MANAGEMENT DISCUSSION AND ANALYSIS REPORT

Fiscal Year (FY) 2015-16 was a year of multiple emotions-cautious optimism, uncertainty and pessimism, depending on which part of the globe you looked at. It was cautious optimism in Europe and few other advanced economies which continued their modest economic recovery. China's financial gyrations coupled with its slowing economy and continued volatility in oil prices made the world more uncertain than ever. Emerging markets saw the growth story take on pessimistic overtones as it declined for the fifth consecutive year even as the economic outlook for large emerging economies like Brazil and Russia deteriorated rapidly.

In line with our long-term vision, Apollo Tyres continued to focus on consolidating its leadership position in-key markets by expanding market share through new products, focusing on enhancing its retail brsence and becoming a full range player in India with the launch of the two-wheelers tyre range. The Company acquired the Germany-based tyre distributor, reifencom GmbH to support its plan of ramping up our retail network in Europe.

For FY16, the Company posted a consolidated revenue of Rs.117,078 million, a drop of 8% as compared to FY15. Operating Profit (EBITDA) and Net Profit were up by 3% and 12% respectively to Rs.20,383 million and Rs.10,930 million.

MARKET OVERVIEW

India was the 'bright spot' in an otherwise uncertain global economy. Outperforming FY15, the Indian economy grew by 7.6% in FY16 as against 7.2% in FY15 thus reclaiming its position as the world's fastest growing economy. Powering the growth numbers was the sharp rise in manufacturing. As per the estimate given by the Central Statistical Organisation (CSO), the manufacturing segment was on a fast clip at 9.3% compared to 5.5% in FY15. The other highlight of the year was the continuing benign oil prices which helped the Government bring down its huge subsidy bill. This reduction further supported the GDP growth numbers. Some other sectors that recorded a growth rate in excess of 7% for FY16 included financial, real estate, professional services, hotels, transport and communications.

While the overall Indian Auto industry witnessed muted growth in FY16 at 3.8% as compared to 7.2% in FY15, the sharp fall was due to the  slow growth rate experienced by the two and three-wheeler segments. Nevertheless, the key segments in terms of value i.e. Passenger Vehicles (PV) and Commercial Vehicles (CV), posted positive gains.

The PV segment continued its 2nd year of sustained growth, posting a growth of 7.2% in the fiscal up from 3.9% in FY15. Also, in the CV segment finally cleared the dark clouds with a stellar double digit growth rate of 11.5% in FY16 as against negative growth rates in the brvious years.

Compared to the Auto industry, the Tyre industry numbers tell a different story. Based on data available with the Automotive Tyre Manufacturera' Association (ATMA) for nine months, the growth drivers of the economy, the truck and tractor segment saw a reduced production by the tyre majors. Production levels in the Medium and Heavy Commercial Vehicles (M&HCV) segment declined by 3%, while the Light Truck segment was down by 8.6% in volume terms. Low cost Chinese imports ate into the Truck Bus Bias (TBB) share resulting in the overall fall in volumes for the Indian truck tyre manufacturers. The problem was further compounded by the poor monsoon season across the country, resulting in low demand and production for tractor rear tyres. The bright spark for the industry was the PV and two and three-wheeler scooter tyre segments pushing the overall industry growth rate to around 4% for a period of nine months.

With a growth rate of 0.9% and 1.4% for the Euro Area (19 European countries) and the European Union (28 European countries) respectively for Calendar Year (CY) 2014, the regions continued their ascent in CY15. The Euro Area grew by 1.6%, while the European Union (EU) posted a rate of 1.9%, as estimated by Eurostat. Consumer spending was the main growth driver leading to the 'best' performance of the region since 2011. Germany continued to lead the charge as the economy expanded by 1.7% in 2015 due to strong national consumption and booming exports to the U.S. which helped it defy headwinds from other key export markets.

The strong economic growth led to a corresponding growth in the automobile segment. According to the European Automobile Manufacturers' Association (ACEA) estimates, registration for new commercial vehicles in EU was up by 12.4% in CY15. The charge was led by

the Heavy Commercial Vehicles above 16 tonnes which posted an imbrssive growth of 19.4%. Continuing the strong growth story of CY14, new car registrations increased by 9.3% in the region.

The tyre sector, in parts, mirrored the gains of the auto industry. According to numbers from European Tyre & Rubber Manufacturers' Association (ETRMA), Original Equipment Manufacturer (OEM) shipments for PV and CV posted imbrssive growth numbers of 6% and 10% respectively for CY15. The dampener was the continued warm winter, now for the 4th year in a row, which dented the growth story as the winter tyre segment de-grew by 4% in CY15 as compared to CY14. Replacement market for both the segments saw average growth rates of 3% and 4% for PV and CV respectively. Low cost imports adversely impacted the Agricultural tyres sales which continued its negative trend.

INDUSTRY STRUCTURE AND DEVELOPMENTS

India continues to be a two and three-wheeler market in terms of volume. However, it does not mirror the state of the tyre market. As per data from the Society of Indian Automobile Manufacturers (SIAM), two and three-wheeler segments account for over 83% of the total domestic sales in volume terms. However, in the tyre market, this segment accounts for a much  lower 52% of the total units sold. Also in terms of tonnage and value perspective, the other segments (tyres for the M&HCV, PV, LCV/SCV and tractors) call the shots in the industry. In volume terms, the passenger car tyres accounts for 28% of the total volume sold, followed by M&HCV segment which accounts for another 11% of the total volume. The replacement market continues to support the tyre makers as it accounts for 72% of M&HCV and 57% of PV segments respectively.

Imports are part of all businesses, however in recent times, it has been the low cost Chinese truck tyre imports which have become a serious impediment to the Indian tyre manufacturers.

Currently, with the slowdown in China, the country is facing a problem of plenty in the tyre sector due to large installed capacities. The Chinese tyre manufacturers are desperately seeking other markets to push their products, whatever be the cost. Without any regulations to check these large-scale imports, the Chinese low cost tyres are having a run in the Indian market. According to estimates, China accounts for nearly 90% of truck radial imports and 46% of passenger car imports. The Chinese truck radial imports constitute close to 27% of the Truck Bus Radial (TBR) replacement market and are cheaper by 25% to 40%, making them even cheaper than Indian bias tyres. This influx is resulting in the faster demise of the Truck Bus Bias (TBB) segment due to lack of Government intervention and the altered dynamics of the Indian market.

Compounding the problems of the Indian tyre manufacturers, the year saw the Government of India make a few policy changes which adversely affected exports. Firstly, the import of natural rubber under the Advance Licence Scheme was disallowed in the last quarter of the FY16. This affected the cost competitiveness of exports as natural rubber attracts a customs duty of 25%. Further, the export obligation fulfilment period was reduced to 6 months from 18 months. This has added brssure on the Indian tyre manufacturer in light of the weak global market conditions and competition from China. Adding to the woes of the tyre players, the Government restricted the imports of natural rubber only to Chennai and Nhava Sheva seaports, thus imposing extra logistics and handling costs. Some impact from the aforementioned actions will be seen in the current fiscal year. However, due to the overall demand supply situation, FY16 continued to see soft natural rubber prices during the year due to weak global demand.

A significant trend, which highlights the brssures faced by the industry, is the drop in tyre selling prices. While the selling prices had remained stable for the past two years, FY16 saw a significant drop in prices with manufacturers passing on the benefit of raw material prices to the consumers.

For CY15, the European market saw the overall PV tyres growing by 4%. The key highlight of the year was the stellar growth of 13.5% in the replacement market for the SUV segment. Despite the warm winter and unlike the car segment, this segment saw the growth even for winter tyres in the non-OEM segment. This is in comparison to a drop of 3.7% in the car segment for the winter tyres in the replacement segment. Further, the European passenger market saw the growing importance of the all-season tyres with almost all tyre majors focused on this important segment. Continuing with the trend of CY14, the year saw the growing impact of the internet, both on B2B, due to higher price transparency, as well as on B2C. At the same time, the market saw major initiatives by all the tyre majors to bring products and end-consumers together which are pushing the retail business from a service-led approach.

