Description
It describes about tyre Industry Trends, PEST Analysis of tyre Industry, Competitor Analysis of Indian tyre industry, SWOT analysis of Tyre industry, Company Description, General Information Apollo tyres, it's Finance performance, SWOT analysis of Apollo tyres and Various Strategies employed.
TYRE INDUSTRY ANALYSIS Industry Analysis:
Indian Tyre Industry
Commercial Vehicles
Passenger Vehicles
Others
Light Commercial Vehicle (LCV)
Heavy Commercial Vehicle (HCV)
Manual Heat Control Valve (MHCV)
Cars
Motor Cycles
Farm Vehicle
OTR
Industrial Vehicle
An Overview of the Indian Tyre Industry (FY 2010-11) (Source : ATMA) ? ? ? ? ? ? ? Total No. of Tyre Companies : 39 Total No. of Tyre plants : 60 Industry Concentration : 10 Large Tyre companies account for over 90% of Tyre Production (in value & tonnage terms) Industry Turnover* : Rs. 30,000 Crores Production : 14.88 lakh tonnes Value of Tyre Exports* : Rs.3,700 Crores Value of Tyre Imports* : Rs.1780 Crores *estimated
Trends in Tyre Production, Exports and Imports: (2010-11 over 2010-09) ? ? ? Growth in Overall Production: 22% increase Growth in Exports: 22% increase Growth in Imports: 48% increase
Categorywise Tyre Production 2010-11
Light Commercial Vehicle Tractors OTR & Industrial Trucks & Bus
Top Players in the Industry: 1) MRF India Ltd. 2) Apollo Tyres Ltd. 3) JK Tyres & Industries Ltd. 4) CEAT Ltd. 5) Balkrishna Industries Ltd. 6) Goodyear India Ltd. 7) TVS Srichakra Ltd. 8) Falcon Tyres Ltd. 9) Kesoram Industries Ltd. (Birla Tyres) 10) Bridgestone India Ltd. Market share as per Volume: Truck & Bus Company Market Share JK Tyre 22% MRF 21% Apollo 21% In News – Tyre Industry There is a marked shift in the performance of the tyre industry in 2011-12, as its overall net profit has become negative. As against a total net profit of Rs 584.63 crore of the leading eight companies put together in 2010-11, the corresponding figure in the FY12 is Rs 39 crores, according to the Automotive Tyre Manufacturers Association (ATMA). The net profit dropped by 107 per cent in the last financial year, compared to that of FY11. According to the consolidated figures of the ATMA, the books of MRF, the country's leading tyre company, recorded a steep rise in its profit at Rs 690.41 crore, but this includes an extraordinary item (amounting to Rs 404 crore) towards method of calculation of depreciation. If the extraordinary item is excluded, then the net profit of MRF works out to only Rs 286 crore. The overall industry profit, thus, is in the red. Even by taking the figure of MRF as Rs 690.41 crores, the total net profit dropped to Rs 364.83 crore in 2011-12. Interestingly, the net sales of the companies has increased 24 per cent from Rs 29,703.61 crore in 2010-11 to Rs 37,049.63 crore in 2011-12. The net profit as a percentage of net sales declined from 2 per cent to (-)0.1 per cent in the last financial year. For all tyre companies, except Birla, net sales have shown an increase varying from 4 to 50 per cent, while there has been a significant decline in the net profit across companies. Passenger Car Company Market Share Apollo 24% MRF 24% Bridgestone 19% Motor Cycle Company Market Share MRF 28% TVS Srichakra 23% Falcon 17%
In the case of Birla and Falcon, the drop in the net profit has been high -- for Birla it is ()215.6 per cent and Falcon (-)119.1 per cent. Only TVS has shown an increase in the net profit, though very marginal 1.5 per cent. The increase in net sales (turnover) can be attributed to higher production (in volume terms) as well as high input costs. The decline in the net profit, ATMA said, was solely attributed to significant increase in raw material costs. According to rating agency ICRA, the Indian tyre industry grew by 5.3% in terms of volumes despite economic slowdown and high input costs in 2011-12. The numbers reflect a decline in replacement demand in terms of volume, subdued OEM demand growth and a healthy export growth. Revenues of the tyre companies recorded a robust 28% growth largely on account of over 20% hike in realisations and the sharp depreciation in rupee which drove export revenues by 46%. The year 2011-12 started on a challenging note for tyre companies as natural rubber prices peaked at around Rs 240 per kg. The situation, however, improved shortly with natural rubber prices easing to around Rs 195 per kg by November 2011 and stabilising at around Rs 185-200 per kg since then. Synthetic rubber prices however continued upward, increasing by 30-45% last year. Despite weak demand in the price-conscious replacement markets, tyre manufacturers were forced to push through multiple price hikes of over 20%. Inability to completely neutralise cost escalations resulted in contraction of operating margins of several players like MRF, Apollo, Goodyear and JK Tyres, by around 180 bps. Price hikes in the industry continued during the first quarter of 2012-13 in an attempt to neutralise the hike in cost of crude derivatives. ICRA expects the demand for tyres from the OEM segment to be relatively muted at 8-9% during 2012-13, despite anticipated revival in replacement volume, driven by vehicles, particularly truck and bus tyres, sold post the recessionary dip of 2009. Revenue growth for tyre companies is also expected to be supported by price revisions of around 5-8% and continued export thrust to SE Asian countries. Gloomy days are ahead for the rubber industry with a slump in production and consumption alike. The recent petrol price increase and a strike at the Maruti plant in Manesar may force tyre manufacturers to trim production, though improved tyre exports due to the depreciation of rupee may bring a slight relief. Generally, demand picks up from mid-September with rubber production entering the peak phase. But this year, the situation is anything but optimistic. "At this rate, the financials of tyre companies may take a knock. Companies cou-ld even think of slashing production," said Rajiv Budhraja, director general of Automotive Tyre Manufacturers' Association.
