Is Michelin Angling for a Majority Stake in Gajah Tunggal?

Indonesian news sources are speculating that Michelin is positioning itself to take a majority stake in PT Gajah Tunggal Tbk, the Indonesian tyre manufacturer wing of Giti Tire. Michelin currently holds 10 per cent shares in the company and in the next year is expected to receive around 5 million through an off-take agreement with the company.

Indonesian website VIVAnews quoted an unnamed source as saying Michelin will buy a 44 per cent stake, making its total shareholding a majority 54 per cent. Gajah Tunggal director Catharina Widjaja reportedly said she had not heard that Michelin would be the majority shareholder of the company. When asked the same question Herve Richert, Giti Tire director sales and marketing (international), gave Tyres & Accessories a similar reply: “These are media news rumours, that we are not aware of and have no basis.”

As we have already mentioned, as of 31 January 2010, Compagnie Financiere Michelin held a 10 per cent shareholding in PT Gajah Tunggal Tbk. A further 44.83 per cent is owned by Denham Pte, Ltd. The remaining shareholders all hold less than 10 per cent, generally divided in 6 – 7 per cent stakes.

Gajah Tunggal reportedly allocated US$30-40 million for capital expenditure (capex) in 2010. “Capex is greater in 2010 than 2009 which only U.S. $ 20-25 million,” corporate secretary Catharina Widjaja told the stock market recently. This follows a pattern of continued expansion and increased demand for tyres from Michelin in recent years. In 2005 Catharina Widjaja reported that the company sold 600,000 units to Michelin and expected to more than double this to 1.5 million in 2006. By 2007 the company secretary spoke of plans to supply 2.7 million tyres to Michelin in 2008, 4 million in 2009 and 5 million in 2010.

The most recent data shows that these levels have not yet been reached, however they are likely to be achieved next year. According to an investors’ report published by Danareksa Research on 18 January 2010, Gajah Tunggal will produce about 3 million tyres for Michelin this year after manufacturing 2 million units for the company in 2009. The total is set to become 5 million Michelin tyres in 2011. This means that in five years sales to Michelin have multiplied at least five-fold, suggesting the company has an increasing interest in Gajah Tunggal’s activities. Looking forward, the Danareksa analysts expect Gajah Tunggal’s total sales to rise 12 per cent (CAGR) in the five years between 2009 and 2014.

Related News:

• Gajah Tunggal Sales Up on Back of Increased Michelin Orders

• Gajah Tunggal Sales to Increase 20 per cent