The Chinese low cost imports were a harsh reality even in the European market. This along with the lower raw material prices saw brssure on selling prices.

SWOT ANALYSIS

Strengths

¦ Apollo Tyres has the advantage of a diversified market base across geographies, and is therefore, not solely dependent on a single domestic market. Furthermore, the Company is working to establish and grow operations in other large international markets as well.

¦ With an entry into the two-wheeler tyre segment, the Company is now a full range tyre player in India and can service this large and growing two-wheeler tyre segment.

¦ The Company is powered by strong global product brands in its key markets - Apollo and Vredestein.

¦ Apollo Tyres enjoys an extensive distribution network for its key brands across its two key markets India and Europe.

¦ In Europe, the Company's brand 'Vredestein' has an established brsence and enjoys a reasonable brmium positioning in Ultra High Performance (UHP), winter and all-season passenger car tyre segments.

¦ Test results in 2015 across segments were excellent - number one position for Quatrac 5 in All-Season test, test winner Sportrac 5 in the summer segment, Ultrac Satin in the brmium segment and highly recommended rating for Ultrac Vorti. These results will help in building a stronger position in the market.

¦ The Company is a leading player in the Indian Commercial Vehicles segment which accounts for the bulk of the industry's revenue. Since the Company assumed an early lead, Apollo is best positioned to maintain its leadership position in the truck-bus radial segment and drive growth through the same.

¦ A global and culturally diversified management team is driving growth across geographies

The brsence of modern Research & Development (R&D) facilities for PV and CV tyres will play a key role in bringing cutting-edge technology and innovation to drive growth for the Company.

Increased spends on building the corporate brand including Apollo Tyres' association with Manchester United is starting to make Apollo a globally recognised brand.

The Company has acquired reifencom GmbH, one of the largest tyre distributors in Germany.

Weaknesses

The Company is currently not brsent in the European OEM market for regular passenger car tyres, which to a certain extent drive the replacement market sales.

The Company still needs to establish a larger brsence in new growing geographies to reach economic sized operations.

The Company is currently unable to effectively block low quality low cost Chinese tyres through Government intervention which has led to pricing brssures.

Opportunities

In India, Apollo Tyres enjoys an early mover advantage in the truck-bus radial segment and has a healthy lead over its competition in terms of capacity and market share. This implies healthy growth prospects with increasing radialisation.

¦ The Company's Apollo branded PV tyres are being sold in Europe and this could develop into a sizable market for the same, leveraging its already existing network in Europe.

¦ With the announcement of Apollo's Greenfield plant in Hungary, the Company is positioned to grow in the European market due to a new cost competitive manufacturing facility.

The Company continues to increase its focus towards new geographies like the Middle East and South East Asia. These will be our growth avenues for the future.

¦ The Company can convert excess bias capacity into more profitable industrial tyres capacity and tap into a new product segment.

¦ The Company is talking to auto majors for OEM fitments in Europe. This will establish the brand even more strongly and drive significant growth in the European market.

¦ The Company will look at introducing products and make an entry into the European Truck and Bus segments.

Threats

¦ Economic downturn or slowdown in the key markets - Europe and India - can lead to a decrease in volumes and capacity utilisation.

¦ Increased competition from global players like Michelin and Bridgestone in India.

¦ Increased competition of truck radial imports from China resulting in a quicker than expected decline in volumes within the TBB segment thereby creating redundant capacities requiring investment to convert into other product segments.

¦ Continued threat of raw material price volatility, translating into brssured margins, if raw material prices rise.

¦ Weak Indian currency resulting in brssure on margins, since the company is a net importer.

¦ Growing influence of budget tyres, mainly tier 2 and 3 brands from established European manufacturers as well as Chinese and Korean imports.

SEGMENT WISE PERFORMANCE

Apollo Tyres is divided into two key regions-APMEA (Asia Pacific, Middle East and Africa) and EA (Europe and Americas).

In FY16, the APMEA operations focused on certain key themes for the Indian market-consolidating its leadership position, expanding market share and becoming a full range player.

The year saw Apollo Tyres maintaining its leadership position in the Truck and Bus (TB) segment. Even as the Indian market was flooded with low cost TB imports, the Company's robust and quality product portfolio ensured that it led the market with over 25% market share. Customers acknowledge the Company's TBR tyres as the best in the market on both counts-quality and value. This endorsement saw the company grow 12% in the TBR segment. The strategy of investing in radial technology is paying significant dividends as the Company is not only a leader in the replacement market, but has shown steady growth and increased market share in the OEM space. Again, this is a testimony of the high product quality as major OEMs including Tata, Eicher and Bharat Benz continue to use Apollo tyres as OEM fitments.

The expected outcome of the low cost TBR imports, primarily from China, has led to the steady decline of the overall TBB market. Nevertheless, the Company still maintained its strong position in this segment with a 25% market share. Despite the decline of the TBB market, the Company still believes in the market potential of this segment. FY16 saw the introduction of XT-7 Gold HD, a new bias truck tyre with improved durability for moderate to high load applications. Such product portfolio expansion gained customer apbrciation and helped add to the Company's market share.

To expand its market share in the CV segment, the Company introduced many products based on specific applications in various segments. For instance, it launched the bias product for the pickup segment. Another initiative in this regards was to expand its network of Commercial Vehicles Zones. These CV Zones stand out in the market place to provide the best-in-class tyre service to commercial truck and bus owners. A major development by the Company was its entry into the tyre retreading segments with its branded Apollo Retread Zones. A significant milestone in creating value and delight for the customers, this business grew by 18% during the year.

The Company continued its customer engagement programmes with various stakeholders in the CV segment throughout the year. These included high impact engagement programmes like 'Apollo Aazadi Ke Rang' in August 2015 to celebrate the Indian Independence day. Further, a road show was conducted across India for small commercial vehicle owners in 15 states and over 600 towns called 'Load ka Champion'. The campaign's objective was to create brand awareness and to reinforce category positioning of 'taking on any load'.

In its other key segment, PV, FY16 saw the launch of the much talked and apbrciated passenger car radial tyre range - Amazer 4G Life. Designed to give 1 lakh kilometres mileage, this product was released after extensive product testing across different geographies in India. The product has received immense acceptance and accolades across the country from passenger car and commercial operators and Apollo's business partners alike.

Like the engagement for the commercial vehicle stakeholders, the PV segment too saw various customer and network programmes and customer friendly policies like unconditional warranty. To increase product availability, the Company ramped up its branded Apollo Zones and Points outlets across the length and breadth of the country and now has a branded retail footprint of 230 outlets.

These programmes coupled with the solid performance and wide availability of the product helped the Company grow by 6% over FY15 in the replacement segment.

From an OEM perspective, FY16 played out well for the Company. The company gained fitment on almost all newly launched vehicles including brmium cars like Volkswagen Passat and Skoda Superb. Other OE fitments included Baleno and Vitara Brezza from Maruti Suzuki, Mahindra's TUV, Tata's Zest, Renault's Lodgy and Aspire from the Ford stable, to name a few.

In the Off Highway tyres segment, the Company's focus on the Industrial segment with its strong product range helped Apollo grow by 45%. Due to the poor monsoon season, there was a reduced demand for rear tractor tyres and even as the segment de-grew, Apollo managed to garner additional market share. To connect and reach out to new customers in the rural market, the Company participated in various trade shows and exhibitions and initiated multiple customer engagement activities. Apollo joined hands with ITC to access their 2,000 strong e-Choupal network across major states like Uttar Pradesh, Madhya Pradesh, and Maharashtra and conducted on-ground activities. Further, the Company showcased its product in 150 locations across Maharashtra during the launch of Mahindra & Mahindra's new tractor Arjun Novo launched on Apollo Tyres.

Apollo innovative 'Van Campaign' to educate and engage with end-users won the Silver recognition in the 'Flame Awards' organised by the Rural Marketing Association of India.

