unmute yourself and go ahead with your questions.
Ashutosh Tiwari — Equirus Securities — Analyst
Yeah, hi, am I audible?
Joseph George — IFL Securities — Analyst
Yes, we can hear you.
Ashutosh Tiwari — Equirus Securities — Analyst
So firstly on India side, the entire growth YoY is driven by only pricing or was there any volume growth as well? If you can breakup OEM and replacement as well.
Gaurav Kumar — Chief Financial Officer
So the volume growth, Ashutosh, was very minimal, under 1% and hence it was largely price and mix.
Ashutosh Tiwari — Equirus Securities — Analyst
Okay, but any color on replacement and OEM breakup?
Gaurav Kumar — Chief Financial Officer
Just a minute, the replacement volumes overall though you would appreciate that across product categories it becomes difficult was down mid-single digits and the OEM and exports grew into double-digits.
Ashutosh Tiwari — Equirus Securities — Analyst
Even exports are growing in double-digits as of now?
Gaurav Kumar — Chief Financial Officer
Yes, for the last quarter, yes.
Ashutosh Tiwari — Equirus Securities — Analyst
Okay and we did very well in Europe. Can you highlight like which markets or countries are doing very well for us. 10% in this environment is pretty good in terms of volume growth.
Neeraj Kanwar — Vice Chairman and Managing Director
Let me take that, Gaurav. I think, overall, our focus has been in markets where we were not present at all, which is really France and Spain. They have done fairly good for us. Again, Germany and Netherlands continue to do good for us. So overall the focus of the company in Europe has been to go on to the higher sizes and that’s where our technology has done good in our products and UHP and UUHP has now become a major share of our entire pie. That is also giving expansion on our profit pool. So more and more focus is coming on the ultra-high performance tires, which will give us growth not only on revenue plus it will also give us growth on EBITDA margins.
Ashutosh Tiwari — Equirus Securities — Analyst
So if I remember correctly, your market share in France and Spain was pretty low, I think less than 2% or something. So there we are seeing improvement now.
Neeraj Kanwar — Vice Chairman and Managing Director
Yes, it’s less than 1%. A lot of brand activities have happened in France. A whole new organization structure has been put in place. Recently in October, we sponsored the 20K Marathon in Paris. So there’s a lot of brand activity going on in France and that is giving us some market share gains.
Ashutosh Tiwari — Equirus Securities — Analyst
And lastly on the margin side in Europe, I think we have seen quarter-on-quarter improvement and in fact this is coming on a higher selling price, so probably, your profitability is not at all impacted. How should one look at it going ahead because I think I remember that we have probably hedged our energy costs for some time. So how should one look at European profitability say for next year?
Neeraj Kanwar — Vice Chairman and Managing Director
Well, as we speak, energy prices are very high in Europe, but as you mentioned that we have hedged our energy costs and therefore, there is a respite as far as our manufacturing cost is concerned, but there is clear focus on growth on revenue and on profitability. And so going forward, we will continue with the same trend. We have reached last year highs. Now, we are seeing commodity prices weakening a little bit and therefore we will see some margin expansion happening.
Ashutosh Tiwari — Equirus Securities — Analyst
Just one more question on the inventory side. We have seen inventory in these [Phonetic] consol level in balance sheet. So why it happened and how should one look at say from like say — the second half, how should one look at cash flows especially operating cash flow and capex as well.
Neeraj Kanwar — Vice Chairman and Managing Director
Gaurav, can you comment?
Gaurav Kumar — Chief Financial Officer
Yeah, so, Ashutosh, if you look at two regions, little bit of subdued demand in replacement in India and also the fact that we went after profitable growth took the lead on price increases, did have some impact on replacement volumes, which have translated into inventory. On the Europe operations, this is a fairly seasonal impact where we build up inventory for the winter tire season. So that’s the impact of inventory that you see. Some of it will get corrected automatically as the normal season unfolds, but we are focused on the fact that there has been an inventory buildup and a correction is needed. Similarly on the capex front, we were significantly under let’s say 50% of the overall guidance and we will continue to monitor the situation very sharply on the overall market cash flows to make sure that we spend the capex judiciously.
