Operator
Good morning. On behalf of ISL Capital, I welcome you all to the 2QFI27 results conference call of Apollo Tires Limited. From the management, we have with us Mr. Ravi Kumar Shingari, Chief Financial Officer, and Tumanshu Sharma, Head Investor Relations and Budgeting. I would now like to hand over the calls to Mr. Ravi Kumar Shingari for his opening remarks. Over to you, Ravi.
Thanks, Joseph. Good morning, everyone, and thank you for joining us today. I would like to welcome you all to the Apollo Tires Quarter 2 FY27 earnings call. Before I begin, let me say that I am honored to take the role of Chief Financial Officer at Apollo Tires. I would like to thank Chairman Sir, Neeraj, the board, and the leadership team for the trust they have placed in me. Apollo Tires has built a strong foundation over the years, and I look forward to working closely with the team as we continue to enhance performance, strengthen financial discipline, and create long-term value for our shareholders and stakeholders. Unfortunately, Neeraj could not join us today for the call due to some unexpected circumstances, but on his behalf, and on behalf of Apollo Tires, I would like to wish everyone a very happy Diwali. Coming to the performance, the second quarter was characterized by a challenging operating environment, marked by persistent geopolitical uncertainty and significant inflation in the key raw material cost. Despite these headwinds, I am very happy to say that the business delivered a resilient performance and continued to execute on its strategic priorities. On a consolidated basis, our revenue grew over 16% year-on-year to 79.7 billion rupees, while EBITDA Storats 8.6 billion rupees, translating into an EBITDA margin of 10.7%. More importantly, this was our strongest year-on-year revenue growth in the last 16 quarters, reflecting the strength of our brands, customer relationships. While profitability was impacted by elevated raw material cost, disciplined cost management and operating efficiencies helped partially offset the inflationary pressures. While I'll come back to the results in a little while, let me take this opportunity to talk about the tangible progress we are making across our strategic priorities, reinforcing the long-term foundations of the business. On the innovation front, we further strengthened our product portfolio through new approvals and engagements with leading OEMs, including BMW, Mercedes-Benz, Mahindra, and Tata Motors. In digital transformation, we are increasingly leveraging artificial intelligence and advanced analytics to improve productivity, quality, and operational reliability. During the quarter, we successfully completed the SAP S4 HANA implementation for our U.S. business, and now we are on our way to implement the same for the European and the Indian operations. On brand building, we continue to invest behind both Apollo and Fredestine, driving consumer engagement across our key markets. In India, our BCCI-led campaigns significantly expanded our rural outreach, while in Europe, targeted partnerships and premium positioning initiatives further strengthened the Fredestein brand. Equally importantly, we remain focused on strengthening organizational capability. During the quarter, our Chennai plant was recognized with the CII-EFI National Excellence Award for Employee Relations, reflecting our commitment to building a highly engaged and collaborative workforce. Sustainability remains deeply embedded within our long-term strategy. We continue to strengthen our ESG framework and are encouraged by the recognition received from leading ESG rating agencies. Operationally, our AP plant and our Kerala plant achieved Gold-level Zero Waste to Landfill certification, further supporting our 2030 sustainability ambitions. Coming back to the results, let me briefly touch upon India operations to start with. India operations revenue increased by nearly 26% year-on-year to 59.2 billion rupees, representing an acceleration over the growth delivered in the first quarter. The performance was broad-based across both replacement and OEM channels, with volume growth and pricing contributing almost equally to the top-line expansion. Profitability remained affected by the sharp escalation in raw material cost. India EBITDA stood at Rs 6.6 billion with a margin of 11.1% compared to 15.3% in the corresponding period last year. However, I believe the more important takeaway from the first half year is the company's response to this inflation cycle. Since April 2026, raw material costs have increased by approximately 25%. Making this one of the steepest and fastest cost inflation episodes we have experienced in many years. In response, Apollo has implemented pricing actions of up to 15% in the replacement segment alongside meaningful price increases in the OEM business. While raw material prices will eventually stabilize and may even soften over a period of time, our objective is to ensure that the enhanced pricing discipline demonstrated during this cycle becomes a permanent feature of the business. We