Continental confirms talks with Modi Tyres are underway

A Continental spokesperson has confirmed that the tyre manufacturer is engaged strategic talks aimed at increasing its involvement in the India market: “We intend to expand our activities in our tyre business in India.” The comments made by Dr Christiane Pfeiffer Continental’s global head of public relations, Commercial Vehicle Tires, suggested that the parties involved in the talks are on a good path and therefore that they are making progress. Still stopped short of confirming the identity of the other party or giving any details of what is being discussed.

Nevertheless, it is more than likely that the talks in question are the same discussions the Wall Street Journal linked the global tyre and automotive supplier to earlier in April. These reports suggested that Continental AG is in advanced talks with India’s Modi Rubber Ltd to buy a majority stake in the Indian company. Citing two people close to the discussions, the Wall Street Journal (WSJ)wrote: “The talks are on between the two groups for an equity stake sale,” quoting and unnamed lender to Modi Rubber.

Suggestions that Continental had been considering purchasing shares in Modi are nothing new. As Tyres & Accessories reported in September 2009, Indian news sources had speculated that Modi Rubber Limited was “looking to divest an undisclosed equity stake to German technology partner Continental AG, to fund expansion and as a strategic commitment.” At the time Continental AG representatives refused to confirm or deny this.

However, this was at the trough of the recession at time when Continental was itself a target for large-scale share acquisition and when financial analysts are reported that the company couldn’t “afford making any acquisitions or expansion projects in emerging markets.” So if, now the firm’s financial fortunes have strengthened, these reports turn out to be correct the question is what tyres will Continental be producing in the Indian market? Currently Modi tyre predominantly making bias truck tyres in a steadily radialising Indian domestic market. Could an acquisition be a prelude to an investment in domestic Indian radial truck tyre production?

A move towards Indian radial tyre production?

Modi Tyres Co., a unit of Modi Rubber, has been making Continental-branded truck and bus tyres for the Indian market since 2004. The two companies renewed their partnership in 2009 when they agreed that Modi would initially produce around 1 million Continental-branded cross-ply truck tyres for the Indian market. Production began at the start of June 2009. The collaboration includes a technical cooperation agreement and a license agreement for Continental brand bias tyres. It was agreed that the Continental bias tyres would be distributed via a revived Modi sales network. Furthermore, back then OE supply talks were reportedly also been initiated with Tata Motors and Ashok Leyland.

The collaboration between Continental and Modi dates back to 1974 when an extensive technical cooperation was agreed on for the set-up of a new Modi tyre plant in Modipuram, Meerut in the state of Uttar Pradesh. From planning to execution and from technology transfer to active support, Continental has supplied expertise to Modi for many years. The tyres were marketed under the name Modi-Continental and quickly gained the position of a benchmark on the Indian market. The brand awareness of Continental increased from year to year. However, Modi temporarily stopped production of bias tyres in 2001.