Michelin-Apollo Tyres (MATL) has entered a joint venture with Tata Motors and Ashok Leyland, India’s two biggest commercial vehicle makers, in a bid to sell radial tyres.
The $85 million venture, to manufacture truck and bus radial tyres will commence by June 2006, reports BS Online, adding that the Pune plant will reach a capacity of 350,000 units by 2009-10.
The Hindu Business Line newspaper has given Apollo Tyres its ‘buy’ rating. Though the performance of the Indian tyre companies have not been overly impressive in recent quarters, the situation is likely to improve, the report added, suggesting that Budget proposals along with the price hikes effected in the past would have a positive impact on tyre companies’ earnings.
India’s Apollo Tyres Ltd tyres has reduced its prices by a range of 2-4.5 per cent. The announcement follows Indian finance minister, P Chidambaram’s decision to reduce excise duty on tyres from 24 to 16 per cent. After MRF and Ceat cut their prices there was speculation that other large manufacturers would also pass the savings onto consumers. “The price cut is in the range of 2-4.5 per cent across products and various categories,” a company official said, declining to go into the specifics of the price reduction.After the Budget announcements, the excise duty on truck and bus tyres for the replacement market was reduced to 16 per cent. Truck and bus tyre accounted for over 70 per cent of the turnover of the tyre industry in value terms.
The $100 million joint venture tyre between India’s Apollo Tyres and Groupe Michelin will begin in early 2006, according to the operation’s chairman and managing director. Onkar Kanwar said construction work on the radial medium truck and bus tyre plant, in Pune, India, has started and should be operational in the first quarter of next year, Tire Review reported, citing wire reports.
Despite the challenges presented by raw material price inflation, Apollo Tyres has no intention to increase its own prices during the current quarter, India’s Hindu Business Line has reported. “I am not looking at this quarter for price increase. There are too many things happening in the market (budget, VAT etc) that have to be factored in before taking any decision,” Neeraj Kanwar, chief operating officer (COO), told the publication.
The Indian tyre industry has grown at a rate of 8.3 per cent over the last decade, mainly fuelled by strong growth in the domestic car industry, according to research and markets. A new report from the analysts concludes that although the replacement market has driven the industry, the OE market has also seen robust growth over the last couple of years.
Confirming these findings, Apollo Tyres recently posted third quarter results showing a 7.74 per cent rise in net profits to £2,060,000 for the quarter ended 31 December. In response, Apollo shares were trading at 253.90 rupees, up 1.56 per cent.
The industry is highly capital intensive, requiring around 4 billion rupees to set up a radial plant with a capacity of 1.5 million tyres, and around 1.5 – 2 million to construct a crossply plant of the same capacity, research and markets reports. The Indian industry is dominated by a few main players. MRF, Apollo Tyres, JK Industries and Ceat all enjoy more than 70 per cent of the total market share.
Large-scale Indian tyre manufacturer, Apollo Tyres, is investing 2.5 billion rupees (more than £30 million) in production expansion and is aiming to export more to the European market, Indian news sources are reporting. Company chairman and managing director Onkar S Kanwar told Financial Express: “We are looking at investing [2.5 billion rupees] in the existing facilities in the next fiscal ending March 2006.” Mr Kanwar explained that nearly half of the spending would be pumped into the Gujarat unit alone. “This calendar, we are more aggressively looking at tapping the European market. This can be through direct marketing or even through distribution alliances,” he added. At the moment the company makes between 15 and 20 per cent of its revenues from exports to other countries besides Japan and Europe.
Apollo Tyres also recently entered into a joint venture with Michelin. The joint venture, Michelin Apollo Tyre Pvt Ltd, is focusing on manufacturing, marketing and sales of truck and bus radial tyres. “In the first phase, we will manufacture truck and bus radials and sell under the Michelin and Apollo brand. These products will be sold across the country,” he said.
Onkar S Kanwar has been named as president-elect of the Federation of Indian Chambers of Commerce and Industry (FICCI). Mr Kanwar, chairman and managing director of Apollo Tyres, will take over from current president YK Modi at the conclusion of the 77th annual session next month. Closely associated with leading national and international industry chambers and other business organisations, Kanwar is also past president of the International Chamber of Commerce – India (ICCI). As head of Apollo Tyres, Kanwar recently forged alliance with Michelin, the world’s number one tyre manufacturer with operations in over 170 countries.
Indian tyre Manufacturer, Apollo Tyres is expecting sales to increase 18 per cent, a company official has said. Last year the company recorded sales of 23.14 billion rupees and this year expects to see sales rise to almost 27.3 billion rupees, nearly £327.8 million.
“We will maintain 18 per cent growth in sales. It would be more than double of the projected industry growth rate of 8 percent,” Neeraj Kanwar, chief operating officer at Apollo, told a news conference. At the same time Mr Kanwar warned that the profit margins of tyre companies are under pressure due to spiralling costs of raw materials.
The Michelin group has bought 10% stake in Gajah Tunggal. It is said that the Indonesian tyre manufacturer is going to produce associated brands for
Michelin but not the premium brand Michelin. The Michelin group has already signed joint ventures with Hankook (Korea) and Apollo Tyres (India).
Michelin is to raise its stake in Apollo Tyres from 14.9 per cent to 26 per cent over the next 15 months. The investment will happen when Apollo expands its passenger car radial manufacturing capacity. The two companies in the joint venture have also finalised their branding policy – while truck and bus tyres will carry both brand names, individual brands will be used for passenger car tyres. Michelin car radials will be positioned at a premium over Apollo-branded tyres to avoid any cannibalisation.
Michelin Apollo Tyres Pvt Ltd, the Indian joint venture between Michelin and Apollo Tyres, has introduced a new truck and bus radial tyre for the Indian market. The tyre, which features both Michelin and Apollo trademarks on the sidewall is currently imported, although it is anticipated that the tyre will be made in India by 2005. Mr. Herve Dub, who will become CEO of the jv company in May as part of a seven-member board (four members from Michelin, three from Apollo), described the two trademarks on the tyre as “a concrete demonstration of the partnership between Apollo Tyres and Michelin.”
Due to rising natural rubber prices in international markets, tyre makers across India are planning to increase prices in replacement markets. Prices are expected to go up by around 3-5 per cent by April-end. “We have already hiked our prices almost four times in the past 12 months. And the input costs have shown no signs of softening,” says Sunam Sarkar, director of Apollo Tyres. Prices of rubber alone have seen a 30 per cent jump year-on-year.
Michelin Apollo Tyres would pump in about 67 million euro to set up a new plant at Ranjangaon in Maharashtra (India) to produce 350,000 bus and truck radial tyres annually. 51 per cent of the investment will come from Michelin, the balance from Apollo. As the production is scaled up in future so too will the investment.
The Indian Government is to permit Michelin to import bus and truck radial tyres for wholesale trading on cash and carry basis until its joint venture with Apollo Tyres becomes operational. Michelin Apollo, 51 per cent owned by the French firm and 49 per cent by Apollo Tyres, will take about 20 months to begin production.
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