strongly believe that this will contribute to a fundamentally stronger, more resilient, and more profitable business model over the long term. Looking ahead, we expect demand conditions in India to remain supportive. While reported volume growth may moderate over the coming quarters due to higher base, revenue momentum should continue to benefit from the pricing actions implemented since April. On margins, although the direction of recovery is clear, the price timing actually will depend on the trajectory of commodity markets and geopolitical developments. Our focus will remain on balancing growth with profitability while maintaining disciplined execution. Turning to Europe, the operating environment remained challenging during the quarter. Revenue declined by 12% year-on-year to €157 million, primarily reflecting weakness in the truck and agriculture segments, Please, which was impacted by... Temporary supply disruptions, you know, as a fallout of our NCA plant closure. But despite these challenges, they were encouraging signs beneath the surface. Our PCR business continued to gain market share despite subdued demand conditions, reinforcing the strength of a brand and product proposition. EBITDA margins for the European operations for the quarter stood at 10.3%. While our margin recovery trajectory in Europe has taken longer than initially anticipated, that has been due to the combination of market softness and transition-related challenges, but our strategic rationale remains unchanged. The actions we are undertaking today are intended to create a structurally more competitive and financially stronger European business. Our immediate priorities remain clear, completing the manufacturing transition, stabilizing the supply chain, and enhancing the cost competitiveness. Over the medium term, we remain committed to building a European business capable of delivering high teen operating margins. Moving on to the balance sheet, as we communicated previously, We continue to invest behind our strategic growth priorities. Consolidated net capital expenditure during the first half of FY27 was around 15 billion rupees. This is broadly in line with our full-year plans. What is particularly encouraging is the strength of a financial position despite this investment cycle. Through disciplined balance sheet management over the past several years, we have significantly enhanced our financial flexibility. As on 30th September 2026, consolidated net debt to EBITDA stood at just 0.9 times, providing substantial capacity to fund future growth while maintaining a prudent capital structure. Even under our ongoing investment plans, we are fairly confident that leverages will stay comfortably within our targeted range. This financial strength gives us the ability to continue investing in capacity expansion, digital transformation, technology, product development without compromising the balance sheet resilience. To conclude, while geopolitical developments and commodity volatility continue to create uncertainty in the near term, the underlying fundamentals of our business have continued to strengthen. Over the past several years, we have invested meaningfully in expanding and optimizing our manufacturing footprint, enhancing operational capabilities. Strengthening our brands and building digital and technology platforms that improve decision-making and productivity across the organization. These investments are now increasingly translating into stronger competitive positioning and improved resilience across market cycles. We remain highly confident about the long-term opportunity ahead of us. In India, we are well positioned to benefit from a growing tire market, improving product mix, and a more rational pricing strategy. In Europe, our focus remains on unlocking the full potential of the business through improved competitiveness and a stronger operating model, enabling us leverage a significantly large profit pool. Supported by a healthy balance sheet, improved business fundamentals, And disciplined execution, we believe that Apollo Tires is well positioned to deliver sustainable growth and long-term value creation for our stakeholders. Thank you for your time and your continued support. With that, we would like to be very happy to take your questions.
Operator
Thank you, Ravi. This is Joseph again. Let's start the Q&A session. Participants who have a question, please use the raise hand icon to ask the question. The first question is from the line of Raghu Nandal. Raghu, please unmute yourself and ask your question.
Thank you for the opportunity. Wishing a very happy Diwali, and best wishes to Ravi and Himanshu for all the milestones ahead. Thanks for the opening remarks. Firstly, if you can talk about the volume performance. In opening remarks, you mentioned half of the growth came from volume, so approximately 13%. Within that, how is the performance in OEM, replacement, and export segments? And also within replacement, if you can talk about how various categories are doing, that will give a sense what to expect ahead.