Ashutosh Tiwari — Equirus Securities — Analyst
So basically second half, the cash flow should improve operating side, essentially.
Gaurav Kumar — Chief Financial Officer
That’s correct.
Ashutosh Tiwari — Equirus Securities — Analyst
Okay, okay. I think we are managing our cash flows as well as costs pretty well because if I look at India also standalone, other expenses have fallen quarter-on-quarter. So congrats for that. I’ll join back the queue.
Neeraj Kanwar — Vice Chairman and Managing Director
Thank you.
Joseph George — IFL Securities — Analyst
Thank you. Next in queue we have Siddharth Bera. Siddharth, you can unmute yourself and go ahead. Siddharth, you can unmute yourself.
Siddharth Bera — Nomura Securities — Analyst
Yes, can you hear me?
Joseph George — IFL Securities — Analyst
Yes.
Siddharth Bera — Nomura Securities — Analyst
Thanks for the opportunity. Sir, again first on this replacement demand outlook, Q2 has been soft we understand especially it’s a seasonally soft quarter as well, but some color on how you are looking at growth in the current quarter and going ahead, how is the growth outlook and in case, I mean we know that you have been slightly ahead of the curve in taking price hikes and there has been some market share loss as well. So if you can comment how you are looking at growth versus market share now in the coming few quarters?
Neeraj Kanwar — Vice Chairman and Managing Director
Sure, okay. So you know for us, the whole mantra has been profitable growth. While we will be looking at gaining market shares, but today in India, let me discuss India and Europe separately. In India, what has happened is we have increased prices over time. We are clearly the price leaders in truck and in passenger car.
In every segment of the market, Apollo now has established its price premium, okay and therefore, the gap between us and competition was huge in quarter two and therefore, we did lose a little bit market share in truck, bus radial, but the company continues to introduce new SKUs, new products in TBR and, therefore, our new price position has been well established with the dealer network. Now the gap has narrowed as far as pricing is concerned. We believe the CV cycle is on the up. We see order books are full coming from OEMs and therefore we believe that the economy is moving in the right direction.
Given that, we are all poised today as far as our marketing networks are concerned to go and grab back that market share at the premium pricing and therefore you will see margin expansion happening in India. Also as far as PCR on car is concerned, again, order books are full and we’re seeing that from the likes of Maruti, Hyundai, orders are already coming in much more than what they were pre-COVID time. So there is growth coming in the market in quarter three and quarter four.
As far as Europe is concerned, with the Russia-Ukraine, what has happened is that close to 10 million to 12 million tires were coming in from Russia into EU. Now that itself has now stopped because of the sanctions that have come in. So that gives us Apollo a chance to get into various networks where those tires were available coming in from Russia and that’s where we have gained market share and this will continue.
Today, our plants are running in Europe at nearly full capacity. In fact, we are also bringing in close to 1 million, 1.5 million ties, Gaurav from India. We are trying to service the passenger car market in Europe because we see a huge growth for specifically the Vredestein brand and I believe that the growth is there for us given this void that has come from Russia.
Siddharth Bera — Nomura Securities — Analyst
Got it, sir. Second question is on the ASP. So if I look at your ASP for the quarter, given the volumes you said, I think the ASPs would have increased by about 5% quarter-on-quarter. So is it a correct assessment and if that has — is it entirely because of price hikes and any more price hikes did you take in the last couple of months for October, November?
Neeraj Kanwar — Vice Chairman and Managing Director
Gaurav, you want to comment?
Gaurav Kumar — Chief Financial Officer
Yeah, Siddharth, you are correct that we sequentially we took a price increase about close to 5%. There have been no further price hikes taken in the current quarter.
Siddharth Bera — Nomura Securities — Analyst
Okay and sir lastly on the cost side, so we have seen some costs also coming down in the quarter two across both staff as well as other costs. If you can also highlight what has led to this and should we expect some of these costs to normalize on. These are probably the sustainable costs we should look forward to?
Neeraj Kanwar — Vice Chairman and Managing Director
Gaurav, you want to answer this?