Future of Tyre Industry in India: The domestic tyre industry has lined up investments worth over Rs 10,000 crore between now August 2013. The additional investment is in 19 tyre projects targeted for completion this year. A major chunk of the projects are coming up in Gujarat, Tamil Nadu and Maharastra. Industry experts say that post-2013, with the stabilisation of these projects and the availability of incremental domestic radial capacities, the dependence on Chinese imports would reduce. “Despite the worrying macroeconomic indicators and a general slowdown in domestic automotive sales, the Indian tyre industry continued to post a healthy 25-30 per cent revenue growth during the first quarter of 2011-12 supported by strong replacement and export demand," said a report prepared by ICRA. Domestic OEM demand growth was also healthy at around 15-20 per cent, albeit weaker than in the previous fiscal. However continued cost pressure from high cost NR inventory led to a 300-350 bps operating margin erosion, both on a year-on-year (y-o-y) and sequential quarter basis, the report said. Besides grappling with high input costs and weak demand, domestic players are expected to face additional pressure with the lifting of anti dumping duty (ADD) (with effect from August 2011) on Truck and Bus radials (TBRs) imported from China and Thailand. While this move is expected to be contested by the industry players, the lifting of ADD makes the imported TBRs cheaper by 15-20 per cent, limiting domestic demand and pricing power. The domestic tyre industry has been in an investment mode during the last few years with almost all participants adding significant capacities. Of this, bulk of investments are expected in fiscal 2011-12 with 19 tyre projects targeted for completion this year. The industry has already witnessed an addition of 17.7 lakhs tyres from JK tyre, Metro Tyres Limited (Metro tyres) and Bridgestone India Private Limited during the first quarter of fiscal 2011-12. Other major projects scheduled for completion during the current year include JK Tyres, MRF Limited, Falcon Tyre Limited, and Metro tyres, with most of the capacity additions being towards radial capacities. The investments are as follows: Apollo Tyres investing Rs 2,300 crores in Tamil Nadu and Gujarat, Balakrishna Industries investing Rs 1,400 crore in Gujarat and Maharastra, Bridgestone is investing Rs 3,210 crore in Pune and Pithampur, Ceat is investing Rs 340 crore in Maharastra, Dunlop is investing Rs 450 crore in Assam, Falcon Tyres Rs 570 crore in Uttharkhad and JK Tyres investing Rs 1,815 crores in Tamil Nadu and Karnataka. Michelin group is investing Rs 4,000 crores investments at Chennai, which is spread over a period of seven years.
PEST Analysis: ? Political factors
While the Customs Duty rate on tyres and the peak rate of Customs Duty on all non agricultural products were progressively reduced in the Union Budgets during the last few years, in the case of Natural Rubber the rate of 20% Customs Duty has remained unchanged for over a decade. This has resulted in a serious anomaly of Customs Duty on raw-material (Natural Rubber@20%) being higher than the Customs Duty on finished product (Tyres @10%). FICCI in its pre-budget memorandum has said that it is imperative that customs duty of principal raw material of tyre industry i.e. Natural Rubber is revisited and reduced from 20% to a suggested level of 7.5% to make duty paid imports viable. Or else, increase in Customs Duty on tyres - from current 10% to suggested 20% to provide a level playing field to the domestic tyre industry vis-a-vis cheaper tyre imports. FICCI has also given the following recommendations for the tyre industry
> FICCI would request for waiver of Customs Duty on all raw materials not manufactured domestically. > Appropriate clarification be issued to the effect that tubes and flaps are "inputs" being "accessories" for tyres and thereby Rule 3(5) of the CENVAT Rules 2004 and Rule 16 of the Central Excise Rules 2002 are not applicable being revenue neutral. > To overcome problem with respect to exports of tubes / flaps, it is suggested to include 'Tyre Manufacturer' as a class of Exporters under Rule 20 of Central Excise Rules to allow them procure tubes and flaps without payment of duty for exports. Year Peak rate on Non Agriculture goods 50% 10% On Tyres On Natural Rubber 20% 20%
1996-97 2010-11
50% 10%
> The following key raw materials of tyre industry are NOT manufactured domestically: HS Code Raw Material (s) Estimated Consumption - Tyre Sector FY 2009-10 (MT/ p.a.) 4002 3100 Butyl Rubber 36000 5% Existing Customs Duty
4002 70 00 4002 19 00
EPDM
3500
10% 10%
Styrene Butadiene 101000 Rubber (Tyre Grades)
> Tyre Industry is raw-material intensive. Raw material cost accounts for approx. 62% of tyre industry turnover and 70% of the production cost. It would be appropriate to reduce basic Customs Duty on following principal raw materials, where the domestic capacity / production is insufficient to meet the current / future domestic demand: S. No. 1. 2. 3. 4. 5 5902 10 10 4002 20 00 3812 10 00/30 10 7312 90 00 5902 20 00 Nylon Tyre Cord PBR Rubber Chemicals Steel Tyre Cord Polyester Tyre Cord HS Code Raw-Material(s) Existing Proposed
Customs Duty (%) 10% 10% 7.5% 10% 5% 5% 5% 2.5% 5% Nil
The tyre industry has asked for duty free import of one lakh tonnes of natural rubber to bridge the gap between domestic production and consumption, in the pre-budget memorandum. Autmotive Tyre Manufacturers Association (ATMA) has also asked for waiver of customs duty on those raw materials that have no domestic production. These include butyle rubber, SBR (tyre grade), EPDM and polyester tyre cord. ATMA chairman Neeraj Kanwar said the tyre industry has passed through an extremely difficult phase of continuous increase in prices of rubber and other key raw materials. Since raw materials account for 70 % of industry turnover, the input cost pressure has resulted in severe erosion of net margins of tyre industry. According to Kanwar, the tyre industry has pumped in an investment of over Rs 12,000 crore. All large tyre companies have made substantial investments for new projects and expansion primarily in radial truck and passenger car tyres. Tyre companies are yet to buy a large chunk of 40,000 tonne of rubber, the import of which has been sanctioned by the government. But imports look difficult now as international price trends are not favourable. According to Budhraja, it would have been viable if the companies had shipped the material in March.