Sure, Ragu. And thank you so much for your kind wishes, Ragu. Look forward to your support as we move forward. So, you know, in terms of volume performance, OEMs actually led the pack, the OEM channel led the pack for us in this quarter on a wire one basis. So we, in OEM, we witnessed around about 25% plus growth in volume, followed by replacement, which was in low double digits, and exports wherein it was largely flattish. Moving into replacement, I think the pack was there led by, while the numbers are fairly small, but the volume growth was maximum seen in terms of percentage in the two-wheeler segment, which was again above around 25-26%. And followed by the truck and the PCR segment, which both of them were, while PCR exports did not deliver strong volume growth, but as far as India replacement is concerned, both PCR and truck. PCR, in fact, gave us about mid-teens and truck was high single digits.
Yeah, thank you for giving that color. And on the commodity, extremely challenging times. But hopefully last one week, the crude prices have started to correct. And that gives some hope for future. Firstly, for Q2, if you can share, how much was the increase in raw mat basket and for various commodities like natural rubber, synthetic rubber, how much was the prices? And then for Q3, what is the approximate increase expected on the commodity basket and the price hike plans which you have?
So, Raghu, on the Q2 RM increase, we already witnessed a massive increase in the first quarter. So, from there, we again saw an upside. But if I compare Q2 FY27 to Q2 FY26, the overall basket cost went up by approximately 25%. Wherein, you know, natural rubber touched unprecedented numbers and it continues to be on the rise. As we speak, it has already touched the 300 rupees mark in India. So, from compared to last year, natural rubber grew, the cost went up by almost 25-26%. And then crude lead derivatives all witnessed substantial increase between 28-35% across various segments. Steel cord was around low double digits. And going forward, we are expecting that from quarter two to quarter three, the total basket cost may move up around mid to high single digits. And, you know, as you would have seen that in the first half of the year, we have been taking fairly timely pricing actions, which has been a big differentiator in this financial year. Going forward in the quarter three and quarter four as well, our teams are all geared up and they have already, some increases have been announced already in the month of October. And more importantly, we have also started now getting the price impact increases from our OEMs as well. So all in all, I think there will be a pressure on cost, but we are confident that our commercial team will be able to take timely pricing actions.
Yeah, thank you for that. Just a last question. On the Europe business, can you share how was the Rifen performance for the quarter, revenue and EBITDA?
So, Rifen is a fairly stable business, and by and large, it has remained at the same levels as what we would have seen in the past few years. But coming specifically to quarter two, our margins, our EBITDA margins have been, and we also have to understand there is a bit of seasonality in that business. So, quarter two margins are slightly subdued, which you will see changing in quarter three. But we, you know, as I said, the revenue was flattish, and EBITDA margins by and large remained, I would say, at a similar level, slightly lower than what we did last year due to the cost pressures that we are seeing. But it is important to look at RIFAN business from a seasonality perspective, as I mentioned, and quarter three is when we'll be able to see an uptake in the EBITDA margins there.
Thank you, sir, and wishing you all the best for the future. Thank you, Ramon.
Operator
We move on to the next participant. The next question is in the line of Siddhartha Vera. Siddhartha, can you unmute yourself and go ahead, please?
Yeah. Hi, sir. Thanks for the opportunity and Diwali festive greetings to the team. Sir, first question is on the price hikes. Can you quantify how much are you planning to sort of take to improve the sort of gross margins in the coming quarters given the cost pressure? Anything which you have taken in maybe September or October, which should sort of benefit in quarter three. So some thoughts there will be helpful.