Gaurav Kumar — Chief Financial Officer
Yeah, Siddharth, the staff cost lowering is on account of lower production. So some of it is linked to production and as demand comes in and our production volumes increase, they will normalize. The fixed cost again is a whole system that we’ve put in place of keeping a tight check vis-a-vis where the overall operations are going. So, yes, if the demand picks up, some of them will go back to earlier levels, but not otherwise.
Siddharth Bera — Nomura Securities — Analyst
Got it. Okay, sir. Thanks, I’ll come back in the queue.
Gaurav Kumar — Chief Financial Officer
Thank you.
Joseph George — IFL Securities — Analyst
Next we have Raghunandhan. Raghu, you can unmute yourself and go ahead.
Raghunandan NL — Emkay Global — Analyst
Thank you sir for the opportunity. Sir, on the commodity side, what was the inflation impact? How much did the RM cost go up in Q2 and what is the deflation impact you’re expecting in Q3?
Gaurav Kumar — Chief Financial Officer
So in Q2, Raghu, the RM cost went up by about 3% and in Q3 we are expecting around a similar reduction.
Raghunandan NL — Emkay Global — Analyst
It’s good to hear sir and can you also talk about in terms of the truck and bus segment, how do you see the volume improvement going ahead in replacement market and broadly, what range of growth would you expect for the full year?
Neeraj Kanwar — Vice Chairman and Managing Director
We will look at a double-digit growth. We have already like I mentioned earlier, our order books are coming out to be full in the months of — in this quarter and the coming quarter. So, we’re pretty bullish about seeing a revival of the CV segment. Given all the infrastructure costs that the government is putting in, we are seeing an uptake happening in the CV segment.
Raghunandan NL — Emkay Global — Analyst
Thank you, Neeraj sir. Sir, can you also talk about the EV journey. So in terms of the new product introduction, how you are seeing the adaptations in terms of making the product match that rolling resistance and the better grip and how does the content per vehicle increase for a EV tire compared to a ICE tire on a like-to-like basis.
Neeraj Kanwar — Vice Chairman and Managing Director
Well, EV as — and you said rolling resistance and noise level. Those are the main things and today, even before EV tires came out and as you know, we have launched EV tires in India. In the next month, we are launching EV tires in Europe. These aspects or these contributors of rolling resistance and noise level have already been incorporated into our tires when we are selling them to OEMs. Okay, so there is no major difference. Yes, obviously, a little bit tweaking is required. In India, EV tires is yet to pick up, but I believe that in Europe we will have a good marketplace for our EV products that are going to come out. In fact, next week they are coming out.
Raghunandan NL — Emkay Global — Analyst
Thanks for that, sir, but the content or the pricing per tire would increase in single-digits or would it be much higher?
Neeraj Kanwar — Vice Chairman and Managing Director
You mean the raw material cost?
Raghunandan NL — Emkay Global — Analyst
No, the price of tire.
Neeraj Kanwar — Vice Chairman and Managing Director
Gaurav, you have any answer on that?
Gaurav Kumar — Chief Financial Officer
Raghu, I won’t have the details readily. We can come back to you through the IR team.
Raghunandan NL — Emkay Global — Analyst
Thank you, sir. Sir, just a last question. Can you share the commodity cost for the various commodities natural rubber, synthetic rubber, et cetera.
Gaurav Kumar — Chief Financial Officer
Sure, so natural rubber this quarter was around INR185 a kilogram. Synthetic rubber at INR210 a kilogram. Carbon black at about INR140 a kilogram and nylon fabric at INR385 a kilogram.
Raghunandan NL — Emkay Global — Analyst
Thank you, sir. And the current price of rubber plus the logistics cost, that should translate into around INR160 per kilogram in the coming quarter?
Gaurav Kumar — Chief Financial Officer
It will still depend on how the rubber price unfolds, but yes INR160 or maybe a little bit more, but definitely lower than what was there in the last quarter.
Raghunandan NL — Emkay Global — Analyst
Thank you, sir. Thank you so much and wishing all the best.
Gaurav Kumar — Chief Financial Officer
Thank you, Raghu.
Joseph George — IFL Securities — Analyst
Next in line we have Amyn Pirani. Amyn, you can unmute yourself and go ahead.