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Economic factors
The Demand Cycle of the Tyre Industry
Growing Economy Increase in level of income Increase in Income for disposal Increase in demand of freight movement Increase in Commercial Vehicle Demand Increase in Tyres Demand from OEMs Creates Tyr replacement demand after 12-18 months Increase in tyre sales
Creates Replacement demand for Tyres Increase in wear & tear of tyres
Increase in demand for passenger cars tyres
Demand for Replacement in 24 to 48 months
There is a hike in the tyre prices due to the devaluation in rupee. Around 15 % decline in rupee in the month of May and June has put pressure on the margins of tyre companies as the raw material costs have gone up. Growth in M&HCV replacement demand is affected by a slower economic growth. Since there is a slowdown in demand the tyre giants are evaluating how much of the increase in cost can be passed on to the customers. Raw materials comprise almost 85 % of the cost of the tyre and with the devaluation of rupee, the import cost has gone up. The tyre makers are still importing rubber, a key raw material, as it is cheaper. The OE tyre market is sluggish while the replacement tyre market is stable. The car sales are expected to pick up in the second half of the year provided the interest rates come down. In the current situation exports have become viable for the tyre companies. The economic turmoil in Europe has not affected exports as the region is not a big buyer. Indian exports are made to South America and Africa for exports in a big way, The number of steel wheel outlets of JK Tyres, which provide total car solutions to the customer, in the country will be raised from 131 to 200 by next year. A drop in passenger car sales is forcing tyre makers to trim production or step up export to keep the inventory in check. Automobile companies have reported poor sales in the current quarter and there is speculation that demand will remain flat in the coming months with a soaring fuel bill and a rise in interest rates.
There is a strong possibility of a cut in tyre production if vehicle sales continue to be negative. Several car companies have already cut output due to a weak demand. Tyre production went up by 5% in 2011-12 with passenger car tyres showing a 4% growth. Sales in April were okay but have declined in May and June. While OEMs have scaled down their operations, the replacement tyre market hasn't shown significant buoyancy. To avoid a cut in production, companies will consider raising the exports as the rupee-dollar rate favours shipments. Apollo Tyres, which is not trimming production, is planning to export more. "Our units will continue to produce at near 100% capacity and we would utilise the extra capacity to service the demands of the replacement and export markets where we are unable to meet the requirements due to capacity constraints," said Satish Sharma, chief of India Operations, Apollo Tyres. The company, having a focussed export strategy, clocked a 60% growth in exports in the last fiscal. Vikram Malhotra, vice president, marketing and sales of JK Tyres, said: "We think exports will provide us a window of opportunity to deal with excess production due to a sluggish demand in the domestic market." Rajiv Budhraja says the export strategy may work as tyre companies are not dependent on Europe, which is facing a debt crisis. Domestic tyre industry has witnessed a remarkable recovery in FY10 and FY11, after a slowdown in FY09. This growth was driven by strong revival in automobile demand on the back of resurgence in economy, rise in employment levels, and easing of interest rate scenario. The concerns about slowdown in the growth levels in new automobile sales would dampen the demand from OEMs in the short term. However, strong growth in automobile sales in last 7-8 years barring the slowdown of FY09, have resulted in significant expansion of vehicle population that would transform in healthy replacement demand for tyres in medium to long term period. The tyre industry is on a brink of a major structural change. T&B which is a dominant segment in terms of tonnage is witnessing a gradual rise in the proportion of radial tyres. Going by the global trend it seems that the radial tyre demand in India is at inflection point and with almost 98 per cent of the passenger car tyre production has been radialised, T&B tyre category is the next major category to witness spurt in the demand for radial tyres. And with improvement in road infrastructure and better cost economics the proportion of radial tyres in T&B category is expected to expand by around seven times from the current levels. Sighting this opportunity, almost all the expansion plans for T&B category tyres are for radial category tyres. The sovereign debt crisis in Europe and lower offtake by China have kept the global rubber prices depressed. In Indian market, the future contracts are showing a bearish phase. A weaker rupee may provide some relief as it will help boost tyre exports. Total rubber exports have risen around 180% to 12,219 tonne for the five-month period ended August 2011. With international price remaining Rs 7 higher at Rs 225 per kg, rupee depreciation is expected to accelerate the trend.
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Social factors
Explosion in the number of nuclear families: As the joint-family system crumbles and the number of nuclear families explode, more samll families seem to be demanding a two/four wheeler for themselves. This ahs directly resulted in higher sales of tyres in the past decade. Higher car density per family: The number of upper-class and upper-middle class families is more than one car per family, seems to be increasing expotentially. This is especially true in cities where Brand Strategy Analysis working couple find it difficult to survive without more than one car for transportation. With higher disposable incomes, these families are finallyu able to afford this need. Shifting Savings to EMI culture: Another notable trend that seems to be fuellingcar sales (and therefore tyre sales) is the shift in the middle-class consumer saving habbits. The Indian middle-class family has long been known for its saving frenzy. But with a younger workforce, higher disposable incomes, lower unemployment and the influence of globalization, the average Indian middle-class family is slowly warming up the idea of EMI and buying on credit. This has helped in furthering the sales of passenger cars significantly. Rubber has helped the farmers to get a steady income, and they are able to get good money for their produce almost throughout the year. Rubber has certainly helped in giving the people a sustainable income, the best part about rubber is that it can yield almost throughout the year, only except for a brief gap in summer and here in winter. So, that gives a steady income to the farmer and prices now are good. If the economic growth improves, then consumption of rubber will also go up. Products and services embossed with ISO certification give confidence to consumers, the manufacturers and exporters to comply fully with the prescribed standards. National standards play a vital role in the present era of World Trade Organisation (WTO). India, which is a signatory to the WTO Agreement on Technical Barriers to Trade, should harmonise Indian standards, wherever feasible, with global standards. The international standards gives manufacturers, confidence to reach out to the global markets with the knowledge that their products will compete globally and users can be confident and assured of the uniformity in the quality. Bureau of Indian Standards (BIS), the national standards body, has so far formulated over 18,600 Indian standards in accordance with the needs and priorities of the country. ? Technical factors
The Indian tyre market has attracted global manufacturers on account of encouraging growth figures. These manufacturers are expected to invest huge amounts into the industry over the next few years, with a major proportion of this investment directed towards the Truck & Bus (T&B) radial tyre capacity expansion. As per the study, several “Greenfield” plants are in pipeline to include new capacities. The implementation of brown-field projects is executed to cater to the growing demand. Greenfield units are expected to go on-stream in the coming
years, just by the time when there will be an urgent need to bridge an increasing demandsupply gap in T&B radial tyre segment. India is known to be an appetizer of invention and implements new technologies and products, and tyre industry is no exception to this. The concept of „green tyres? is becoming a paradigm of the country?s competitive edge. This new category of tyres is now being widely accepted in India, and it is expected that in the coming years, the demand for green tyres will outperform the overall passenger tyre demand in the country. India?s market for radial tyres in commercial vehicles section is still an infant. The passenger car segment switched to radial tyres in a short period of time, with radial tyre penetration level for the category reaching 98%. Besides, the penetration level of radial tyre has also started to increase rapidly in the light commercial vehicles and truck & bus segment. This segment will be the largest growth area over the next few years.
