In a candid conversation with Hormazd Sorabjee at this year’s Geneva Motor Show, Apollo Tyres’ MD reveals how he plans to make an impact in Europe’s mature market, increase R&D activity, and also break into the Top 10 global tyremakersclub.
Apollo Tyres has been a regular at the Geneva Motor Show and has an ambitious European market gameplan. What is your strategy in Europe and what has been achieved so far?
We bought Vredestein in 2009 and with that we have been able to launch Apollo in Europe two years ago. At present, we sell around 50,000-60,000 Apollo tyres in the replacement markets, which come from Chennai and Vadodara.
At the Geneva show this year, we have launched a brand-new tyre – the ultra-high-performance (UHP) summer tyre Aspire 4G for the high-end segment. We have also launched the W and Y speed-rated 4G Maxx UHP tyres, which have been tested by the ADAC (the German Automobile Association) with good results. We are getting a good response from customers here in Geneva, who like the designs. Since these tyres are mainly meant for European markets, they are made for high speeds. Our technologists across India and Europe together have worked on this. Because of this integration, we can manufacture these tyres and sell them globally, whether it is Europe, India or South Africa. All the three R&D departments have worked together
on this.
Has there been any kind of overlapping with Vredestein products as Apollo’s tyres are mainly for the masses while Vredestein are more niche?
No, because there will always be a difference in the pricing and the branding of the products. Vredestein will always be high-end niche products and fighting the Tier 1s like the Michelins, Bridgestones and Contis in Europe. Tier 2 which are, let’s say, Sumitomo or Yokohama – that’s where Apollo will be positioned. We are basically giving value for money to customers at qualities associated with Tier 1. We’re not going down on product quality or any materials. Also, since labelling is coming to Europe, we are labelling-confirmed and getting ready for the labelling of our products by November.
How important are tyre brands from a customer point of view?
In India, a tyre brand may not be that big a deal, but the German buyer knows his product. For Apollo, it is going to take some time to build that kind of a brand. At present, we are below one percent of sales on brand, marketing and R&D spends. Our target is to gradually go to global standards, which stands at three to four percent. My focus is on R&D in technology and then, marketing.
So is that three to four percent combined for marketing and R&D?
It is the percentage to sales in R&D and brandbuilding. They are separate – three percent on R&D and three percent on marketing budgets. Right now, we are below one percent and internationally they are all doing three to five percent. My target first is three percent and my emphasis to the team is only R&D in technology and then going into marketing.
We have spent a lot of money on this stall (at the Geneva show) and it gives me huge pride, being an Indian, to be present among the top automobile brands in the world. The only other Indian brand apart from us here is Tata. We have come here on an international level and we have gone all out to ensure that the signage and the entire stall are premium. And it is catching everyone’s eye.
In terms of future planning and growth, is it a steep curve to go through as a tyre manufacturer and what are the challenges you’ve had to face to enter such a mature market like Europe?
We are happy to piggyback on a mature brand like Vredestein. Without Vredestein, it would have been a Herculean task. An Indian company arriving on an international stage to make its name is difficult. One of the key reasons to take over the company was to enter the European market. Vredestein has given us a jumpstart and with that we are working to create a brand in Europe.
In hindsight, was the split-up with Michelin a turning point for Apollo?
Yes, that was a big turning point. We were only $300 million dollars then. Over five years, we have come to $2 billion and this year we shall come close to $2.5 billion.
We have plans to reach $6 billion in four years and that will take us into the top 10. Right now Apollo is positioned around No. 14-15 and we have to break into the top 10 in the world. So all our actions are directed towards that – be it R&D, marketing or looking to Eastern Europe for a greenfield facility. Europe is my priority market and Brazil second priority, where we have already started marketing activities. Tyres are being exported there from India and South Africa. South-East Asia is my third priority market other than the domestic market.
How is the domestic market in India faring?
Domestic markets have their own challenges. India is not a very mature but a very low-margin market. As per our third quarter results, Europe did close to 18.5 percent and India, in the same timeframe, did only 8.5 percent. There is a huge 10 percent gap and obviously there is no premium in the market and no margin. This is because the players themselves are not matured and are just fighting with each other. We have to come out with good products for the customer and have to introduce more technology.
Apollo is putting in a lot of technologies and we have come out with truck-bus radial tyres. I’ll tell you one thing – you go to the end customer and you beat all competition whether you are Indian or international for truck-bus radials in India.
Our Chennai facility is doing very well and it is world-class. No doubt the Indian domestic market is going up the value chain, but I don’t see what I see when I come to Europe – like the brands and the way they operate in this much-matured market. I think we should learn all these things here and take these practices back to India. But frankly I don’t see that happening for a long time.
What do you think of growth in our domestic market and what are your plans in terms of capacity?
In India, our capacity expansions are all done with the Chennai plant coming up in terms of production. We are, by far, the leader in the product category, whether it is passenger car, truck, light-truck and farm tyres.
In farm tyres, maybe our competition is higher with Goodyear being much better but now our next step is to see how to bring in the European technologies into India, which means upsizing for cars. Trucks are already bearing European technology but the car sector is still growing and we are looking to bring in niche products from Vredestein to India within this year in small numbers.
A Vredestein staffer is going to be based in India and will look after the brand.
These are basically our plans and we are also looking at how to convert our old technology capacities to radial and are targeting that change at the Vadodara plant. Slowly, the old technologies in trucks are being phased out; already 25 percent of the trucks in India have been radialised and
the change is rapid. So what the US and European markets went through decades ago, we are going to face this phasing soon in India. We are already in the planning mode to see how we are going to transfer the technology.