Resurgent US a region of vast potential – Onkar Kanwar

Shareholder response to Apollo Tyres’ acquisition of Cooper Tire & Rubber has been mixed and several institutional investors petitioned the tyre maker in July to reconsider its decision. Apollo’s share price currently hovers around Rs 61, about two thirds the going rate before the company announced the planned purchase. Against this backdrop, company chairman Onkar S Kanwar’s address to shareholders at the Apollo Tyres 2013 annual general meeting framed the US$2.5 billion transaction as a necessary response to changing market conditions.

Connecting US entrepreneur Jim Rohn’s well-known quote “if you are not willing to risk the unusual, you will have to settle for the ordinary” to Apollo’s way of doing things, Kanwar broached the acquisition by discussing the developments behind this decision. “Profound changes are taking place in our world,” he stated. “The so-called emerging economies are facing new challenges, with growth in markets like India and China slowing down appreciably while Brazil, South Africa and Russia are going through a number of social changes to add complexity to their economic difficulties.”

Kanwar contrasted these emerging market issues with Apollo’s strong recent profitability in the developed, “so-called troubled” European market, and opined that the United States – where Apollo currently lacks a presence – also offers opportunities. “The United States is in a phase of resurgence, with growth coming back after the last few years of fiscal corrections,” he said.

Elaborating on this resurgence, Kanwar told shareholders that “the discovery of shale oil and gas is a huge boon to US manufacturing and already a number of companies, including global giants in our own industry, have announced plans for new manufacturing facilities there. What was always the largest market will now also enjoy strong growth, and given the already vast potential there the numbers can be mind-boggling. To quote only one example, even a one per cent growth in the US tyre market calls for the addition of a new manufacturing plant every year to meet the increased demands.”

Those filtering out the business and motivational language obligatory on such occasions would have understood that Apollo’s global ambitions are driven by the company’s concerns that India – a region that still accounts for around 68 per cent of total revenues – and an overreliance on one particular market segment will no longer deliver Apollo the kind of results it enjoyed in the past. 

“The Indian economy is passing through challenging times,” commented the company chairman. “Growth has slowed down, traditional export markets are being attacked by other competitors and the rupee is a pale shadow of what it was.” Therefore an antidote is needed to counter this economic malaise: a broadening of revenue and profit streams through a presence in “diverse geographies” and a product portfolio that covers different categories. “Your company will have equal exposure to the developed and profitable markets as also to the emerging high growth markets, a combination that very few other companies can lay claim to,” he told shareholders.  

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