Competitor Analysis: Top 4 Leading Market players: MRF 1 24% Apollo Tyres 2 22% JK Tyres 3 17% CEAT 4 14%
Rank Market share (in terms of revenue) Highlights
? Leadership presence ? Strong brand recall ? High Quality ? Price-maker status ? 19% share in T&B segment (largest segment in tyre industry)
? Largest 22% player, 82% product mix in T&B ? 80% of revenue from replacement market where EBITDA margins are higher, hence their operating levels are better ? Strong brand recall
? Ranks first in MHCV (product mix 79%) and passenger car tyres (7%) ? Export accounts for 17% of gross sales
? MHCV product mix is 68%and passenger car tyres (7%) ? 60% of revenue from replacement market
Current Stock Price Comparison (22.07.2012)
Current Company Price Apollo Ceat Ltd. JK Tyre MRF Ltd.
Change (%Chg)
83.05 0.15 (0.18%) 101 1.10 (1.10%) 94.85 -1.95 (-2.01%) -46.10 (10059.85 0.45%)
TODAY Low / High 82.30 / 83.70 98.60 / 102.35 94.10 / 96.00 10,007.35 / 10,195.70
52 WEEK Low / High 50.80 / 95.00 66.20 / 114.30 53.50 / 110.00 6,200.00 / 11,570.00
Volume
EPS PE 3.6 2.2 2.68 1460.5
141190 23.1 50525 45.9 19564 35.4 1081 6.89
SWOT Analysis of Tyre Industry: ? ? STRENGTHS Establishes brand names (key in the replacement market) Extensive distribution networks – For example, Apollo Tyres 118 district offices, 12 distribution centres and 4,250 dealers Good R&D initiatives by top players ? WEAKNESSES Cost Pressures – The profitability of the industry has high correlation with the prices of key raw materials such as rubber and crude oil, as they account for more than 70% of the total costs. Pricing pressures – The huge raw material cost have resulted in pressure on the realisations and hence, the players have been vouching to increase the prices, although due to competitive pressures, they have not been able to pass the entire increase to the customer. Highly Capital Intensive – It requires upto Rs. 4 billion to set up a radial tyre plant with a capacity of 1.5 million tyres and Rs.1.5-2 billion for a cross-ply tyre of 1.5 million manufacturing capacity THREATS Continuous increase in the prices of rubber which accounts for one third on the cost of raw materials Cheaper imports from China selling at very low prices have been posing a challenge. Landed price is approximately 25% lower than the corresponding Indian truck/LCV tyres. Imports from China, now consists around 5% of the market share. With crude prices scaling up, hike in raw material cost is expected. Ban on overloading leading to lesser wear and tear of tyres and subsequent slowdown in replacement demand. However, this would only be shortterm negative. Cyclical nature of automobile
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OPPORTUNITIES Growing Economy ? Growing Automobile Industry ? Increase in OEM demand ? Subsequent rise in Replacement demand With continuous emphasis being placed on the Central Government on development of infrastructure particularly roads, agriculture and manufacturing sectors, the Indian economy and automobile sectors/tyre industry are poised for an impressive growth. Creation of roads has given and will increasingly give a tremendous fillip to the road transportation in the coming years, The tyre industry will play a major role in this road infrastructure changing dynamics. Access to global resources of raw
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material due to economies of scale Steady increase in radial tyres for MHCV, LCV
industry.
APOLLO TYRES LIMITED About the Company Business: Manufacture and sale of automotive tyres Established in :1976 Shareholding: Traded in India on the Bombay, National and Kochi Stock Exchanges, with 5 3% shares held by the public, government entities, banks and financial institutions. (March 31 , 2012) Shareholding pattern: Holder's Name Promoters Foreign Institutions NBanks Mutual Funds General Public Other Companies Central Govt Foreign NRI Financial Institutions Foreign Promoter Others Foreign Ocb Foreign Industries No of Shares 23,45,94,242 11,36,38,289 5,50,85,958 4,48,94,779 3,80,22,151 1,00,00,000 26,26,201 22,77,850 19,77,000 9,03,800 3,500 1,000 % Share Holding 46.54% 22.55% 10.93% 8.91% 7.54% 1.98% 0.52% 0.45% 0.39% 0.18% 0.00% 0.00%
Turnover: FY12 Rs 121.5 billion/ US$ 2.5 billion/ Euro 1.8 billion (March 31, 2012, exchan ge rates) Topline trend: CAGR of 20% for the last 5 years
Acquired entities: In May 2009, Apollo acquired Apollo Vredestein BV (originally Vredeste in Banden BV) in the Netherlands, producer of niche high end passenger car and specialty tyr es with a manufacturing facility in Enschede and an extensive distribution network across Eur ope. In April 2006, Apollo Tyres acquired Apollo Tyres South Africa (Pty) Ltd (originally D unlop Tyres International (Pty) Ltd), manufacturer of tyres across automotive segments, with brand rights to 32 African countries, 3 tyre manufacturing units and a retreading unit in South Africa and Zimbabwe Manpower: Approximately 16,000 employees based across India, Southern Africa and Euro pe Manufacturing facilities: Apollo?s largest unit is in Limda, in the western Indian state of Gu jarat. Two other units are located in the southern Indian rubber?producing state of Kerala, and the latest next generation plant is near Chennai, Tamil Nadu.These 4 have a combined production capacity of 1250 tonnes a day. In South Africa, th e Ladysmith and Durban plants account for 180 tonnes, and the Enschede plant in the Netherl ands adds another 180 tonnes a day. Taking current production capacity to around 1600 metri c tonnes a day Product portfolio: The entire range of passenger car, SUV, MUV, light