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.
India has approved a proposal by Europe’s biggest tyre maker, Michelin, to pick up a 14.9 per cent stake in tyre-maker Apollo Tyres Ltd for 71.44 million Dollars. A government statement said the investment by Michelin would be used to manufacture, market and distribute truck and bus radial tyres in India. Truck and bus tyres account for more than 70 per cent of India’s 2.2-billion dollar tyre industry but less than two per cent of tyres are radials. But radials make up more than 75 percent of car tyre sales. Indian transporters have shied away from radial tyres, seeing them as not rugged enough for the appalling roads and rampant overloading in India. However, radial sales are expected to increase because of improved highway conditions.
The stocks prices of tyre companies have gone skyrocketed in the last few months following the auto boom. Share prices of tyre manufacturer Apollo Tyres increased from Rs 193.00 to Rs 259.85, Ceat appreciated from Rs 44.85 to Rs 63.85 and JK Industries moved up from Rs 38.90 to Rs 86.20. Vikrant Tyre gained from Rs 18.05 to Rs 75.30, Falcon Tyres increased from Rs 23.80 to Rs 26.75 and Goodyear Industries appreciated from Rs 33.70 to Rs 50.30. Govind Rubber gained from Rs 8.49 to Rs 16.32, MRF jumped from Rs 1418.45 to Rs 2097.35, while Premier Tyre increased from Rs 9.15 to Rs 12.38 and Krypton Industries appreciated from Rs 11.21 to Rs 18.00. Making local tyres available at fair prices would emerge as the key factor to Indian rubber goods manufactures taking advantage of the auto boom.
The shareholding of Apollo Tyres Limited (ATL) promoter Onkar S. Kanwar will come down by 6.54 per cent to 37.33 per cent after preferential allotment of 14.90 per cent of the company’s existing shares to French tyre manufacturer Michelin Group. After the proposed allotment of shares to Michelin, the stake of promoters and business associates in the company would come down to 37.33 per cent from existing 43.87 per cent, an ATL official said. ATL had announced in November to allot 14.90 per stake in the company to world’s largest tyre maker, Michelin, to enter into a technical alliance for manufacture of passenger car radial tyres by ATL and also set up a 51:49 joint venture with it for manufacturing and marketing truck and bus radial tyres.
JK Tyres has responded to the Apollo Michelin JV by saying that it is open to an equity tie with Continental. “We are in constant dialogue with Continental. India is an important market for them. It’s one of the potentially developing markets. It is a possibility that we can enter an arrangement with them,” JK Industries MD, R. P. Singhania said. Singhania is not worried about Michelin’s entry into the Indian tyre market. It will not pose a big threat to JK Tyres, he said. “We have been producing truck and bus radials for the last four years and have foreseen the market and opportunity. We have radialised the Indian market to the extent of 1.5 per cent. We are well prepared to meet the challenge of Michelin,” he added.
A short time before the announcement of the joint venture between Michelin and Apollo Tyres, the Indian company broke off its alliance with Continental. An Apollo spokesman said that the arrangement with Conti “was only a technical tie-up. As far as we are concerned this (the jv with Michelin) is a real marriage.” Michelin paid around $28 million for a 14.9 per cent stake in Apollo and the French company owns 51 per cent of the joint venture company, which is called Michelin Apollo Tire. MAT plans to invest $70 million over the next four years in building a manufacturing plant in India.
Apollo Tyres has joined with Michelin in a joint venture company called Michelin Apollo Tyre to manufacture, market and sell truck and bus radial tyres. “We are scouting for an appropriate location in the states of Maharashtra, Karnataka and Tamil Nadu. The commercial operations will begin by September 2005,” said Onkar S. Kanwar, Chairman, Apollo Tyres Ltd. Michelin will have 51 per cent shareholding and Apollo 49 per cent in the new Michelin Apollo Tyre Ltd. The Apollo board of Directors has also approved Michelin’s purchase of 14.9 per cent of equity share capital by means of a preferential allotment from Apollo Tyre Ltd for about 28 million US dollars. The joint venture comes in the wake of ongoing road improvements and highway building projects being currently undertaken in India. While the Radialisation level in the passenger car segment is around 75 per cent, in bus and truck, it’s less than 2 per cent. “We plan to increase this to 5 per cent in next three years,” added Kanwar. Edouard Michelin, President Michelin said, ” We want to become Indian in India, French in France and Chinese in China and we believe that we have just the right tyres to match the Indian conditions.”
In India, Apollo Tyres has signed a Memorandum of Understanding to set up a tyre manufacturing plant at Vadodara (previously known as Baroda). The project entails an investment of six billion Rupees (112.7 million Euro) but details of product types, capacity etc. are not known.
The agreement signed last August between Indian companies Apollo Tyres and Modi Rubber, whereby the Modi factory would produce for Apollo, is off. Apollo says that its requirements for increased capacity are “being satisfied through our own expansion and through other sources.” An Apollo spokesman also said that the company “was not averse to buying into the tyre business of Modi Rubber”, providing the right deal can be struck. The Modi factory has been closed for over 18 months.
Armed with a US$35 million loan from Industrial Finance Corporation of India (IFCI), in Washington, Apollo Tyres India is on the lookout for acquisitions. The company’s Chairman-cum-Managing Director, Kanwar Singh, said the company was open for acquiring tyre companies in the country and was in talks with a number of them. “There is no time frame for going for acquisition, but we are open to the idea,” he said. Apollo Tyres is aiming to bring down its borrowing cost by 50 per cent from current levels and is confident to reach a turnover of US$415 million during the current financial year. Commenting on reducing borrowing cost, Kanwar Singh said, “Not only we are expecting a steep fall in borrowing cost, but measures like a cost cutting drive will also bring in much better control.”
Apollo Tyres, India’s second-largest tyre manufacturer, has negotiated a $35 million loan from the International Finance Corporation and banks as part of a two-year, $51 million investment plan. $20 million will come from the IFC and the remainder from participating banks. The money will fund the set up of a new truck radial tyre plant in Gujarat and an increase in capacity of Apollo’s two existing plants in Kerala. The radial technology will be supplied under an agreement with Continental AG.
India’s second-largest tyre manufacturer, Apollo Tyres, is to invest 1.1 billion Rupees (24.7 m Euro) in a plant to make radial truck and bus tyres. The plant will be sited at Baroda, in Gujarat, next to an existing Apollo factory and will use technology from Continental, with whom Apollo has an existing collaboration. Apollo claims a 25 per cent share of the truck and bus tyre market but poor infrastructure and a large number of two-axle vehicles mean that radialisation in this sector is a very low 2 per cent.
Indian tyre manufacturer Apollo Tyres has reported an increase in turnover of 17 per cent for the twelve months ended March 31st. Revenue was 17 billion Rupees (394.9 m Euro), compared with 15.54 bn Rupees (360.9 m Euro) for the previous twelve months. Apollo’s shares on the Bombay Stock Exchange rose 7.27 per cent at the news.
If you would like the latest news from the Chinese tyre industry in Chinese, visit our partner site TyrepressChina.com. Or click below to continue on Tyrepress.