For the Indian market, the year ended with Apollo's grand launch of the Apollo ACTI Series tyres for the two-wheeler segment. Designed and developed at the Company's Global R&D Centre in Chennai, Apollo ACTI Series for bikes and scooters mark a milestone for Apollo Tyres as the entry into this segment makes the Company a full-range player and will support the Company in cementing its leadership position in India.

As part of the high-decibel marketing campaign for the launch, the Company also leveraged the digital medium extensively to reach out to its core target audience. It is important to highlight that the Company's launch event trended at the #1 spot in India on Twitter.

The Company continued to build brand visibility with specific promotional campaigns that were carried out in conjunction with Manchester United reinforcing our commitment to football in India.

The tie-up with Manchester United was leveraged further with the launch of the special 'Go the Distance' football pitch in Mumbai and the Manchester United Soccer School initiative in Delhi. This turf of the pitch in Mumbai has been made from recycled rubber and is the second pitch after Old Trafford and the first one in India to showcase the Company's commitment to provide a football playing area in the cities.

Outside of India and within the APMEA region, the Company focuses on two key markets-ASEAN and the Middle East. It has been a challenging year for the APMEA markets outside India, given the slow moving economies and the looming threat of low cost Chinese imports. Nevertheless, Apollo's investments in the market in ASEAN have started paying dividends and the region has shown a strong growth in TBR and in the PV segments. The Company continues to build visibility in the Middle East market which saw the opening of branded retail outlets in Jordan, Lebanon and Turkey.

The EA operations began FY16 with a bang. The Company's summer tyres, Vredestein Sportrac 5 and Vredestein Ultrac Vorti, were rated highly by various independent European tyre tests, highlighting the excellent results on dry handling, low sound levels and lower fuel consumption. With a focus to consolidate the all-season tyres market share, the Company expanded its popular and highly rated Vredestein Quatrac 5 range with the Y-speed index and a SUV version. The Company also undertook a high decibel marketing campaign to introduce the new Vredestein brand positioning, targeting a younger audience who love their cars and enjoy driving. The operation launched its biggest (in the over 100-year history of Vredestein) online campaign, #ROCKTHEROAD. This campaign aimed at increasing Vredestein's visibility in the 25 to 45 age group by highlighting Vredestein's brmium offerings. The campaign's route of music and the extensive use of social media enabled the operations to establish a strong brand brsence within the target group. As part of the brmiumisation strategy for the EA operations, the Company aims to cover new channel penetration (like OE fitments), new customer acquisition programmes and new retail  formats. During the year, the Company launched its Dealer Partnership programme in Europe and four new outlets were opened simultaneously in Belgium, Hungary, Italy and the Netherlands. Many more stores are planned for Austria, Germany, Spain and Switzerland in the coming months. The eventual goal is to have 800 programme partners by 2020 throughout Europe. In line with the strategy to build a strong retail network, the Company acquired the Germany-based reifencom GmbH. The brand reifen.com is one of the leading tyre retail organisations in Germany with 37 stores nationwide, 2,500 assembly partners in Germany, an online portal www.reifen.com and online activities in Austria, Switzerland, France, Italy and Denmark. This acquisition will support the growth of our retail network in Europe and will allow the Company to develop clear benefits for established partners in the German and European tyre trade.

A strong role by the Company's Research & Development (R&D) team was instrumental in bagging top ratings for products across segments Summer, Winter, All-Seasons and Agriculture. Despite the solid product portfolio and top ratings by various industry/media bodies, EA operations witnessed de-growth in volume terms due to various external and internal challenges. Also, the 'Space Master' segment volume was adversely impacted by lower demand from Volkswagen Group during the year. In the second quarter of the fiscal, the operations suffered a maintenance breakdown and the Company lost valuable days and production. Given the focus on building capacity and capability to service the OEMs, the Company dedicated a part of its production for R&D work to build products for the OEMs. The above factors resulted in less production and consequently impacted the sales volumes. Sales during the last quarter of the year was impacted due to teething troubles with the SAP system introduced from January causing issues with inventory and dispatches.

OUTLOOK

Uncertainty and pessimism have dominated the economic and business news in FY16. This fiscal seems no different. IMF has already made a downward revision of the global growth by 0.2% to 3.2%, relative to its January 2016 World Economic Outlook update. Beyond India and a slowing and uncertain China, the economic outlook of other growth engines namely Brazil and Russia has deteriorated rapidly in the past few months. IMF projects the recovery to strengthen in 2017 and beyond, driven primarily by emerging market and developing economies, as conditions in stressed economies start to gradually normalise.

However, the forecast for India continues to be bullish. Even though the IMF lowered the global economy forecast, it has retained the India growth forecast at 7.5% for FY17. Monsoon rains have been forecasted as normal, with hopes of a sharp turnaround in rural demand. From the perspective of the tyre industry, one can expect an increased demand in both the Agriculture and CV category led by OEM growth. Adding to the bullishness is the improvement of investment conditions due to lower borrowing costs and a more enabling business environment brought about by a better Ease of Doing Business ranking by the World Bank. While some inroads have been made in reforming the fiscal policy such as the rationalisation of fuel price subsidies, the implementation of the Goods and Services Tax could pose a hurdle. Domestic consumption is likely to see a boost from the implementation of the 7th Pay Commission recommendations and One Rank One Pension for the armed forces. A softer interest regime will further fuel consumer sentiments.

Europe is expected to see a moderate growth rate even as the outlook remains slightly weak. Moreover, the exact impact of the slowdown in China and the emerging economies, which account for a quarter of the euro-zone exports is yet to be seen. This could hurt the overall recovery as it will be a negative play for the exporting countries. Germany, in particular, will be affected since the Chinese market has been a lucrative one for its exports of investment goods and luxury cars.

Nevertheless, the recovery is expected to be on a firm footing due to key factors. These include the continuing soft energy prices providing a boost to the real incomes of households and consumption fuelling growth. Further, it is expected that the European Central Bank will continue to have an accommodating monetary policy.

Apollo Tyres will continue its three-pronged strategy of:

¦ Looking at consolidating its position in existing markets and seeking new markets/ new segments;

¦ Continued investment in both the brands-Apollo and Vredestein and capacity expansion via Greenfield facilities, plant expansions/ upgrades; and

¦ Seeking other growth opportunities.

For EA operations, the building blocks for the next level of growth have been set up. In the last quarter of FY17, the Company will start production in the Hungary plant. With two plants offering product optimisation and cost advantages, the Company can now expand its brsence in Europe on even terms with its competitors. The Company is actively engaging with the leading OEMs in Europe and will  leverage its OEM associations in India for the same. Further, with reifencom GmbH within the fold, integration plans are on and this will boost our dealer network programme and provide entry into various other European markets. To make an entry in the OEM market, the Company has opened a new R&D office in Frankfurt, Germany. This office is staffed with test drivers, OEM engineers, etc. with a focus on being closer to its customers in the region. Further, as part of an evolving technological roadmap, the Company has strengthened its Bengaluru, India office. A dedicated team of highly skilled electronics and tyre engineers have been assigned to work towards the development of the Company's future generation of intelligent tyres.

For the APMEA operations, with the expected growth in the Indian economy, the Company will reap the dividends of its investment in the plant expansion. The Chennai plant will provide additional capacities in the fast growing TBR segment. The Indian operations continues to explore avenues for the TBB segment within India and outside of the country. The company remains bullish on its outreach in other markets in APMEA and the expected double-digit growth from these markets.

RISKS AND CONCERNS

The key factor in determining a company's capacity to create sustainable value is the company's ability to manage the risks in its business/ environment effectively. Many risks exist in a company's operating environment and they emerge on a regular basis. The Company's Risk Management processes focuses on ensuring that these risks are identified on a timely basis and addressed. The Board of Directors has constituted Risk Management Steering Committee which operates with the following objectives

Proactively identify and highlight risks to the right stakeholders;

Facilitate discussions around risk prioritisation and mitigation;

Provide a framework to assess risk capacity and appetite; develop systems to warn when the threshold is getting breached; and

Provide an analysis of residual risk.