truck, truck?bus, agri culture, industrial, specialty, bicycle and off?the?road tyres; retreading material and tyres Brands: Apollo, Dunlop (32 countries in Africa) and Vredestein are the three key brands. Ot hers are Kaizen (truck?bus tyres), Maloya (passenger car) DuraTyres (retreaded tyres) and Du raTread (retreading material) Key markets of operation: India is the largest market accounting for 67% of revenues, Euro pe 23% and South Africa 10%, exporting to 100+ countries from India, Europe and South Afr ica Sales channels: In each of the domestic markets the company operates through a vast networ k of branded, exclusive and multi?product outlets. Management Board: Onkar S Kanwar, Chairman and Managing Director Neeraj Kanwar, Vice Chairman and Managing Director Luis C Ceneviz, Chief, Africa Operations Gaurav Kumar, Group Head, Corporate Strategy & Finance Tapan Mitra, Chief, Human Resources P K Mohamed, Chief Advisor, Research & Development
Rob Oudshoorn, Chief, Europe Operations Kaushik Roy, Group Head, Corporate Purchase Sunam Sarkar, Chief Financial Officer Satish Sharma, Chief, India Operations As of: July 2012 Location: Corporate Headquarters: Apollo House 7 Institutional Area Sector 32, Gurgaon 122001 Haryana, India T: +91 124 2721000
Registeres Head Office: Apollo Tyres Ltd VI Floor, Cherupushpam Building Shanmugham Road Kochi 682031 Kerala, India T: +91 484 2381902 to 3
Financial performance of the company in FY12 (Rs. In crores) : Sales: 8,906.54 Net profit: 181.33 Segment wise performance: Segmental Details YoY (Rs Mn) 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 (%) QoQ (%)
Europe Net Sales Results Margins (%) Capital Employed ROCE (%) South Africa Net Sales Results Margins (%) Capital Employed ROCE (%) India Net Sales Results Margins (%) Capital Employed ROCE (%) 17,616.0 19,608.0 18,449.0 20,932.0 22,590.0 28.2 1,244.0 7.1 1,157.0 5.9 816.0 4.4 1,211.0 5.8 1,804.0 8.0 45.0 92 bps 7.9 48.9 220 bps 3.2 3,539.0 122.0 3.5 4,328.0 2.8 2,800.0 51.0 1.8 4,260.0 1.2 3,023.0 26.0 0.9 4,049.0 0.7 3,832.0 3.0 0.1 3,941.0 0.1 3,394.0 112.0 3.3 3,688.0 3.0 4.1 191.4 -675 bps 14.8 11.4 6,230.0 373.0 6.0 7,231.0 5.2 6,035.0 589.0 9.8 7,771.0 7.6 7,492.0 795.0 10.6 8,720.0 9.1 8,197.0 1,290.0 15.7 9,591.0 13.4 6,774.0 1,190.0 17.6 8.7 218.9 1158 bps 17.4 7.7 184 bps 13.7
10,900.0 50.7 10.9
-323 bps 6.4
21,727.0 22,276.0 22,548.0 22,989.0 23,714.0 9.1 5.7 5.2 3.6 5.3 7.6
Product wise revenue segmentation suggested that while the truck-bus segment continues to be the major revenue earner, it is very slowly yielding space to passenger vehicle and light truck categories.
SWOT Analysis of the Company ? STRENGTHS Diversified market base across 3 continents has enabled it to reduce its dependence, and thereby, the inherent risks of banking on a single market, as compared to its Indian competitors. The presence of strong and established brands in the Company's portfolio, in each of its country operations, lends credence to its growth plans. The key brands are “Apollo” in India, “Dunlop” in South Africa and “Vredestein” in Europe. An extensive distribution network supporting Apollo Tyres' brands and products in all its 3 key operations. Continued leadership position in the commercial vehicle tyre segment in India, including price leadership in the cross ply segment. A leading position in the fast-growing passenger car tyre segment in India, reaching the #1 position in production and #2 in market share. Strong player in the ultra high performance (UHP) passenger car tyre segment in Europe, particularly in high margin winter tyres. Dynamic and progressive leadership. OPPORTUNITIES Apollo Tyres' enjoys an early mover advantage, with a large production capacity in the rapidly growing truckbus radial segment in India, well ahead of key competitors. Entry into truck-bus radial retreading segment in India, by further leveraging its leadership position in the commercial segment – this enables the Company to provide a complete solution to its customers ? WEAKNESSES Absence in the two-wheeler and three-wheeler tyre segment in India, which is large and continues to show good growth. Sub-optimal production facilities in terms of economic size in South Africa. Market dynamics and intense competition in some key markets do not allow passing on cost pressures as and when reasonably required.
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THREATS Potential growth slowdown in the Indian economy due to rising interest rates. Increased competition from global players like Michelin and Bridgestone as they enter the truck bus radial segment in India. Degrowth in the truck cross ply segment faster than anticipated. Extreme raw material price volatility and cost pressures.
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and thus, enhance its brand equity. Cultivating a sizable market for brand Apollo in Europe by capitalising on the existing European distribution network. This further improves brand recognition and enhances profitability. Increased sales of brand Vredestein tyres by providing competitive cost production base out of India and/or sourcing tyres from other players. Entry into the off-highway tyre segment in India. Introduction of truck-bus and offhighway tyres in Europe. Penetrating newer markets in Africa, including tapping into the potential of the Dunlop brand. Entry into high potential markets like South America, Australia and Eastern Europe
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Exposure to the South African market which continues to face both a country and currency risk. Economic downturn in Europe leading to decline in demand.