Amyn Pirani — J.P. Morgan — Analyst
Yes, hi, thanks for the opportunity. First question on the India business and really a two-part question. So when I look at your product segmentation like truck and bus has come down from 60% to 55% on a half year basis, but when I look at your channel, the replacement is down only from 60% to 58%. So would it be fair to say that your strategy of taking price hikes ahead of competition is impacting your replacement market share more on the TPR side rather than on the passenger vehicle side. Is that a correct understanding?
Neeraj Kanwar — Vice Chairman and Managing Director
Yes, like I mentioned to you, it is the correct understanding. Our strategy is, as I mentioned to you, on profitable growth. We are not going after — dropping our prices and gaining market share. That’s not my strategy. My strategy is to improve our ROCE like I mentioned to you, get more free cash flows into the company and obviously, have a premium product out there in the market. Now that the price has narrowed and competition has come up with their pricing strategy, we still continue to be the price leaders in TBR, okay, don’t misunderstand.
Keeping that level now with a 3% to 4% price gap between us and the second competitor we believe we’ll be able to go and get better growth from quarter two. Okay because we have also introduced new SKUs into the market. We have also introduced new policies into the market. So keeping EBITDA in mind, keeping profit margin in mind, we will now start increasing our volumes into the replacement market.
Amyn Pirani — J.P. Morgan — Analyst
And how is the underlying replacement market for TBR doing. I mean obviously we’ve heard these comments that OEM has been doing well from you and from other sources also that but the replacement was a bit soft, but has that picked up materially and what are the drivers of that?
Neeraj Kanwar — Vice Chairman and Managing Director
Like I mentioned to you earlier that basically the drivers are the government spending going into infrastructure, road transportation is really helping the CV cycle coming back, okay, and that is going to make the CV cycle come and TBR is now the main product category that is going to be taken by the truckers. OEMs today are already at 75% of radialization. okay, to 80%. So this is where Apollo is standing tall as a radial leader in the Indian tire market. So all our products in radial whether in truck or in passenger car or in night trucks even in farm category are at premium price positions with highest volumes that are going into the market.
Amyn Pirani — J.P. Morgan — Analyst
Okay and one question on Europe, it seems that the winter is likely to be less severe or not really a very cold winter. Now how should we think about, you know, because obviously 3Q is generally a very strong quarter for you because of your winter tires and like you said that you have built up inventory for the same. So what is the initial sense? Is there an impact on the winter tire demand because of a milder winter and what’s the outlook like for the winter? I guess you only have like a few more weeks to do that kind of a sale, right?
Neeraj Kanwar — Vice Chairman and Managing Director
Gaurav, you want to answer?
Gaurav Kumar — Chief Financial Officer
Yeah, Amyn, you are right. So there are signs of slowdown in Europe given the overall environment and till now winter has been mild. We are still growing. Though halfway into the quarter I would say the growth is at a lower pace compared to what we have seen in the first half, but the growth story will continue. We are gaining market share and will continue to do that as we push into strategic markets, into strategic geographies where we were not present or weaker, but yes, the pace of growth would probably come down.
Amyn Pirani — J.P. Morgan — Analyst
Okay, okay.
Neeraj Kanwar — Vice Chairman and Managing Director
On this I also believe that the winter months have shifted and so this is my own belief, no one believes me, but I think that the points [Phonetic] have shifted to Jan, Feb, March, but the buying will continue because we are seeing now winter coming in, in Austria, parts of Switzerland, parts of French Alps, the snow has come in. So it’s a late start and these times it goes into March, April also. So really the skiing season is going into March, April. That’s where the winter tires are also required. So, I believe that quarter four will also have some winter sale happen.
Amyn Pirani — J.P. Morgan — Analyst
Okay, so you’re saying the seasonality itself the way we see it might change and hence we shouldn’t just focus on 3Q. Fair enough.
Neeraj Kanwar — Vice Chairman and Managing Director
Yeah and it’s I guess got to do with global warming and so the signs are that in the month of October, we saw U.K. London record very high degrees of temperature, which is totally different than what it used to be. So things are now I think there its changing seasons.
Amyn Pirani — J.P. Morgan — Analyst
Great, Great thanks a lot. I’ll come back in the queue.
Joseph George — IFL Securities — Analyst
Next we have the Disha Sheth. Disha, you can go ahead after unmuting yourself.
