Apollo Tyres plans greenfield unit in Europe

Apollo Tyres, whose deal for the acquisition of Cooper Tire & Rubber, fell through last December, has decided to establish a new greenfield plant in Eastern Europe, expand capacity at the Chennai plant, and re-jig the product mix of its facility in Kalamassery, Kerala. The company, as reported earlier this year, will spend Euro 500 million (Rs 4,086 crore) for its East European facility that will be funded by accruals and debt of the company’s European subsidiary.

Chairman Onkar S Kanwar made these remarks in his speech printed in the company’s Annual Report for 2013-14. The Europe-based plant aims to cater to the demand for tyres in Europe that is not being met currently, he said.

In his speech, Kanwar makes no definite reference to the US company Apollo was keen to buy except to say: “The fact that the deal did not fructify is not the real story. The real story is that your company identified future challenges and was able to make the attempt to address these to ensure an increase in your long-term wealth”.

He continues: “The real story is that as soon as we knew that Plan A was not working out, we launched Plan B, which also addresses the objectives we have identified.”

In what appears to be an explanation for the ‘Plan B’, Kanwar says the company has realised that “operations on a global scale gives us the leverage to manage increasingly consolidated customers on the one hand, and ever-larger suppliers on the other.”

Kanwar also adds that the company’s sales offices in Dubai, Thailand and Brazil have led its thrust into new markets, building brands and distribution networks.

And surveying the global economy, he suggests that further churn is taking place. The chairman appears to be more bullish on the US and China. “The United States, which had been written off by so many as no longer suitable for manufacturing, is enjoying a resurgence, driven primarily by energy costs and security. As manufacturing activity and consequent job creation picks up pace, the US will once again be a huge influencer as a consuming economy. China is currently going through what I believe is a consolidation phase. The humongous growth of the past couple of decades has been tempered to allow systems, processes and fiscal prudence to catch up. Europe continues to address structural issues and while it will remain a very significant market, I do not believe we will look at rapid growth for the industry.”

For the quarter ended June 30, 2014, Apollo Tyres, on a consolidated level, reported a profit of Rs 228 crore on net sales of Rs 3,235 crore. Its Indian operations registered a 6 percent increase in revenue in the first quarter, while European operations posted an increase of 18 percent in revenues in Q1 FY15, as compared to the same period last year. Sale of part of African business in the last fiscal, led to the company reporting flat revenue growth on a consolidated level in the first quarter. 

Commenting on the results, Onkar S Kanwar, Chairman, Apollo Tyres Ltd said, “Increased vehicle sales in the past quarter across geographies, and especially in India, along with a better product and market mix, helped us report good numbers.”

Photograph: Onkar S Kanwar, chairman, Apollo Tyres.