Strategies employed in the past 2 years R&D reorganization Apollo has been in the process of setting up passenger car R&D as a standalone business within Europe, both in terms of basic research, and the implementation [into products], industrialization part will be done by small groups at the various factories, but the research will be done at a separate center and should be operational soon at a new location in Enschede, the Netherlands, away from the factories. The idea is that people who are doing their ongoing [R&D] jobs should not get involved [in the factories] once the product has been conceived and tested. Apollo plans to develop PCR tires for all markets in the new center, which will be headed by the top management. Various projects have been initiated to tap into the latest technology and research trend. These include reduction of cycle time in all operations, optimisation of components in the tyres, and standardisation of materials and processes. New technological approaches and computing capabilities have also been tried to improve productivity and quality in manufacturing processes like mixing, extrusion, calendaring, building and curing. While some projects are underway to understand the possibility of using more of synthetic rubber and eco-friendly raw materials for manufacturing.
Besides the two main division, smaller teams across key markets will work on customising each global product to market requirements and testing under local conditions, he added. This structure allows for a sharper focus on basic research, increased usage of alternative raw materials and market-led product performance. Investments Onkar Kanwar recently inaugurated a new state-of-the-art component preparation unit at Apollo?s Ladysmith tire manufacturing facility in South Africa. This 6,500m sq.unit, with a potential for further expansion to facilitate future growth, has been installed with an investment of US$35 million, and has a new calendering machine and triplex extrusion line. The management feels that South Africa has enormous potential. The new unit will remove capacity bottlenecks and further improve quality and productivity, while enabling capacity expansion. The unit will feed both the Durban and Ladysmith factories, thereby increasing the commercial vehicle tire capacity of Durban by 20%, and the Ladysmith passenger vehicle and light truck tire capacity by 30% Expansion Strategies Riding on a strong demand from the replacement market, the Company in addition to opening 3 Vredestein Design stores - multi-brand outlets - in Belgium and Germany, also expanded its highly popular Quatrac 3 range of passenger vehicle tyres by introducing the revolutionary Quatrac Lite. Amongst the first few green all season tyres, Quatrac Lite, meets all the environmental regulations due to be implemented across the European Union in2012 and is focused on fuel efficiency. At the same time, the new Quatrac Lite meets the premium quality and safety standards for which Apollo Vredestein is acknowledged. Apollo Vredestein launched its largest ever mega billboard campaign to coincide with the opening of the Geneva Autosalon in March 2011. The billboards which featured theVredestein Sportrac 3-in an attempt to communicate to customers that Apollo Vredestein is not just a winter tyre specialist but also manufactures world-class summer tyres - were on view in 37 major European cities, stationed across prime locations with heavy traffic. While the participation in tyre and auto shows allowed Apollo Vredestein to interact with its key OE partners, suppliers and auto aficionados, promotional campaigns enabled it to create awareness amongst its customers in a refreshing and clutter-free fashion. Brand Promotion Keeping up with its innovative marketing practices, Apollo Vredestein also devised a strategic brand promotion called Premium Styling By Vredestein-a new concept focused on the Company's ultra high performance tyres. It is designed to attract the attention of car tuning and styling firms, who improve the performance and appearance of exclusive cars. Thus far, the Company has partnered with Carlsson and Arden Automobilbau GmbH, both recognised luxury car styling boutiques.
Hierarchical: At the corporate level, business unit level and functional or department level of the firm: ? Since the acquisition of the former Dunlop Tyre facilities in South Africa in 2006, Apollo has invested around 700 million rands ($85 million) towards upgrading machinery and increasing manufacturing efficiencies in both plants. Apollo Tyres leases 10,000 hectares in Laos for rubber plantation. With the domestic tyre industry facing a crisis due to the global shortage of natural rubber, Apollo Tyres Ltd has taken on lease about 10,000 hectares of land in Laos, in South-East Asia, for rubber plantation. The company will pump Rs 40 crore into its Perambra unit, in Chalakudy, and Premier Tyre facility, at nearby Kalamassery to be utilised for capacity augmentation at the Chennai plant, which manufacturers tyres for trucks and cars. The plant capacity would be enhanced to produce 6,000 tyres per day for trucks, compared to 3,000 at present, and 16,000 cars tyres per day, as against 8000 at present. On the industrial climate in Kerala, where Apollo declared a lockout some months ago at its Perambra unit, he said both plants are doing well. By and large, labour was good. But in Chennai and Gujarat, there was very a different environment, he said. Human Resource at Apollo is guided by its vision to be a strategic partner to the business and create value for the organisation by developing human capital. Programmes geared to nurture global leaders like the Enhanced and Advanced Leadership Development continue to enrol a larger number of promising employees, giving them exposure and learning opportunities in some of the best institutes in the world. Apollo Vredestein has been also chosen as the Best Business Education Employer in the Twente region of the Netherlands. The award was in recognition of the integrated education policy of the Company. Apollo South Africa continued with its Care and Growth Leadership Development process, by which practical skills around people management for day-to-day requirements are taught. Recognition programmes like Roll of Honour were held in India and South Africa. Long Service Employees were also recognised and rewarded by South Africa. The Performance And Career Enhancement (PACE) module and online software has been redeveloped to suit the organisation's global growth needs, and operations have been moved to SAP to enable a uniform approach to performance management. This year both India and South Africa hired a fresh batch of Graduate Engineer Trainees(GET) from various leading engineering colleges. As is the norm, the GETs will undergo a year-long training programme to expose them to the various facets of tyre development, post which they are assigned to their department of choice. Chennai, Apollo's newest plant produced its millionth passenger vehicle tyre and is well on its way to becoming a leading top-notch facility. With the leanest structure of four levels, the plant is setting a benchmark trend in aspects of culture, transparency,
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empowerment, quicker decision making and of course automation. The Chennai plant ushers in a new era in manufacturing at Apollo Tyres. The Perambra plant was in a lock-out for part of the 1st & 2nd quarters of FY11.However, after successful settlements with the Union, the plant has resumed smooth and uninterrupted operations. The Kalamassery plant was also successful in signing a proactive settlement with the Unions. The total unionised strength of both plants is around 3000.This year, Apollo South Africa also concluded its 2010 wage negotiations early in the year, but unfortunately not without a lengthy strike. The agreement reached, is valid for3 years and during this time, the Company will engage with the Unions on various productivity improvement initiatives. Apollo Tyres South Africa has also actively concentrated on improving its previous year's score on the BBBEE Score Card (Broad Based Black Economic Empowerment Act). Apollo Tyres South Africa has now moved up to a Level 6status in the Codes of Good Practice. Apollo Vredestein has 3 employee Unions, management holds 2 meetings every year with Union representatives to brief them about the operational performance of the Company and future plans. Wage negotiations take place once a year. The Company has a Works Council, which is involved in the operations and plans. There are meetings between Management and Works Council on different business topics. The relationships between Management, Unions and Works Council have been constructive and cordial.