Apollo Tyres’ Risk Management Steering Committee has listed the Company’s key risks and opportunities below:

A) Raw material price volatility

Natural rubber is an agricultural commodity and subject to price volatility and production concerns.

Most other raw materials are linked to crude oil and thus impacted by the movement in crude oil prices.

Both natural rubber and crude oil prices are controlled by the external environment and little can be done to control the raw material price movement internally.

B) Ability to pass on increasing cost in a timely manner

Demand supply situation must remain in favour of the industry to enable it to undertake price increases.

This is further impacted by competitive activities and a general reluctance to make significant price hikes at one go.

C) Continued economic growth

Demand in the tyre industry is dependent on economic growth and/or infrastructure development. Any slowdown in the economic growth across regions impacts the industry's fortunes.

In Europe, the Company's winter tyre sales are subject to seasonal requirement, which can be adversely impacted in case of a mild winter season.

D) Radialisation levels in India

Slower increase in radialisation level in truck tyre segment, than expected, may impact Indian operations. Excess capacity may result in competitive brssures and decline in profit.

At the same time, an unexpected quicker increase in the level of radialisation can result in faster redundancy of cross ply capacities and create a need for fresh investments.

Future Growth

Lower profitability due to some of the above factors impacts the ability to invest in future growth.

Increased competition from global players like Michelin and Bridgestone in India

Surge of Chinese TB tyre imports impacting company's business in CV category.

F) Manpower Retention

Retaining skilled personnel may become increasingly difficult in India, due to the entry of global majors in the Indian tyre industry

) Labour Activism

Increased labour activism across India may pose challenge for any manufacturing organisation.

INTERNAL CONTROLS AND SYSTEMS

The Company believes that Internal Controls is one of the key pillars of governance. It judiciously provides freedom to the Management within a framework of appropriate checks and balances.

Apollo Tyres has a robust Internal Control framework, which has been instituted considering the nature, size and risks in the business. The framework comprises, inter alia, a well-defined organisational structure, roles and responsibilities, documented policies and procedures, etc. Information Technology related policies and processes are regularly updated to ensure that they mitigate current business risks. This is complemented by a Management Information and Monitoring System, which ensures compliance to internal processes, as well as, to applicable laws and regulations.

The Company's internal control environment provides assurance on the efficient conduct of operations, security of assets, brvention and detection of frauds/errors, accuracy and completeness of accounting records and the timely brparation of reliable financial information. The Company uses SAP-Enterprise Resource Planning software as its core IT system. The Operating Management is equally responsible for driving revenue and profitability, along with the maintenance of financial discipline and hygiene.

To ensure efficient Internal Control systems, the Company has a well-established, independent in-house Internal Audit function that is responsible for providing assurance on compliance with operating systems, internal policies and legal requirements. It also suggests continuous improvements in systems and processes which include the adoption of the best-in-class processes, automation and implementing the latest in Information Technology and Tools.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial statements have been brpared in accordance with the requirement of the Companies Act, 2013, and applicable accounting standards issued by the Institute of Chartered Accountants of India. The Management of Apollo Tyres accepts the integrity and objectivity of these financial statements as well as the various estimates and judgements used therein. The estimates and judgement relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements are reflected in a true and fair manner and also reasonably brsent the Company's state of affairs and profit for the year.

DEVELOPMENT IN HUMAN RESOURCES (HR) & INDUSTRIAL RELATIONS

As Apollo Tyres continues with its journey of profitable growth, building a high performance culture is no longer a choice but an imperative. FY15 saw the organisation creating several new key positions worldwide and inducting senior leaders in these functions including Martha Desmond as head of HR. Under Martha's guidance, the HR function has further strengthened its position as a strategic partner in the growth and globalisation journey of the Company.

As the Company continued to increase its global footprint, managing the workforce became a key need. During the year, the Company successfully redeployed and recruited over 400 employees in R&D, the Hungary Greenfield project and for APMEA customer facing roles.

To support the APMEA operations and to recapture and increase market share in the CV category, HR developed a Customer Champion programme. HR recruited over 100 people from all over India and trained them for three months in a boot camp styled environment, which exposed them to technical, functional and leadership training.

Global mobility of employees has enabled them to achieve their career and personal aspirations of development and growth, thereby enhancing the Company's value proposition. HR continues to propel people development and job enrichment. FY16 saw the number of people sent for international assignments rise from 14 to over 77. This has helped to fully utilise the experience built within the Company and share it with various locations/functions across the globe. These efforts included shifting skilled manufacturing and project managers into Hungary from Chennai to assist transfer knowledge for the Greenfield plant. Similarly, new Hungarian employees were trained in Enschede and Chennai ahead of the new plant opening in the first quarter of CY17. The fiscal year also saw shifting of a few core functions with a regional scope from Enschede to Amsterdam. In this way, future access to greater international talent will become easier.

Given the dynamics of the fast changing markets, building and rebuilding capability and capacity have become essential for the survival and growth of any company. At Apollo Tyres, workforce development is one of the most important responsibilities of the HR Team. For FY16, the team continued to run the Aspire programme to develop team members through a structured three-month development programme. In association with the brstigious management institute, IMT Ghaziabad, India, the Aspire programme supports the APMEA operations to easily transition employees from production to sales or customer service. In FY16, 34 people from various plants were adequately trained and successfully placed in their new roles. On similar lines, the HR Team has developed an intensive twelve-month programme for R&D to help functional employees understand, examine and solve business challenges. A mentoring-based programme has also been initiated wherein a small group of 5-6 trainees take up cross-functional projects and work under mentors to arrive at business solutions. The newly established Global Manufacturing and Quality teams have initiated the Apollo Manufacturing System to develop, streamline and standardise training programmes from workman to senior management level.

For the EA operations, the HR Team has delivered nearly twice the amount of training delivered in the brvious year. With over 2,300 training sessions during FY16, the team has covered a wide range of topics including vocational and academic training as well as upskilling operators and management teams on new IT and performance management systems.

As part of the Greenfield project in Hungary, each new shop floor operator has to participate in over 190 days of training in technical, theoretical and practical subjects. This is in addition to an intensive orientation programme which inducts them into the Company, ensures they receive safety instructions and provides an overview of the tyre industry.

To align employee goals to business objectives, a new performance management system called Horizon was introduced across Apollo Tyres in FY16. The new process aims to provide more context and linkage to Apollo's strategic values for in-year goals and objectives. In addition to performance management, Horizon will also include a formal review of employees' development needs to aid people development, succession planning and talent management. The objectives that will be set across the organisation will include hard deliverables that support Apollo's strategic direction, and will also incorporate the Apollo values to ensure that we focus on what we achieve and how we achieve it.

In line with living the 'Communicate Openly' value, one of the six values followed at Apollo Tyres, regular communication forums between the employees and senior management, at global and regional levels, took place during the fiscal year. This has been an important and effective tool in building informed and motivated employees; to help them understand the bigger picture; and align themselves with business objectives. Further, direct communication about the Company strategy is carried out regularly as a step towards assisting self-managing teams to make appropriate decisions.

During these times of change, attrition levels for Europe have remained stable. However, our APMEA operations have seen an increase in attrition. The main reason for this is the fierce competition around the Chennai plant area where other tyre competitors and manufacturing companies apbrciate our highly trained workforce. The positive change in the economy is also creating greater opportunities.

In 2015, the APMEA operations started to de­layer its sales organisation structure in India with the view to ensure empowerment among employees, enable quick decision-making, encourage an entrebrneurial spirit and ensure last mile communication. This revised structure also helped to reduce the supervisory levels. In our APMEA plants, to manage our workforce efficiency, we have explored various initiatives that are all playing their part to increase productivity. The activities include installing low cost automation, process re-engineering, optimal outsourcing and value mapping.