So, Siddharth, thank you so much for your wishes. See, from a pricing action, if you would see that broadly, the raw material push was about 25% in the first half. And to compensate and maintain the margins at similar levels, we would have needed around, you know, 16 to 17% price increase. So, till now, we have been able to, across various categories on an average, between 11% to 13% pricing increases. Now, you know, as you know that the nature of the industry is such that the pricing actions Can't be taken at the same pace at which you see the RM moving. So it will be a gradual increases that we take across categories. There are some announcements that we have done around October, but it will be in different categories somewhere in the range of 1 to 2%. And that's typically that's how pricing actions are taken. But there is a sustained plan and we have to watch the RM carefully. At the same time, we have to be cognizant of the market scenario. So there are planned increases which may come in in December or January, depending upon how the RM is moving and how the competition or how the market is responding. And yeah, so till October end, we would have taken across, as I said, across various categories between 13% to 15%, which is more or less in line with the industry trend. In some cases, we are leading the price increases, and in some cases, other players are doing it.
Got it, sir. And, sir, second question is on the Europe side. I mean, we have continued to see sort of on the revenue side, a lot of weakness in the last few quarters. Some thoughts there, I mean, is it more company specific where because of the transition we could not supply or is the demand only so weak? And how do you see the outlook in the second half or maybe next year for the business?
So, you know, Europe, impact is, I think, a combination of two, both factors, as you rightly pointed out. There is, market is slowed down. So, there is that impact of slowness, which we see in the larger economy. And also, you know, our transition from NSK Day and moving that supply chain to our different plants. This was actually an expected impact that when we were doing our budgets as well, there will be a bit of impact on the sales. And one was the whole availability and supply, but the second also is a domestic supply chain management, which we are now putting in place as we shut down our Netherlands plant. Going forward, quarter three onwards, and as we all know that quarter three again is our stronger quarter. Quarter three onwards, we are expected to meet our budgets and probably get the revenue in line and the volumes in line. But coming back to the quarter two, just to share some data points. While you see the overall revenue going down, but if you deep dive into categories, so in the PCLT category, we actually gained market share, wherein the market was slow, but in the PCLT category, we grew 5% YOY. And similarly, in the Apollo Tire PCLT, also we saw very, very high growth volumes, probably northwards of 50%. So, those two areas actually propelled the volume growth, but we saw a decline in the agri and the TBR segment largely due to a combination of the supply chain reorganization and transitioning of our manufacturing from Enskede and Hungary to India.
Understood, sir. So, last question on the working capital side, we did see a steep contraction in the first half. Do you see some normalization coming through in the second half or should we expect some of those challenges which are impacting that to continue for some time now?
So, you know, so first half, I think a large impact was also due to the payouts related to the plant shutdown. Now that is behind us. So as you rightly indicated, the second half should see stable working capital norms and also the seasonality aspect in Europe will come in and the cash flows tend to get better in the second half of the year. So combination of everything, we will see a more stable working capital in the second half of the year.
Got it, sir. Thanks a lot. I'll come back in the game.
Operator
The next question is from Irwin Sharma. Irwin, please unmute yourself and go ahead.
Hi, good morning. Can you hear me?
Yes, sir. Good morning. We can hear you.
Yeah. Hi. Good morning, Ravi. Good morning, Machu. Thank you for taking my question. Two questions from my side. First of all, when we look at your 2Q numbers, there was a very strong control on the other expenses or the operational costs. So what was the driver behind it, including employee cost and how sustainable it is?
So, Arvind, you know, as we started seeing the cost push around RM, you know, we all, there is a strategy meeting that we do almost every week, and the focus areas are very clear, what pricing actions we need to take. To maintain the margins and what kind of bad costs we can cut down or the cost that can be shifted to a future date. So I think there has been a very strong discipline around our A&P budgets and we have now a collaboration with BCCI. Anything beyond that, we have been really monitoring very closely. And as we saw impact on RMB, on a timely basis, we kept on taking those cuts. We have kept a very strong check on the manageable costs around travel, etc. So wherever possible, wherever things have been in control, we can't do much about freight because that's, again, being driven in a different direction. But by and large, the controllable expenses have been kept in check. And as far as the sustainability is concerned, I think you would have seen in the last few quarters that cost discipline has now become a very integral part of our operations. And to an extent that the whole leadership is really monitoring this almost on a fortnightly basis. So that's the kind of rigor and discipline that has been brought around the cost controls.
