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Our Steel Radials For Performance Bikes Will Create Disruption: Apollo Tyres
Apollo Tyres Ltd. is the world's 17th biggest and India’s second largest tyre manufacturer with annual consolidated revenues of US$2.09 billion as on March 2017.
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The company gets 69% of its revenues from India, 26% from Europe and 5% from other geographies. Interacting exclusively with BW Businessworld, Satish Sharma, President, Asia Pacific, Middle East & Africa (APMEA), Apollo Tyres Ltd. reveals that it is keen to create a disruption in the two-wheeler tyre market by bringing in next-generation steel radials especially in the performance segment. Also being the Chairman of Automotive Tyre Manufacturers Association (ATMA), he maintained that the Indian tyre industry can also be the poster boy for job creation.
How has the Indian tyre industry evolved over the years?
On the expenditure front, there has been a radical shift on the investment behind technology. Earlier, the R&D expenditure of most of the companies used to be lower than 0.5% of the overall revenues. But now that has quadrupled to nearly 2% of the revenues. There is a lot of investment towards brands as Indian companies figure among the top 15 in the world rankings. They have every potential to break in to the top 10 rankings. Thanks to the radialisation of tyres, our industry is now well integrated with the supply chain of major global automakers. Apart from being crude oil derived product, we are blessed with natural rubber. We have also started getting into synthetic rubber. Over the last few years, Indian tyremaking companies are also going for inorganic growth overseas.
How has the Make in India’ policy benefitted your industry?
I have already apprised the government that the Indian tyre industry can be the poster boy for job creation. I say that because this is the industry which is there in our country as long as auto history is there. This is a capex intensive industry which is there in a very few countries and provides large direct and indirect employment. Apart from some leading homegrown players like JK Tyre, MRF, Ceat, and Apollo, we have some of the leading global giants (like Michelin, Continental, Yokohama, Bridgestone) which are manufacturing in India. So this is the last big (automotive) market of the world. Even during the downturn, this industry has been putting in capex and creating lots of jobs. Our exports are also increasing simultaneously. Our cost of manufacturing is definitely an advantage over the western world. While the degree of competitiveness may be still lower because of infrastructure bottlenecks, supply chain costs, energy costs, and so on and so forth, we have been able to match the requirements of our OEMs.
Apollo announced its entry into the two-wheeler tyre segment more than a year back. What has been the response so far?
We had a very exciting response to the two-wheeler tyres that were launched in the aftermarket. Our CFO (Gaurav Kumar) has been on record to say that we will end the year with 2-2.5 lakh tyres (sales volumes) a month. We are well on stream to do that. So we are seeing a steady growth for our products in the replacement market. Our larger range (of products) has so far been for the commuter segment such as 125cc or 150cc motorbikes. Now we are concentrating on bringing out performance range tyres. We will go to Harleys or Royal Enfields of the world as far as the OE segment is concerned. After that, we will do a pure technology play through two-wheeler steel radial tyres. We will be manufacturing them at our Baroda plant where we have put our first pilot machine. Even though we are exploring with OEMs (to supply our products), we have not made any major headway. Initial explorations have shown the margins are not very good in that space. It is because of that reason we have taken a step back and are focussing our energies in the aftermarket.
Are you confident of disrupting the country’s two-wheeler tyre market?
Every company has its own strategy. Our strategy and vision is to be the number one tyre player in India by 2020. Two-wheelers has a significance in the first place to give a wider range to our dealers. That gives them the strong reason to deal strongly with Apollo Tyres and increase our share of account. If we disrupt the two-wheeler market, we will do so at the higher end of the market rather than in the commuter segment. This is because in the commuter space, disruption means no margins. But in the performance segment (500cc and above bikes), disruption means innovation, product or technology leadership, etc. We also plan to go global in this segment.
With the Indian construction and its allied sectors booming, are you also encouraged to serve the equipment industry which cater to them?
The construction (equipment) segment is going to expand exponentially. We have turned one of our plants into making all industrial tyres. It is located at Kerala and is rolling out OTR or Off-Highway tyres for motor graders, backhoe loaders, telescopic handlers, skid steers, articulated dump trucks, etc. With the infrastructure coming in and mechanisation happening at a rapid pace, it is emerging as the third big vertical for us.
With the FDI in Defence and Aersospace opening up for private players, are you also exploring those verticals?
We are still on the surface vehicles and are identifying those requirements in the defence space and deploying our resources accordingly. As we are doubling our TBR capacity, a fraction of that (output) is catering only to defence vehicles. Because of its (tyres’) unique sizes, it needs a different kind of technology and we are preparing ourselves accordingly. All the requirements for surface vehicles have been mapped and we have the capacities and the technologies to be able to do that.
Going forward, do you intend to locally build Vredestein brand of tyres to serve the Indian market?
We are already making them but sending it back to our European operations. We have been making winter, summer or even all-season tyres for worldwide markets. But with our Hungary plant coming on board, much of the production will be repatriated from the Indian plant. That capacity will be utilised for fuelling the domestic market growth.
As the automotive industry transitions to BS-VI emission norms by 2020 and e-mobility by 2030, how have you redrawn your strategies to be in synch with your OEMs’ needs?
Both these policies are pointed in the right direction. The global automotive industry is transitioning to the electrification of powertrains and India cannot be left alone. What we can only debate is whether it will be feasible (to have an all-electric fleet) by 2030 and what is the supporting infrastructure and what will be the enabling policies around that time. The task on tyre technology is essentially on lightweighting (of the products) in terms of lower rolling resistance and better wet grip. These are the areas which the entire industry, including Apollo, is doing world over. The fact that we are in Europe, we are already exposed to all these regulations. We will measure up to the requirements to whatever OEMs tell us.
At present, more than 60% of your business is derived from the home market. But as you are expanding your overseas operations, will the domestic market’s contribution come down in the next few years?
We are very much focussed on both the (domestic and overseas) markets. We have lined up a significant capex of Rs. 2,100 crore to double (our capacity at) Chennai plant. In November 2016, we have signed a MoU with the Government of Andhra Pradesh to set up a new factory in Andhra Pradesh to manufacture tyres for two-wheelers and pick-up trucks. At the same time, there is a €475 million greenfield facility at Hungary coming up that will churn out 5.5 million passenger car and light truck tyres and 675,000 commercial vehicle tyres per annum in the first phase. Definitely, the ratio will start moving towards the rest of the world over a period of time. But we don’t make our strategies (on the) basis of this matrix. This is a derived matrix. Our strategies are based on the markets we want to cater to and to the extent that we can.