In the EA operations, the Company is negotiating a new collective labour agreement with our social partners in the Enschede plant. The 'Drive to Success' programme, which is aimed at making the Enschede plant fully OE ready, has also been positive. The HR has formalised the manufacturing processes, upped the quality and consistency of the output and are developing specific capabilities within employees that aid in the continuous improvement of the quality of products and processes.

The sales teams across Europe have traditionally worked as independent organisations. During FY16, to support the sales teams' productivity, it was decided to agree on one set of key performance indicators for all countries. This streamlined the approach to incentives and aided in the better assessment of relative roles and responsibilities.

The HR team has worked hand in hand with the European Works Councils (EWC), building on our continued relationship which will go a long way in developing the organisation's line of strategic ambition.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Sustainability and social responsibility are an inherent component of our corporate strategy at Apollo Tyres. We as an organisation have been very conscious of the triple bottom line coherence between people, planet and profit. Thus long before the Government started mandating social responsibility, the Company had developed a CSR framework identifying and prioritising its key stakeholders. This framework revolves around the principles of Involve, Influence and Impact, the 3 Is; and how it interacts with its key stakeholders - employees, customers, supply chain partners and community. The Company strongly believes that the objective of all CSR activities is to have a positive impact on the everyday lives of its key stakeholders and on business. Until and unless the same is achieved, it will not lend itself to sustainability.

Further, the CSR programmes and activities are aligned to national and international development goals, in particular related to Health and Environment. With this strategy, the Company CSR activities focus on two broad areas - Environment and Social.

Environment:

The Company undertook and implemented various environmental initiatives related to different focus areas. Under Waste Management, we undertook programmes like Clean My Transport Nagar, Clean My Village and Go the Distance Playgrounds. We also contributed to the areas of Biodiversity Conservation and Climate Change Mitigation through plantation activities. We addressed the issues of Watershed Management including availability of drinking water and conservation of water bodies.

Social:

The Company supported various programmes with a positive social impact. These included Health initiatives such as HIV-AIDS awareness and brvention programmes, Vision Care, Promotion of Health & Sanitation. We also undertook Community Development related initiatives that aided livelihood and income generation and improved farming practices. Additional details of the various programmes are available in the Sustainability section of the Annual Report.

Besides focusing on these areas, the Company also undertook philanthropic activities in support of education of underprivileged girls and health care needs of poor communities in rural areas. We also provided financial aid to the victims of the Nepal earthquake and Chennai floods.

Considering our involvement and integrity towards CSR, the Company continues to be honoured by local and global bodies. In FY16, the Company was awarded the Asian CSR Award 2015 by the Asian Forum of Corporate Social Responsibility and the Global Green Future Leadership Award 2016 by the World CSR Congress.

Apollo Tyres Ltd acknowledges the significance of its performance in relation to the society in which it operates in and its impact on the environment, both now and in the future. This section gives an overview of our sustainability approach and how it is being embedded throughout our operations and our businesses.

PERIOD OF REPORT

The period covered for the purpose of this report is April 1, 2015 to March 31, 2016 and the reporting cycle is annual.

SCOPE OF REPORT

The information disclosed in this report relates to the operations of Apollo Tyres Ltd (hereafter referred to as 'Apollo' / 'Apollo Tyres' / 'the Company') in two regions - Europe and Americas (EA) and Asia Pacific, Middle East and Africa (APMEA). It primarily covers manufacturing operations, with the exception of the 'Care for Employees' section, which also discusses the non-manufacturing operations of the Company. This year, we have also included details of our project office site in Hungary within the employee section.

The manufacturing locations of Apollo are:

EA Operations: Enschede in the Netherlands

APMEA Operations: Chennai, Limda, Perambra and Kalamassery (leased unit) in India.

This report is based on Apollo's Sustainability Reporting Framework developed in 2014­15 which draws elements from ISO26000 and National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVGs).

The Company has made efforts to ensure disclosure on parameters which it considers to be consequential.

MANAGEMENT APPROACH TOWARDS SUSTAINABILITY

Over the years, depleting natural resources and their increasing demand due to rise in population, has led to the concept of sustainability gaining importance globally. Companies all over the world are paying closer attention to integrating sustainability into their processes and as a consequence sustainability reporting has become an important communication tool for companies to disclose their sustainability plans and performance and to enhance stakeholder confidence.

Apollo Tyres has embraced sustainable practices since 2010. Our yearly sustainability reporting has been instrumental in assessing our performance, benchmarking green practices and building stakeholder confidence and trust in the Company. We recognise the importance of our stakeholders and the society we operate in. The foremost objective of all our initiatives is to have a positive impact on the everyday lives of our key stakeholders, ranging from customers, employees, suppliers, dealers, community, the environment, and on business. Taking our sustainability journey further, this year, there were several initiatives undertaken to promote the judicious use of limited natural resources through projects that focused on renewable energy, water conservation and waste management in and around our manufacturing locations. The management is also conscious about building awareness on the subject of sustainability amongst employees in order to inculcate responsible behaviour amongst them.

Our Sustainability Committee, responsible for management of the sustainability statement and framework, continues to work towards achieving the sustainability goals set by Apollo Tyres.

WORKING TOGETHER

At Apollo, we strive to develop a trustworthy and long-term relationship with all our stakeholders employees, customers (OEM), consumers (replacement) and dealers, suppliers, investors and analysts, shareholders, regulatory bodies and community. The Company follows a process of seeking the views of key stakeholders and sharing outcomes, impacts and risk management proceduere. This is important especially for program/policy where the key stakeholders have opposing views. This assists us in improving our decision-making process and in establishing accountability to them. The organisation's engagement with its stakeholders is highlighted in the section 'We Care'.

CARE FOR CUSTOMERS

Our customers are placed at the heart of the Company. Our belief also gets reflected through 'Customer First', one of the key values manifested in our work culture.

In our journey towards building trusting customer relationships, we achieved many milestones. We have moved to a wider approach to address customer engagement, whereby we went beyond customer claim redressal and product testing. We sought to completely eliminate the scope for complaints of our products and services. Our competent and specialised CV Forza team continued to engage with the fleet owners.

The APMEA operation continues to invest in the Customer Services Department, which has members with specialised knowledge on products, technical expertise and commercial understanding to provide value added services to our customers. The department adopted strategies which included developing Truck Bus Radial (TBR) leadership, educational drives on tyre care and maintenance, continuous improvements in Customer Service Index (CSI), organizing drivers' welfare camps, educating customers and sharpening our 360° service approach which connects with all the customer service touch points

Customer Champion

Taking forward our 'Customer First' value, a 'Customer Champion Project' was initiated during the reporting period. The project plans to augment customer engagement, create awareness and retain brference by ensuring that our customers are happy, safe and knowledgeable about the products that they are using. Over a 100 hand-picked candidates were given intensive training for three and a half months in the classroom and on the job. These included technical, functional and leadership trainings on aspects related to tyres and vehicles, personality development, negotiation skills, brsentation skills, OEM trainings, trainings for the Commercial Vehicles (CV) category to become 'Customer Champions'.

Customised Solutions for Fleet Owners

Our Forza team comprising of 50 young, qualified, dynamic and technically trained people conducted mission activities to enhance knowledge of all the touch points and in turn optimise product performance by imparting technical knowledge on tyre care and maintenance. The overall focus of the mission activities was on customer engagement, product development and safety trainings.

Customer Safety

The health and safety of our customers is of utmost importance to us. While we strive to provide the highest quality products to our customers, we are equally concerned about their safety and adhere to international standards of product safety. With this in mind, we are constantly looking for customised solutions and innovations to give our customers the best and safest product experience.

In our EA operations, we make every effort to comply with the European Tyre Labelling (ETL) Regulation which requires display of information on fuel efficiency (carbon footprint), wet-grip (road safety) and external rolling noise (environmental pollution) of tyres. We have introduced a new product-line, Ultrac Satin, the successor of the Ultrac Cento. This new tyre is the best performing tyre on wet grip (showing an A-label) and for rolling resistance this tyres scores a B-label and C-label as compared to its brdecessor with the C-labels and E-labels. This is a significant improvement in the properties of the tyre helping us in our sustainable journey.