Thank you so much. My second question would be on the India pricing environment. You've alluded to some price hikes undertaken to pass on the cost pressures, but where do you think is the pricing environment right now? And as a colleague, this question can talk a bit about the competitive landscape in India, especially in the TBR segment.
So, you know, as I mentioned earlier that our attempt and endeavor is to ensure that the steady margins are a regular feature. But, you know, at the pace at which RM has moved, it is not really, you know, to match it exactly, there will be a timing gap. And there is that amount of price increases that the market conditions dictate, which we can take. So by now, I already indicated that we have taken price increases within the range of 13 to 15% across various categories. But specifically on TBR, we have been the market leaders on price increases and the timing of it. And it is again there, we are probably leading the whole price increase strategy. We are, till now in TBR, we have taken around between 13 to 14% price increase. What is more important to understand is that while this was in replacement, we have also managed to get a reasonable price increase or similar price increases with the OEMs as well, wherein we all know that it is not a formula-linked pricing, but despite that, the teams have managed to implement these price increases across OEMs. So, therefore, around TBR, this is the actions that have already been taken. Have I answered your question, Arvind?
Yeah, very clear. Thank you so much.
Operator
All right. The next participant we have is Rishi Boda. Rishi, go ahead.
Yeah. Hi. Hi. Thank you for the opportunity. Sorry, I might have missed, but have you guided for what would be the quantum of commodity inflation in third quarter at this point in time?
Yeah, Rishi, so we talked about it, but we are basically expecting around a mid to high single digit cost push on the entire basket from quarter 2 to quarter 3. Rishi, am I audible? Did I answer your question?
Yeah, yeah, yeah, very clear. My second question was on the pricing side, right? So, obviously, we would have taken pricing during the course of second quarter, and maybe not all the quantum would have gotten realized during this quarter. So what is, like, with the price increases which we have already taken, what is the price pass-through that will happen in third quarter, according to whether it will be 4-5% that will come through or lower or higher, just if you could say, like, what we have realized in 2Q and what is remaining in 3Q.
You know, so I think, Rishi, it's important to understand that we are in an inflationary cycle as far as the raw materials are concerned. So while, you know, we are trying to take timely pricing action, and as I indicated that we are expecting further cost push. But, you know, the volatility is quite high. And you rightly mentioned that a large part of the price increases would have been taken at different points of time. So in the quarter three, the range that I mentioned between 13 to 15%, we will probably see the entire impact of that full price increase coming in. How much of that compensates the RM cost portion and what kind of further pricing action we take in the month of December or November? You know, it will be probably more clear as we move towards the end of the quarter. But as I said, our endeavor and attempt is to ensure that we maintain healthy margins and that has always been our guiding principle on the pricing action.
That's right. In OEMs, how much of the price increase which we would have gotten? I assume it's a formula linked or generally it's negotiations.
So it's largely formula linked. So that, of course, comes with a lag of one quarter. But there were some OEMs wherein it was not formula linked. And as I mentioned, we have also managed to. Through negotiations, get an appropriate price increase to maintain the cost, to take care of the cost increase on raw material.
And just last question on the volume growth expectations, right? In the domestic market, first half, we would have grown by low double digits. You know, at least now base catches up. But do you expect the industry to at least, you know, continue to grow at mid single digit, high single digit volume run rate? Or is there any different view at least what we are seeing at this point in time on ground?
So, you know, I would like to take you back last year, and if you will recall, quarter three of last year was when the GST changes happened, and for us, BCCI came in. So, we already are sitting on a now an inflated base from last year. So, in the first and the second quarter, we have seen very high, I mean, almost mid-teens volume growth in the India operations across categories. But in quarter three, since we are already starting from a higher base, the large part of the revenue growth will come from pricing actions. Of course, we will see volume upsides as well. Our expectation is it should be between mid to high single digits as compared to last year.
Any guidance on exports, given that it has been volatile? And obviously, the situation is also such. But any guidance on when you are seeing the exports recovery?