Business Division – Products, Divisions and Market: ? For a burgeoning Indian automobile market, Apollo Tyres introduced a slew of new products and sizes. The Company emerged to be the leading producer in the passenger vehicle tyre category, with the simultaneous release of Aspire and Acelere Maxx ranges, especially for A3+segments in India and Europe. A new 17 inch size was added to the Hawkzrange, making it the ideal choice for premium sports utility vehicles. In the commercial vehicle segment, the Company further fortified its dominance by introducing the Enduracerange of radial tyres, which was confirmed by the Automotive Research Association of India as being the most fuel efficient radial tyres in the category. The agriculture segment was boosted with the launch of Krishak Gold cross ply tyres meant for hard soil applications. Simultaneously, with OEM demand growing to 1.2 million tyres per month, the Company's India Operations, which has always worked in close collaboration with its OE partners, expanded and intensified its OE presence in FY11. Apollo now dominates the OEM business with presence in more than 34 leading car models like Volkswagen Polo, Mahindra Scorpio and Xylo, Maruti Suzuki SX4 and Fiat Linea.
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Regional: Strategies devised as per regions, geographies, etc. ? The Enhanced Leadership Programme went cross-geography this year, with participants from Apollo India, Apollo South Africa and Apollo Vredestein. In the area of manufacturing expertise, Apollo India launched its programme on manufacturing excellence with NITIE, while Apollo Vredestein concentrated its
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programmes on Operator Training - with each operator on the shop floor mandatorily going through a 3 to 5 year programme. Meanwhile, global commercial vehicle tire development will be led by P. K. Mohamed and based on the campus as the Chennai factory. In both cases, smaller teams in key markets will work on customizing global products to market requirements and testing under local conditions, backed by the increased spending on R&D that Apollo has pledged in recent weeks. The new R&D setup could also lead to business with the vehicle OEMs in Europe. Apollo already supplies tires to a number of manufacturers – domestic and foreign – who build and sell cars in India; now some of those relationships could be going global. Apollos are also being tested by BMW, Mercedes-Benz, and Toyota. The management feels that their work in Europe dates back to long before they took over Vredestein. In the past they have had collaborations with Michelin and Continental, so they always had a vision that this is their growth market. Even though it?s a very crowded market, they believe that once they have good acceptance from the replacement sector, there is no reason why they shouldn?t be able to go with the OEMs, because they already have great relationships with them in India.
doc_836083892.docx
It describes about tyre Industry Trends, PEST Analysis of tyre Industry, Competitor Analysis of Indian tyre industry, SWOT analysis of Tyre industry, Company Description, General Information Apollo tyres, it's Finance performance, SWOT analysis of Apollo tyres and Various Strategies employed.
TYRE INDUSTRY ANALYSIS Industry Analysis:
Indian Tyre Industry
Commercial Vehicles
Passenger Vehicles
Others
Light Commercial Vehicle (LCV)
Heavy Commercial Vehicle (HCV)
Manual Heat Control Valve (MHCV)
Cars
Motor Cycles
Farm Vehicle
OTR
Industrial Vehicle
An Overview of the Indian Tyre Industry (FY 2010-11) (Source : ATMA) ? ? ? ? ? ? ? Total No. of Tyre Companies : 39 Total No. of Tyre plants : 60 Industry Concentration : 10 Large Tyre companies account for over 90% of Tyre Production (in value & tonnage terms) Industry Turnover* : Rs. 30,000 Crores Production : 14.88 lakh tonnes Value of Tyre Exports* : Rs.3,700 Crores Value of Tyre Imports* : Rs.1780 Crores *estimated
Trends in Tyre Production, Exports and Imports: (2010-11 over 2010-09) ? ? ? Growth in Overall Production: 22% increase Growth in Exports: 22% increase Growth in Imports: 48% increase
Categorywise Tyre Production 2010-11
Light Commercial Vehicle Tractors OTR & Industrial Trucks & Bus
Top Players in the Industry: 1) MRF India Ltd. 2) Apollo Tyres Ltd. 3) JK Tyres & Industries Ltd. 4) CEAT Ltd. 5) Balkrishna Industries Ltd. 6) Goodyear India Ltd. 7) TVS Srichakra Ltd. 8) Falcon Tyres Ltd. 9) Kesoram Industries Ltd. (Birla Tyres) 10) Bridgestone India Ltd. Market share as per Volume: Truck & Bus Company Market Share JK Tyre 22% MRF 21% Apollo 21% In News – Tyre Industry There is a marked shift in the performance of the tyre industry in 2011-12, as its overall net profit has become negative. As against a total net profit of Rs 584.63 crore of the leading eight companies put together in 2010-11, the corresponding figure in the FY12 is Rs 39 crores, according to the Automotive Tyre Manufacturers Association (ATMA). The net profit dropped by 107 per cent in the last financial year, compared to that of FY11. According to the consolidated figures of the ATMA, the books of MRF, the country's leading tyre company, recorded a steep rise in its profit at Rs 690.41 crore, but this includes an extraordinary item (amounting to Rs 404 crore) towards method of calculation of depreciation. If the extraordinary item is excluded, then the net profit of MRF works out to only Rs 286 crore. The overall industry profit, thus, is in the red. Even by taking the figure of MRF as Rs 690.41 crores, the total net profit dropped to Rs 364.83 crore in 2011-12. Interestingly, the net sales of the companies has increased 24 per cent from Rs 29,703.61 crore in 2010-11 to Rs 37,049.63 crore in 2011-12. The net profit as a percentage of net sales declined from 2 per cent to (-)0.1 per cent in the last financial year. For all tyre companies, except Birla, net sales have shown an increase varying from 4 to 50 per cent, while there has been a significant decline in the net profit across companies. Passenger Car Company Market Share Apollo 24% MRF 24% Bridgestone 19% Motor Cycle Company Market Share MRF 28% TVS Srichakra 23% Falcon 17%