CARE FOR EMPLOYEES

Our employees are the true assets of the Company. They contribute towards the successful functioning of the organisation and strive hard to deliver their very best to achieve the assigned targets. We truly believe in the concept of 'One Family' and Connecting with each other as 'One Team with One Dream'. Our beliefs, ideologies and practices are reflected in our work culture and these are constantly directing and guiding our employees in their journey within the Company.

Be it training, development and leadership programmes, the Company empowers Apolloites with the right knowledge and skills, evaluating and rewarding their performance, by ensuring that every effort is made towards their overall growth and development.

The Company has a strong employee base in all its operations, with majority of its workforce employed on a permanent basis.

At Apollo Tyres, it is our endeavour to ensure and provide employee benefits, maintain gender neutrality, facilitate collective bargaining and maintain a safe and healthy environment at all our operational sites. We follow labour policies compliant with the statutory and regulatory requirements for payment of wages and benefits.

Apollo Tyres believes in gender equality and follows an equal opportunity policy across the organisation. At all our operations, during the reporting period, at the entry level, the average basic salary was the same for both genders.

Training and Development

Training and development is of paramount importance at Apollo Tyres because it allows Apolloites to expand their knowledge base, acquire new skills, sharpen existing ones, perform better, increase productivity and become better leaders.

We undertake continuous efforts to improve our employees' capabilities by offering functional training programmes which are focused on our business imperatives.

During the reporting period, we continued to run the Aspire programme which develops team members from our shop floor into sales / customer service executives through a three-month structured development programme. In the APMEA region, employees received training on various aspects. At Limda, trainings were provided on behavioural and functional aspects and general awareness. At Perambra, our management and workmen received training related to the shop floor, SOP adherence, quality and technical aspects, HR and safety training. Technical, engineering and behavioural trainings were provided to our employees in Chennai. At Kalamassery, trainings on production, engineering, QA and technical aspects were imparted.

At our EA region, besides formal training and education, the R&D team has developed a twelve-month programme, wherein employees are trained in various areas while solving current business challenges. Our newly established Global Manufacturing and Quality teams are continuously monitoring the training and development of our plant engineers. Having completed a study in all the plants to check on existing processes, our new Apollo Manufacturing System (AMS) will be launched in the coming year, to develop, streamline and standardise training programmes from workman to senior management level

In the reporting period, we have conducted 2,300 training sessions at our EA region covering a wide range of topics including vocational and academic training as well as upskilling operators and management teams on new IT and performance management systems.

Human Development

We recognise the importance of human development and make conscious efforts to equip our employees with appropriate skills and enhance their capabilities by monitoring their performance and rewarding their work.

The objectives set across the organisation not only include the hard deliverables that support strategic direction, but also incorporate the values to ensure that we focus not just on what we achieve, but also on how we achieve it.

We use the Performance and Career Enhancement (PACE) system, an online platform linked to SAP. In 2016-17, a new performance management system called Horizon will be introduced in place of PACE. The implementation of Horizon will provide more context and linkage to Apollo's strategic values and help in achieving the organisational goals and objectives.

Performance appraisals are an important tool in realising the goals of our multi-year human resources plan, in which continuity of employment and the ability to react to changing circumstances is the responsibility of both individual employees and the organisation as a whole.

We believe that an ideal mix of talent and personal characteristics indicate if employees are able to address current and future change suitably and the ability to do so has a positive impact on career trajectories with regard to both employees and the Company. During the reporting period, all our permanent employees, including management and non-management, across all operations, received regular career development reviews.

Health and Safety at Work

We have been constantly working towards improving safety standards of our equipment by bringing in effective engineering controls and implementing projects which remove the need for manual interventions.

Apollo Tyres has always recognised the need for a safe and healthy work environment. We have instituted formal health and safety committees at the APMEA and EA regions, to ensure effective governance of health and safety performance.

However, despite the brventions and brcautions taken at all levels to ensure safety at work, in our APMEA operations there were 327 injuries (including fatal and non-fatal) during the reporting period, which led to losing 4,194 man-days to injuries. This was however significantly lower than 2,172 accidents reported in the brvious year.

In our EA operations, 13 man-days were lost due to 91 injuries. The loss rate due to injury was 3.16. The absenteeism rate was recorded at 6.11. Apollo Tyres is perpetually working towards reducing these numbers every year and ensuring the best possible working conditions for all its employees across operations.

There were no fatalities or occupational diseases in any of our operations in the reporting period.

Apollo Tyres has always been committed to the safety, health and effectiveness of its workforce. We have various health assistance programmes for employees and their families across the APMEA and EA regions.

The table (on page 9) gives details of the health related training and counselling programmes that were conducted during the reporting year.

In our EA operations, several serious disease brvention programmes were carried out for workers which covered education, training, counselling, brvention and risk control.

CARE FOR SUPPLIERS AND DEALERS

We recognise the importance of our suppliers and dealers/distributors in all our business operations and treat them like long-term business partners. We are committed to conduct business in a fair and ethical manner that promotes open and fair competition and helps maintain a healthy and profitable relationship.

Further, we continuously strive to enhance customer satisfaction by providing cost effective and quality raw materials on a timely basis, while working together with our supply chain partners on environmental, economic and social aspects to enable sustainable business practices.

Supplier Partnerships and Management

Corporate purchase is a centralised function carried out from our corporate office which is mainly responsible for global purchase of raw materials and managing supplier relationships. We understand and recognise the value of building a sustainable future and we do everything it takes to contribute to it through all our business operations. We seek to establish green procurement standards in our procurement activities and in light of this we encourage our suppliers to develop their environmental systems in compliance with the requirements of ISO14001 and to get their systems certified by a third party.

Supplier audits are conducted at the time of selection of new suppliers and are also conducted regularly for existing suppliers as per a Standard Audit criteria. The scope of supplier audits covers various elements such as Quality Management System, Environmental Standards, Occupational Health and Safety Standards and others as per our Green Procurement Standards and Partner Code of Conduct. In the reporting period, 93 suppliers were audited based on the annual audit calendar out of which 27 suppliers were audited in the Health and Safety category. In case of non- compliance during audit, suppliers are put on an improvement plan which helps enhance their efficiency and performance.

We believe that the supply chain is a key contributor in the development and implementation of Corporate Social Responsibility programmes and expects our business partners to demonstrate social and environmental responsibility in the conduct of their business. We have a specially designed Partner Code of Conduct (PCC) which integrates environmental, occupational health and safety, human rights and labour policies into our business and decision-making processes.

CSR Workshops for Supply Chain Partners

Stakeholder dialogue and management is essential for the growth of any organisation. We conduct CSR workshops with our supply chain partners to sbrad awareness about HIV-AIDS brvention and substance abuse with the help of our Corporate Purchase and CSR teams on a regular basis. In the reporting year 4 companies were covered and 97 participants out reached

Dealer Partnerships and Management

To engage with our business partners (dealers) and build their trust we have a relationship programme in place called the 'Apollo Value Club'. Building on our 'One family' theme, under this programme we provide our business partners with lifestyle benefits such as personal car, exotic vacations and multimedia products. The programme also provides customer development and commercial policy benefits along with recognition to our business partners.

Active management of business partners and providing them with a host of services to facilitate the processes helps us get the best results from them. Every month, an MIS on complaints is generated to tackle each issue or concern raised by our business partners, and this leads to strengthening the trust between us.

We also provided a host of training programmes to enable them to understand the products in depth. These include training on subjects such as logistics, customer perception and needs assesment, information on new schemes etc.

During the reporting period, we introduced a Dedicated Business Partner Service Center for our business partners in a few states on pilot basis to facilitate and support their day to day business requirements. The centre is staffed with extensively trained people who are proficient in communicating in local languages. This pilot has been very well received by our business partners and we plan to launch it nationally in April 2016.