It's difficult to say at this stage, you know, because you can see the volatility is quite beyond control. And as we see international markets, our exports are all around, you know, to Europe, to America, and even to the Middle East, Southeast Asia. Yeah. So I think it will be very difficult to say, but as of now, we are being very careful and conservative on the exports because we see a strong demand momentum in the domestic market. Let's see what quarter three does as far as the export conditions are concerned.
Understood. All the best, team. Thank you.
Operator
Next question is from Vijay Pandit. Go ahead.
Yes, Vijay, we can hear you.
Sir, firstly, on the European demand, so we just want to understand how much of the restructuring is over and what is left. When can we start? Like, can we expect a normal? operations to resume from quarter three or quarter four. And the agri, the weakness in the agri, the supply constraint on the agri side, that will remain for entire of this year and from next year, or you expect it to continue for the next year also. Because I think we have a stock production for Agrita is there, right? So if you can just highlight the nuances being played at the European business.
So, thanks Vijay. So, Vijay, in Europe, as we all know, you know, we had shut down our NCKD plant and that was basically to ensure that we kind of move away from a high cost manufacturing location. Now, alongside what was also happening was we also relocated our TBR manufacturing facility from Hungary to AP, our India plant. Plant operations in Enskede stopped end of first quarter. And as we speak, there is a team on the ground which is now working towards the whole dismantling of equipments, sale, etc., which will take its own two to three quarters to bring it to a full closure. As far as the operations are concerned, by and large, we should be ready with the supply, with the manufacturing facilities in the next two quarters. And hopefully, from next financial year, we should see largely stable operations in Europe and coming back to our normalized margin that we used to always have in Europe. And in the first two quarters, there is a massive focus on... Getting the whole supply chain in place. We are in the process of actively doing our reorganization around the warehouses in different parts of Europe and also changing our business model and coupled with our whole S4HANA implementation in Europe. All that is expected to get over in this financial year or maybe by quarter one of next financial year. And hopefully by next year, you will see largely stable operations in Europe.
Okay. So, secondly, on the other expenses on the consolidated side, so generally fourth quarter has a higher lump sum increase. Last year, it was also there. So, should we expect that to happen this year given the RM, given the margin and the RM advance going on or this because we have maintained very well in the first two quarters and third quarter, we also should be able to maintain. I just want to understand, should this increase in the fourth quarter back to normal level, or how should we look at it?
Vijay, you're talking about the other expenses, right?
Very difficult to say, you know, because, see, this is a dynamic situation right now, and we are taking actions as and when the situations are evolving. I already mentioned that the leadership meets every fortnight to really take real-time decisions, and if it requires us to be even more stricter and vigilant in the fourth quarter, we will do that. But, you know, it's very difficult to really comment. It will all be driven by how the other cost push are working, what kind of demand we are seeing. But focus is always going to be to ensure that the operations are stable and we are able to capitalize on the demand momentum that we see in India.
Okay. So, secondly, on the debt side, so we have taken a gross debt of around 1,500 crores this year in first half. And I think you also have mentioned that 1,250 crores is from the non-convertible dentures. Of which 8.5% is the interest rate? So how do you think the interest rate moving forward, both in the terms of the P&L and the cash? Because some part of it will be, I don't think you are making the entire payment of interest in one go, right? Or correct me if I'm wrong here.
So Vijay, on this, I think we can probably, you can connect with the IR team offline, and they can give you more granular details. But, you know, from my side, I want to just kind of emphasize and highlight that we are at a very comfortable leverage situation. Our net debt to EBITDA at a console is below one with this additional debt as well. And even with all the expansion plans that we have announced, we are confident that we will remain in a workable limit on net debt to EBITDA. But on the granular details, you can get in touch with the IR team. They'll be happy to share the details with you.
And so this level of this debt should be able to capture the upcoming CAPEX or we will need further debt going forward? Like, was it related to working capital or it is also related to the CAPEX coming forward?