Disha Sheth — Anvil Shares & Stock Broking — Analyst
Yeah, good afternoon. So wanted to check since we are not increasing our prices anymore because raw material is coming down and the volume growth in this quarter was only 1%. So going forward how is the volume going to come because we do not have price growth and volume you said it is more from the OEM level right now. Replacement is not growing that fast. So how will be the volume growth and in terms of realization and margins, because if we have more growth from OEMs, the margins will get impacted. So if you can share your views on the same.
Neeraj Kanwar — Vice Chairman and Managing Director
So, Disha, A, the price increases that we have taken continue with the rollover effect vis-a-vis last year while here sequentially the growth in Q3 et cetera would be only volume driven, but on a year-on-year basis, the price impact or the price increases taken over the last 12 months will still come into play. On your second point, we are seeing signs of pick up in replacement and that’s specifically the CV segment. On the passenger car segment et cetera, that market was already strong and we are a leader there. So we believe that the operating margins will only improve going forward if the current market situation remains.
Disha Sheth — Anvil Shares & Stock Broking — Analyst
Okay, okay, and OEM will not impact our margins. Just again asking the same question because the growth is more towards OEM. So that is how —
Neeraj Kanwar — Vice Chairman and Managing Director
No, sorry, I didn’t mean it is only OEM, I said OEM is a driver for replacement market. OEM currently was at a very low level and now the order books are full. So you will see a growth in the replacement market definitely.
Disha Sheth — Anvil Shares & Stock Broking — Analyst
Sure and last question sir if you can say your debt levels, current net debt levels are at?
Neeraj Kanwar — Vice Chairman and Managing Director
Gaurav?
Gaurav Kumar — Chief Financial Officer
Just a minute, Disha. So the net debt for the India operations is about INR4,200 crores and for consol the net debt is about a little under INR5,500 crores.
Disha Sheth — Anvil Shares & Stock Broking — Analyst
Okay, and capex for FY ’23 and ’24?
Gaurav Kumar — Chief Financial Officer
’24, we haven’t yet firmed up. We want to see where the markets are going. The capex in the first half of the year is under INR400 crores on a consolidated basis.
Disha Sheth — Anvil Shares & Stock Broking — Analyst
And sir, going forward you expect volume in mid-single digit or a double-digit considering OEM replacement and exports.
Gaurav Kumar — Chief Financial Officer
Overall for the year, Disha, we would expect the volumes to be in mid-single digits and then they will start picking up and then the volume growth will accelerate going into next year.
Disha Sheth — Anvil Shares & Stock Broking — Analyst
Okay, thank you, sir. That’s it from me.
Gaurav Kumar — Chief Financial Officer
Thank you.
Joseph George — IFL Securities — Analyst
Thank you. Next we have Nishit Jalan. Nishit, if you can unmute yourself and go ahead.
Nishit Jalan — Axis Capital Limited — Analyst
Yeah, hi, thank you for taking the question and congrats on good set of numbers. My first question is on the replacement side just wanted to understand from industry perspective, tire quality is consistently improving across segments. So just wanted to hear your thoughts, are you seeing some signs that replacement cycle is getting longer, which is having some impact on demand? So just wanted to understand what was the replacement growth in FY ’22 and first half FY ’23 and is it a reason why replacement demand is a little bit subdued because tire quality is increasing and the life of the tire probably would be going up. Your thoughts on this please?
Neeraj Kanwar — Vice Chairman and Managing Director
I don’t think life of the tire is increasing. I think the infrastructure growth is actually taking the CV cycle up. The numbers, Gaurav, you can give him, but please understand there is a recession all over the world. India is least affected today when you compare economies, when you compare Europe or the U.S. or even for that matter China and India is the least affected because of the infrastructure spends that are going into the country. When infrastructure is going into the country, the first thing that is going to pick up is the CV and that is what exactly what we are seeing. Whether it is in the replacement or in OE, both segments you will see bullish numbers going forward.
Nishit Jalan — Axis Capital Limited — Analyst
Okay, Gaurav, if you have replacement segment growth overall for FY ’22 and 1H FY ’23?