CARE FOR COMMUNITY

We consider the communities around our plant locations to be important stakeholders. Care for the community and society is well engrained in our DNA and is an important part of Apollo's values. We continuously and consciously make efforts to align care for community with business sustainability.

Our programmes which have been categorised into - Environment and Social, are strategically aligned with local, national and international development goals.

A) ENVIRONMENTAL PROTECTION

We understand the significance of providing a healthy environment to our community. We are committed towards ensuring overall environmental sustainability, with an aim to make eco-friendly behaviour, green thinking and resource conservation a matter of habit across its key stakeholders. Our umbrella initiative called 'HabitAt Apollo', is focused on making eco-friendly behaviour and green thinking a matter of habit within the organisation. As part of our environmental sustainability journey, we have initiated a number of projects centered around Biodiversity Conservation, Waste Management, Watershed Management and Climate Change Mitigation.

Biodiversity Conservation

Biodiversity has been identified as an important area of intervention under the environment programme. The outcome of the impact assessment study conducted in all the manufacturing locations led to the development of multiple projects. The projects ranged from establishing theme based gardens such as creation of butterfly zones to apiculture inside the plant and outside in the community in Kerala, India. At Hungary, part of the EA region, cleaning the meadows of Matra Mountain was identified as a core area of work under biodiversity conservation.

Another way to expand our understanding on the dynamics of Biodiversity is by participating in forums and initiatives on the topic. We joined the Leaders for Nature (LFN) initiative of International Union for Conservation of Nature (IUCN).

Waste Management

We have identified waste management as a significant issue and as a result have developed projects: Clean My Transport Nagar, Clean My Village and 'Go the Distance' playground that have been added to the overall programme.

Watershed Management

Water is a vital ingredient for the survival of all living beings. There are increasing demands on the world's water supply. Population growth, water-intensive agriculture and economic development are consuming water faster than it can be replenished. We at Apollo contribute to this cause through our watershed management programme under which we focus on enhancement of water availability and its restoration and quality improvement.

Our current focus involves addressing the issue of shortage of potable water sources in vulnerable communities. To address this we have piloted a purified drinking water project for communities around the Chennai plant.

Eco-restoration and improvement of water bodies in the community is yet another project aimed at restoring and enhancing the aqua-biodiversity. Within this project, we have undertaken pond restoration at our locations in Chennai, Limda and Perambra. The activity includes water quality assessment, cleaning, deepening and binding of the ponds.

Climate Change Mitigation

Tree plantation and Livelihood Generation Programme

Our afforestation project has a two-pronged focus on carbon sequestration and livelihood generation for farmers in the water starved areas of Tamil Nadu. This project is being carried out in Kancheepuram, Tiruvannamalai and Tiruvallur districts in Tamil Nadu. Through this project we are on our way to plant 1,00000 teak saplings by end of 2016. Till now total 73000 saplings have been planted involving 73 farmers.

Renewable Energy: Use of Biogas

Within the Climate Change Mitigation theme of 'HabitAt Apollo', we are promoting the use of biogas in villages near our manufacturing location in Limda, Gujarat. We provided individual biogas units to households. This was a pilot project in the reporting period, and it will be scaled up in the next year (2016-17).

B) SOCIAL CATEGORY

Health Initiatives

We have identified Health as one of our key areas of intervention, wherein brventative health services are provided to the vulnerable sections including truck drivers and the communities around our manufacturing location. This area covers a range of public health activities focused on brvention of diseases and promotion of good health. The projects are directed towards creating HIV-AIDS awareness, providing vision care and implementing hygiene and sanitation methods, under the 'Swachh Bharat Abhiyan' directive.

1) HIV-AIDS Awareness and Prevention Programme

One of the key programmes managed by the Apollo Tyres Foundation is the HIV-AIDS awareness and brvention programme for truck drivers and the allied population residing in Transport Hubs (nagar). There are currently clinics at 25 locations across the country at major halting points (transport hubs).

These clinics provide services like medical treatment for sexually transmitted infections and general health problems, counselling, behaviour change communication, condom promotion, medicines, etc.

During the reporting period, we reached out to 3,84,186 people. 62,403 people, including truck drivers and allied population, were treated. 53,648 were counselled for HIV-AIDS. In all 13,052 HIV tests were carried out, of which 83 tested positive.

2) Vision Care

It is an undeniable fact that vision problems contribute to road accidents. To counter this problem we have recently initiated eye check-up camps for truck drivers and the allied population at transport hubs. Under this initiative eye check-up camps were organised at different transport hubs in partnership with local NGOs for drivers and the related population.

From this project 7,750 people were screened and out of this 2,164 people bought eye glasses.

3) Promotion of Health and Sanitation

As per the identified needs of the community in Mathur, Oragadam, Vallakottai and Senakuppam villages of Chennai, a project on health and sanitation was undertaken. The objective of the project is to reduce the habit of open defecation and also increase awareness on personal hygiene. Under this initiative 150 toilets were constructed

4) Other Health Initiatives

Apart from these major interventions, there were blood donation drives and hygiene improvement activities conducted during the reporting period, where water dispensers were distributed to the attendees.

Community Development

We firmly believe that unless the weaker and disadvantaged members of the community are empowered and made self-reliant, the community as a whole cannot progress.

1) Livelihood and Income Generation

This programme focuses on generating livelihood and improving the well-being of the community around our manufacturing locations. Under the banner of Project U programme, skill building and entrebrneurial development training is designed and made available to women and the unemployed youth around our manufacturing units in India - Chennai, Kochi and Vadodara.

As an outcome of the trainings, the women in our communities have formed their own women co-operative, and some have become entrebrneurs creating successful stories of their own.

In the reporting period, the livelihood programme provided skill building trainings to 210 women and unemployed youths, out of which 98 women have started earning their livelihood.

2) Improved Farming Practices

This project, operational in eight villages of Vadodara including Narmadpura, Gugaliyapura, Dolapura and Limda, supports the farmer community by training them in modern farming techniques; ways to increase agricultural productivity; and improving agricultural practices with increased crop yield. The aim of this project is to enhance their knowledge and skills in modern crop practices so as to increase their productivity and income. Basic training provided relates to seed selection, brparation of land, soil testing, organic compost making, methods of irrigation, perennial kitchen gardening practices, etc.

A positive outcome of this project is the initiation of a dairy by the women in the village. By doing this they have provided a direct market linkage to the farmers whose livelihood is directly dependent on livestock.

As part of this project, around 423 farmers benefitted through the Improved Farming Practices programme, with about 25-30% increase in their crop yield.

Philanthropic Activities

We also work for the deprived and destitute through our philanthropic initiatives in the APMEA and EA regions. These activities aim at providing support for the education of underprivileged girls and donations to hospitals for the health care needs of poor communities in the rural areas. We have also provided financial support to the victims of the Nepal earthquake and the recent Chennai floods.

Initiatives taken in our EA operations included supporting a kindergarten school in the Gyôngyôshalâsz village of Hungary by offering each child a good quality drawing set and stationary, organised and hosted a get together for the school staff and the the funds raised would benefit children suffering from cancer and chronic illness and their families. We also made donations in England to NGOs that work in the area of education for children.

Go Green

Protecting the environment has always been at the forefront of all our operations at Apollo Tyres. Through our environmental initiatives, we focus on material aspects — energy, water, emissions, waste and biodiversity and continue to invest in new technologies to improve performance and enhance resource efficiency. We strongly believe that through our conscious efforts we can significantly mitigate environmental challenges and contribute towards the conservation and well-being of our ecosystem

Raw Material Sourcing and Management

The three main constituents used for manufacturing tyres are natural rubber, synthetic rubber and carbon black. In the reporting period, these three comprised 41% of our total raw material consumption. The majority of rubber consumed in our APMEA operations is natural with a share of 72% of the total rubber. The share of natural rubber use in EA is 45%.