So, it's a combination of both, you know, and we will, we may see more debt coming in as we embark on our expansion plans that we have announced. But, again, I like to emphasize that the whole leverage ratios remain look very comfortable. So, we are, we are really not very, we are in a very, very comfortable position.
Okay, thank you and all the best.
Operator
The next question is from Ameen Hirani. Ameen, please go ahead.
Yes. Hi, Ravi. First of all, congratulations on the new role, and hopefully we will interact more in the future. My first question is more of a medium-term one, and then I have a few questions on the results. First of all, if I look at your ROC, you know, we are about to, or we have embarked on a... A slightly large capex cycle. Net debt to EBITDA is low, but, you know, we've had a deleveraging cycle and, you know, net debt will move up a bit now. So how should we think about this? Because, you know, at one point of time, you had a mid-teens kind of a target. And obviously, you know, the external environment was not favorable. So how should we think about how ROCs will move? Because as you rightly said, you know, we are sitting on a high volume growth base, capex is increasing. So how should we look at this from, say, the next 12 to 24 months?
Thanks, Amin, and thanks for your wishes. I look forward to meeting you soon. You know, so I think we have seen in the results, you would have seen the demand coming through. At the same time, our capacities are almost 85-90% across the plants. So, I think it's very important to keep that demand momentum in consideration as we look at our expansion, CapEx expansion, because otherwise, if we don't take timely action, we will end up losing market share. So, for us, you know, it's always a very tricky conundrum, and we have to just balance it out with the right amount of CapEx. Now, And ROSIs, of course, will, as we go through the CapEx cycle, there may be a short-term impact on ROSI, but again, at a stable state, we will, as we have guided in the past, we always want to target a mid-team ROSI, which will be our stable state of operations. And as I said, we prioritize right now the growth story, and once we are able to capitalize on that growth story, we will see the ROSIs coming back.
Okay, great. That's good to know. Secondly, just, you know, some bookkeeping questions on the results. So, in Europe, do we still have any costs related to the N sk day plan still pending or from third quarter, it will only be the hungry plant on which our spends will be going?
So there are two parts to it. I mean, one is that at an operational level, there will be no plant operating costs as such because its operations have stopped. And Hagri will be the only operating plant there. But we may, for the next few quarters, we may see some bit of... Costs coming in, which may be incurred for just dismantling and moving the movements out. So those kind of costs may keep coming in trickles, but we don't expect them to be a significant amount. In this quarter itself, if you would have seen, there is around 2.3 million euros exceptional item in the European operations, which was largely as a fallout of some bit of employees that were remaining in a different legal entity. And that also now has been taken into the books. So by and large, I think we are through with a large part of the cost, which we have already taken into our accounts. There will be some bit of cleanup costs that you will see coming up in Inskede.
Okay. And since third quarter is generally a seasonally strong quarter, especially from the point of your winter tires and speciality tires, is Hungary now fully equipped? Because I think some of the high performance tires were being supplied from Enskede in the past. So is now Hungary fully equipped to take care of that? I'm asking this in the context that is it possible that this third quarter, you may miss out on some of those demands because you were still in transition and Hungary is not set up for that. So some color there would be helpful.
Yeah, so I think, see, a significant part of that was already being catered. And third quarter is largely the time for winter tires. And we had already, because PCR is one of the most profitable segments in Europe. And therefore, we had that plan was already put into place between India and Hungary, the smaller sizes will be supplied from India and the high end tires will will be done from Hungary. So that plan is in motion. Going forward, I think what is important is to take care of the OHT and the agri-supply, which will be catered to the plants. I think that is, so as I already mentioned, in quarter two, we have seen a volume increase in the PCT Fredestein, but where we saw volume loss was largely agri- and OHT. So that is something which we'll now, we'll start seeing stabilizing from next year. Okay, okay, great.
Operator
The next question is from Vasudev Vanini. Vasudev, go ahead. Positive, you need to unmute yourself and go ahead.
Yeah, hi all. Am I audible?
Yes, Masu, you're audible.