Gaurav Kumar — Chief Financial Officer
Yeah, so in the current year, Nishit, for the first half the overall replacement growth is volume growth is just about 1%.
Nishit Jalan — Axis Capital Limited — Analyst
And second question is on Europe. Right now I think what you mentioned in the last call is that we have hedged the energy cost and that is valid for even 4Q also right? Now [Speech Overlap] and move over to FY ’23, how should we look at that because obviously energy cost has gone up quite substantially. So will it be a meaningful impact on our other expenses on our power and energy cost or do you think something that is manageable and will not have an impact on profitability?
Neeraj Kanwar — Vice Chairman and Managing Director
Gaurav?
Gaurav Kumar — Chief Financial Officer
Nishit, we’ve taken hedges of different percentages for future years. So, obviously, we’ve benefited from a much larger proportion of energy hedged for the current year which is FY ’23, but a reasonable proportion of energy cost is hedged for FY ’24 also, and given the way the prices have swung, it is something that is reviewed by a committee at corporate and regional level every fortnight in terms of looking at the spot price and the future price to take a decision if we should hedge more. So it is something under active review and we are conscious that we’ll try and manage that as much as possible. Difficult to say as of now as to where in FY ’24 which is even the start of that is six months out as to finally where we will end, but it’s something to be watched very carefully, but we have a reasonable proportion even in FY ’24 hedged. So we are not completely subject to the mercy of spot prices.
Nishit Jalan — Axis Capital Limited — Analyst
Got it. Thank you. That’s all from my side.
Gaurav Kumar — Chief Financial Officer
Thank you, Nishit.
Joseph George — IFL Securities — Analyst
Thank you. The next in the queue is Jinesh Gandhi. Jinesh, if you can unmute yourself and go ahead.
Jinesh Gandhi — Motilal Oswal Securities — Analyst
Yeah, hi, am I audible?
Joseph George — IFL Securities — Analyst
Yes, Jinesh.
Jinesh Gandhi — Motilal Oswal Securities — Analyst
Yeah, so continuing on the energy cost question for the European operations. So can you give some context of what has been our average cost for energy in say for FY ’23 and where we are in terms of energy cost currently and what proportion of our energy requirement would have been hedged for FY ’24?
Gaurav Kumar — Chief Financial Officer
So, Jinesh, I would not have those details readily in terms of specific figures and I don’t think we can share them that readily. Broadly, we had hedged about close to 80% of our energy cost for FY ’23. As I said, FY ’24 is under constant review. So there is not a fixed figure that I have as of now.
Jinesh Gandhi — Motilal Oswal Securities — Analyst
Okay, got it. And secondly, continuing on the European operations, we are almost at 100% capacity currently. Can you throw light on what is our current capacity in Europe and how do we see that going up in terms of ramp up next 12 months?
Gaurav Kumar — Chief Financial Officer
So the current capacity in Hungary is now getting close to 16,000 tires per day based on various debottlenecking. Currently, we are operating somewhere around the 14,000, 14,500. So there is a scope as to go up and operate at the peak capacity which will give about let’s say high-single digits to about a 10% in terms of volume.
Jinesh Gandhi — Motilal Oswal Securities — Analyst
Right and 16,000 would be the peak. I mean there would not be any further scope of debottlenecking there?
Gaurav Kumar — Chief Financial Officer
No.
Jinesh Gandhi — Motilal Oswal Securities — Analyst
Okay and there will be scope for brownfield expansion if we decide to do in terms of the infrastructure that’s there?
Gaurav Kumar — Chief Financial Officer
That’s correct.
Jinesh Gandhi — Motilal Oswal Securities — Analyst
Got it and second question on the price hikes taken in Europe, if you can talk about that. I mean 10% volume growth and 21% average ASP increase, how much of that would be through price hikes?
Gaurav Kumar — Chief Financial Officer
A large part of it would be price hikes. You could take low-to-mid single digits as mix improvement. There is a constant improvement in our UHP proportion. To give you a sense, about four, five years back, our UHP proportion used to be in early 20s on the passenger car segment. That currently now within 40s. So while quarter-to-quarter there is not a significant movement, but the operations over the span of four to five years have almost doubled their proportion of UHP in passenger car segment.