At Apollo, we constantly strive to make judicious use of resources and conserve them through reduction in the material used for production. Our Research and Development centres (R&D) in India and the Netherlands are constantly engaged in developing innovative methods for manufacturing high quality and safe tyres in an optimum way.

In both our APMEA and EA regions, natural rubber forms the largest share of the total raw materials consumed during the reporting period.

Total raw material consumed across all our operations: 8,11,324 metric tonnes

Total recycled material: 7,261 metric tonnes

In our APMEA operations, the total raw materials consumed were 7,50,051 metric tonnes and the total recycled material was 6,411 metric tonnes.

In our EA operations, the total raw materials consumed was 61,273 metric tonnes. The total recycled material was 850 metric tonnes.

Energy Sourcing and Management

The energy profile of Apollo Tyres comprising direct and indirect energy sources is determined mainly by three factors - availability and price of the energy source and environmental impact. indirect energy.

Component brparation and curing processes for tyre manufacturing require intense heat to stimulate chemical reactions between rubber and other raw materials.

In our India operations, the main source of direct energy used during this process is coal, followed by furnace oil. At Netherlands, direct energy is sourced from Natural gas.

Indirect energy sources are used for functioning of utilities, fixtures and other peripheral requirements, supplementing the tyre manufacturing processes. In the India operations, the source of indirect energy is electricity followed by wind energy. At Netherlands, electricity is the main source of

The total energy consumption (both direct and indirect) for the reporting period was 3,395 TJ. The share of direct energy was 64.6% (about 2,193 TJ) and that of indirect energy was 35.4% (about 1,202 TJ).

Most of the total energy consumption was from non-renewable sources (94%) such as coal, furnace oil, natural gas and high speed diesel. Wind power, a renewable source of energy constituted the remaining (6%) of the energy consumption during the reporting period, taking into consideration both direct and indirect sources. Conscious efforts are being made at Apollo Tyres towards increasing the share of renewable sources which is evident from the increased share over last year (4%).

Our APMEA operations accounted for 84% (2,851 TJ) of the total energy consumed during the reporting period.

In our EA operations, energy consumption was 16% (544 TJ) of the total energy consumed during the reporting period. In Netherlands natural gas is the brdominant direct energy source and the main indirect source of energy is electricity.

Coal is the main source of direct energy, supplying 1,246 TJ, followed by furnace oil (465

TJ) and natural gas including RLNG (381 TJ). The total direct energy consumption was 2,193

Energy Efficiency

Combining effective strategy with practical measures is key to achieving successful energy management. At Apollo Tyres, we focus on reducing our energy consumption by being energy efficient. There are several initiatives that were undertaken during the reporting period which resulted in energy savings of 42,601 GJ.

Greenhouse Gas (GHG) Emissions

Reducing GHG emissions and mitigating the impact of climate change is a key focus area in our sustainability journey. Efforts undertaken by Apollo Tyres in line with this objective included reducing energy consumption in our manufacturing, making products with low rolling resistance and cutting down emissions in transportation and logistics.

In our EA operations, direct emissions (GHG) from the use of natural gas amounted to 16,581 metric tonnes of CO2. Indirect emissions (GHG) from the use of electricity (Scope 2) were recorded at 40,941 metric tonnes of CO2.

Water Sourcing and Management

The rising population, growing industrialisation and agriculture have pushed the demand for water significantly over time. Water conservation has thus become imperative. We, at Apollo Tyres have undertaken several initiatives to conserve water.

The primary source of water at our operations is surface water, which accounted for 97.8% of the total water consumption during FY16. Other sources include ground water, rainwater harvesting and municipal water.

In our APMEA operations, we have carried out several initiatives to conserve water in the reporting period

The following initiatives were taken at our Chennai plant:

Ultrafiltration (UF) membranes were replaced to improve the UF percentage recovery

• Air Handling Unit (AHU) condensate recovery system was used to reuse the condensate water from AHUs in process

• Reverse Osmosis (RO) membranes were replaced to improve the RO recovery rate

The total water saved at the Chennai plant was 38,325 m3 in the reporting period.

At our Limda plant, conversion of existing RO plant for water recycling purpose was undertaken as a step towards water conservation. As a result of which soft water was restricted from entering the UF permeate tank, thus improving the overall RO plant performance.

The total water saved at the Limda plant was 32,850 m3 in the reporting period.

Total recycled or reused water: 6,00,326 m3 which was 9.64% of total annual water withdrawal. This has gone up considerably from 6.79% in FY15.

Waste Réduction and Management

Ineffective and improper disposal of waste can impact the environment in a negative manner. Efficient management of waste is a high priority at Apollo Tyres and thus we have a well-structured waste management system in place, compliant with the requirements of ISO 14000. All our recyclers are legally authorised to collect and recycle different categories of wastes.

In our APMEA operations, 262.9 metric tonnes of hazardous and 7,923.3 metric tonnes of non-hazardous solid wastes were generated. The hazardous liquid waste generated amounted to 136.58 kilolitres. In our EA operations, a total of 206 metric tonnes of hazardous and 5,463 metric tonnes of non-hazardous solid wastes were generated.

As part of the EA operations, an initiative taken towards waste management is the 'Scrap Attack Programme' which resulted in the reduction of 297 metric tonnes of waste in the reporting period.

Conservation of Biodiversity

Climate change and biodiversity are interconnected. Climate change is affecting biodiversity adversely because it is compelling it to adapt, either through a shift in habitat, changing lifecycles, or through development of new physical traits. Global warming is a major cause for loss of biodiversity.

At Apollo Tyres, protection and enhancement of biodiversity is important to us from a complete value chain perspective. As part of our environmental programme 'HabitAt Apollo', we carried out several activities, within our plants, to enhance biodiversity. While some of these activities were directly aimed at biodiversity conservation, others had indirect benefits.

Our plants do not operate near protected areas nor do they violate any norms that impact biodiversity as per Government regulations. Also, there are no direct negative impacts of our operations on biodiversity.

Formal risk and impact assessment studies to measure impact on biodiversity in our manufacturing locations were conducted by third party agencies. As an outcome of this study, biodiversity conservation projects were initiated at our Perambra and Kalamassery plants, as showcased in the earlier section.

INNOVATION

At Apollo, the tyre manufacturing process is centred around in-depth research, design capabilities and cutting edge manufacturing processes that utilise highly advanced machinery in our state-of-the-art plants.

Technological innovation and development of modernised processes is the driving force behind our success. We continuously strive to build sustainable technologies and safe products that reduce risks and also increase value for our stakeholders across the value chain.

We continue to build and expand our Research and Development (R&D) team. Two of our existing R&D centres are working towards improvements in the Passenger Vehicle (PV) segment at Enschede in Netherlands and Commercial Vehicle (CV) segment at Chennai in India. Our third R&D office, the Advanced Engineering Center at Bangalore, India is engaged in the development of advanced solutions for all kinds of tyre performances.

Some of our achievements during the reporting period included:

1. Use of a Zero-Emission Car

For commuting between the R&D site and the plant in Enschede, we use a zero-emission car. During the reporting period, the car was driven for 3,500 km, resulting in a saving of around 460 km of C02 emission in theory.

2. Reduction in Rolling Resistance

Reduction in rolling resistance leads to direct reduction in fuel consumption and a higher wet grip index ensures better tyre safety on the road. We have introduced a new product-line, Ultrac Satin, which has a resin based on a wood derivative that replaces the softener which is made from crude oil. This new tyre is the best performing tyre on wet grip (showing an A-label). For rolling resistance, it scores B and C in place of the former C and E labels, which means safer and cleaner use.

3. Development of a new Low Hysteresis

The new low hysteresis compounds developed as part of a technology project are currently being implemented. These have improved the energy label values of all products and upgraded them by one label.

Way Forward

Sustainability and business go hand in hand at Apollo Tyres. Looking ahead, we have a unique opportunity to grow and lead our industry to greater heights with a strong focus on all our stakeholders. With a culture of innovation and collaboration, we continue to provide a platform for our customers and employees to realise their potential and make a strong impact on society