Yeah, thanks, sir. Just to understand, as you said earlier in the call, during Q2, YOY ROMAT basket is up 25%. And overall cumulative price hike has been somewhere around 12-13%. And over and above that, the ROMAT basket is up somewhere around 8% in Q3 over Q2. And in Q3 till October, there is a blended price hike of two odd percentage over and above the 12-13 what have happened. So is that the right way to understand?
Uh, Basu, actually, you know, it's a, put it very simplistically, but, you know, we'll have to, we'll have to do it in a different way. But I, you know, we can, I would again say that we can, this, on this detailing, it's, it's, it will be useful if we connect offline and we can take you through the entire changes that have happened at that granular level.
No. So basically, what I was trying to understand that... Consumers have taken a massive price hike, as you rightly said, and despite that, replacement is growing at double digit. Now, at 8% for the rom-ed basket hike, we'll ask for almost 5-6% price hike, where there is a 2% price hike, which mathematically implies December quarter further 300-400 bips of gross margin risk. That being on one side being pure mathematics. But on the other side, as whatever is the movement in Brent crude price, you know, what has happened in past couple of days, and the abnormal price of natural rubber, which easily, if it follows Brent crude can correct 30 40% also. So basically, I was trying to understand that Which quarter one should try to see as the peak of the promat basket and pose that if things remaining status quo as today's price, directionally, your gross margin should start reversing, going by past precedence that you don't cut prices in the replacement market.
So Basu, you know, when we did our second quarter earnings call, our expectation was that quarter three, we should start seeing RM stabilizing. But, you know, we are now, as we are moving towards quarter three, we see a single digit, high single digit increase coming in quarter three as well. So, you know, I mentioned already, it's a very volatile market. Which is a lot of things, at least on the cost side, are not in our control as far as RM is concerned. But what we have managed to do and, you know, I would say the industry pricing discipline has been very, very at a different rigor in this first half. And therefore, you see across industry, there have been successful price increases. So that is something which is in our control, which depending on the market situation, we will keep taking timely action. And of course, the other expenses is where we are going to put a lot of rigor in controlling that. How the RM behaves in quarter 3 and quarter 4 and when it starts stabilizing. As of now, our expectation is that we should see it peaking towards the end of the year and from next year onwards it will start stabilizing. And this is, again, subject to all the volatilities that you see and things changing on a daily basis. So I would like to kind of give that caveat to say how the geopolitical situation emerged. But assuming that that stabilizes, I would say from next year onward, we should start seeing RM to kind of start tapering down.
No, no, surely that's quite helpful. Yeah. So basically, what you mean is assuming the recent downward bias of Brent, if it directionally remains the same, whatever high cost inventory you have, what is the change in contract prices? So maybe freshly from the next fiscal, the benefit at margin level one can expect. And next two quarters, it's just the stabilization phase.
But today, we want to decide. Just one thing to highlight, it is kind of crystal ball gazing, but historically we peak out, our margins peak out or start correcting as RM starts plateauing and we peak out as it starts correcting. One thing which I would want to highlight is compared to our last previous cycles, we've been able to maintain or manage our expenses and balance sheet in a much better manner. And that is why at the lowest point, historically, if you go back a few years, at the height of RM increase or height of where it used to top, our margins used to get down to single rate margins. We've been able to maintain our margins in a much better position. Our endeavor going forward will continue to maintain and optimize costs and grow and invest in growth. But Crystal Brown is saying which quarter exactly it will peak out will make slightly difficult for us to comment.
No, definitely not exact, whatever directionally. But as you rightly said, in earlier down cycles, margins of India business used to be as low as 7-8%. And now, despite all these things, it is 11%. So definitely, we'll be wishing to see with the price hikes and the commodity basket reversal, how quickly we go back to 16%, which anyways, will take care of the cash flows and ROC questions as in the past. Thanks.
Operator
Thank you. Thank you. Due to time constraints, we'll take that as a last question of the day. On behalf of IFL Capital, I thank you all for attending this call. Have a good day.
Operator
Thank you, everyone. Thank you for joining today.