Jinesh Gandhi — Motilal Oswal Securities — Analyst
Okay, okay and last question on exports. So many of your peers both in tires and other segments of auto, auto components have talked about exports seeing moderation. So are you also seeing similar trends in terms of the export group getting moderated and pressures coming in second half?
Gaurav Kumar — Chief Financial Officer
That’s correct, Jinesh. We are seeing subdued demand coming from exports going forward as economies around the world demand falls. So, yes, exports growth may taper down.
Jinesh Gandhi — Motilal Oswal Securities — Analyst
Got it. Great, thanks. I’ll come back in queue.
Gaurav Kumar — Chief Financial Officer
Thank you, Jinesh.
Joseph George — IFL Securities — Analyst
Next we have Arvind Sharma. Arvind, if you can go ahead after unmuting yourself?
Arvind Sharma — Citigroup — Analyst
Yeah, hello, good evening sir and thank you for taking my question. It’s on the pricing as you said that there has been some market share loss because of pricing. Now that commodity cost pressures are expected to come down, could there be a scenario where you either trim prices or maybe launch better tires at the current price. So could pricing action reverse over the coming months given the commodity cost pressures are easing? That will be the first question and second question if I may just ask with this, the numbers on Reifen revenue and EBITDA in euro terms. Those are my two questions. Thank you.
Neeraj Kanwar — Vice Chairman and Managing Director
The pricing as far as India is concerned in the replacement market I’ve said is well established. So we don’t see any reductions as far as replacement is concerned, but as far as OEs are concerned, we have a pricing formula with them. So we do get a price increase when commodity prices go up and then we do get a decrease when they come down. So that’s based on a pricing formula. As far as Reifen is concerned, Gaurav, can you give him the number?
Gaurav Kumar — Chief Financial Officer
Yeah, so the Reifen revenues for the quarter were EUR46 million.
Arvind Sharma — Citigroup — Analyst
And, Gaurav, the EBITDA if possible to share.
Gaurav Kumar — Chief Financial Officer
EBITDA was breakeven in this quarter.
Arvind Sharma — Citigroup — Analyst
Right, thank you so much. That’s all from my side. Thank you.
Gaurav Kumar — Chief Financial Officer
Thank you.
Joseph George — IFL Securities — Analyst
Next in queue we have Devang Shah. Devang, if you can unmute yourself and go ahead.
Devang Shah — Angel Broking — Analyst
Thank you for the opportunity to ask the question and congratulations on a great set of numbers. So some of the questions I had have been answered. Could you share your guidance for Q3 and Q4 on revenues and EBITDA margins as you see them if you could and also there was a mention that there is a 3% saving on raw materials expected in Q3. That means 3% on raw material or 3% overall? This will feed into the EBITDA as well. So either way you could answer it?
Gaurav Kumar — Chief Financial Officer
So Devang, we don’t give out specific margin guidance. So we would not be able to share that. We expect the raw material basket to come down by 3% based on the demand uptick that we see and easing up of the commodities-the raw material basket, we expect the margins to improve going forward. In terms of revenue overall, we would expect India operations to still end up with about a 20% growth on the top line.
Devang Shah — Angel Broking — Analyst
This is YoY or for Q3?
Gaurav Kumar — Chief Financial Officer
This is full-year FY ’23 over ’22.
Devang Shah — Angel Broking — Analyst
Okay and in terms of your possibility of exports to Europe. Is there a plan, like does that also work given that Europe is operating at nearly full capacity and India is at around 80% capacity. So is that a possibility?
Gaurav Kumar — Chief Financial Officer
So as Neeraj mentioned, Devang, we already export significant quantity of passenger car tires from India to Europe and that will continue. That’s the decision that along with the regions the global supply chain takes. Even on the truck side, there is exports from India to Europe. So that possibility is definitely there.
Devang Shah — Angel Broking — Analyst
Thank you.
Gaurav Kumar — Chief Financial Officer
Thank you.
Joseph George — IFL Securities — Analyst
Thank you. That brings us to the end of the call. I’d like to thank the management for taking out time for this call. I’d also like to thank all the participants for joining in. Have a good day.
Neeraj Kanwar — Vice Chairman and Managing Director
Thank you.