In the case of Birla and Falcon, the drop in the net profit has been high -- for Birla it is ()215.6 per cent and Falcon (-)119.1 per cent. Only TVS has shown an increase in the net profit, though very marginal 1.5 per cent. The increase in net sales (turnover) can be attributed to higher production (in volume terms) as well as high input costs. The decline in the net profit, ATMA said, was solely attributed to significant increase in raw material costs. According to rating agency ICRA, the Indian tyre industry grew by 5.3% in terms of volumes despite economic slowdown and high input costs in 2011-12. The numbers reflect a decline in replacement demand in terms of volume, subdued OEM demand growth and a healthy export growth. Revenues of the tyre companies recorded a robust 28% growth largely on account of over 20% hike in realisations and the sharp depreciation in rupee which drove export revenues by 46%. The year 2011-12 started on a challenging note for tyre companies as natural rubber prices peaked at around Rs 240 per kg. The situation, however, improved shortly with natural rubber prices easing to around Rs 195 per kg by November 2011 and stabilising at around Rs 185-200 per kg since then. Synthetic rubber prices however continued upward, increasing by 30-45% last year. Despite weak demand in the price-conscious replacement markets, tyre manufacturers were forced to push through multiple price hikes of over 20%. Inability to completely neutralise cost escalations resulted in contraction of operating margins of several players like MRF, Apollo, Goodyear and JK Tyres, by around 180 bps. Price hikes in the industry continued during the first quarter of 2012-13 in an attempt to neutralise the hike in cost of crude derivatives. ICRA expects the demand for tyres from the OEM segment to be relatively muted at 8-9% during 2012-13, despite anticipated revival in replacement volume, driven by vehicles, particularly truck and bus tyres, sold post the recessionary dip of 2009. Revenue growth for tyre companies is also expected to be supported by price revisions of around 5-8% and continued export thrust to SE Asian countries. Gloomy days are ahead for the rubber industry with a slump in production and consumption alike. The recent petrol price increase and a strike at the Maruti plant in Manesar may force tyre manufacturers to trim production, though improved tyre exports due to the depreciation of rupee may bring a slight relief. Generally, demand picks up from mid-September with rubber production entering the peak phase. But this year, the situation is anything but optimistic. "At this rate, the financials of tyre companies may take a knock. Companies cou-ld even think of slashing production," said Rajiv Budhraja, director general of Automotive Tyre Manufacturers' Association.
Future of Tyre Industry in India: The domestic tyre industry has lined up investments worth over Rs 10,000 crore between now August 2013. The additional investment is in 19 tyre projects targeted for completion this year. A major chunk of the projects are coming up in Gujarat, Tamil Nadu and Maharastra. Industry experts say that post-2013, with the stabilisation of these projects and the availability of incremental domestic radial capacities, the dependence on Chinese imports would reduce. “Despite the worrying macroeconomic indicators and a general slowdown in domestic automotive sales, the Indian tyre industry continued to post a healthy 25-30 per cent revenue growth during the first quarter of 2011-12 supported by strong replacement and export demand," said a report prepared by ICRA. Domestic OEM demand growth was also healthy at around 15-20 per cent, albeit weaker than in the previous fiscal. However continued cost pressure from high cost NR inventory led to a 300-350 bps operating margin erosion, both on a year-on-year (y-o-y) and sequential quarter basis, the report said. Besides grappling with high input costs and weak demand, domestic players are expected to face additional pressure with the lifting of anti dumping duty (ADD) (with effect from August 2011) on Truck and Bus radials (TBRs) imported from China and Thailand. While this move is expected to be contested by the industry players, the lifting of ADD makes the imported TBRs cheaper by 15-20 per cent, limiting domestic demand and pricing power. The domestic tyre industry has been in an investment mode during the last few years with almost all participants adding significant capacities. Of this, bulk of investments are expected in fiscal 2011-12 with 19 tyre projects targeted for completion this year. The industry has already witnessed an addition of 17.7 lakhs tyres from JK tyre, Metro Tyres Limited (Metro tyres) and Bridgestone India Private Limited during the first quarter of fiscal 2011-12. Other major projects scheduled for completion during the current year include JK Tyres, MRF Limited, Falcon Tyre Limited, and Metro tyres, with most of the capacity additions being towards radial capacities. The investments are as follows: Apollo Tyres investing Rs 2,300 crores in Tamil Nadu and Gujarat, Balakrishna Industries investing Rs 1,400 crore in Gujarat and Maharastra, Bridgestone is investing Rs 3,210 crore in Pune and Pithampur, Ceat is investing Rs 340 crore in Maharastra, Dunlop is investing Rs 450 crore in Assam, Falcon Tyres Rs 570 crore in Uttharkhad and JK Tyres investing Rs 1,815 crores in Tamil Nadu and Karnataka. Michelin group is investing Rs 4,000 crores investments at Chennai, which is spread over a period of seven years.
PEST Analysis: ? Political factors
While the Customs Duty rate on tyres and the peak rate of Customs Duty on all non agricultural products were progressively reduced in the Union Budgets during the last few years, in the case of Natural Rubber the rate of 20% Customs Duty has remained unchanged for over a decade. This has resulted in a serious anomaly of Customs Duty on raw-material (Natural Rubber@20%) being higher than the Customs Duty on finished product (Tyres @10%). FICCI in its pre-budget memorandum has said that it is imperative that customs duty of principal raw material of tyre industry i.e. Natural Rubber is revisited and reduced from 20% to a suggested level of 7.5% to make duty paid imports viable. Or else, increase in Customs Duty on tyres - from current 10% to suggested 20% to provide a level playing field to the domestic tyre industry vis-a-vis cheaper tyre imports. FICCI has also given the following recommendations for the tyre industry
> FICCI would request for waiver of Customs Duty on all raw materials not manufactured domestically. > Appropriate clarification be issued to the effect that tubes and flaps are "inputs" being "accessories" for tyres and thereby Rule 3(5) of the CENVAT Rules 2004 and Rule 16 of the Central Excise Rules 2002 are not applicable being revenue neutral. > To overcome problem with respect to exports of tubes / flaps, it is suggested to include 'Tyre Manufacturer' as a class of Exporters under Rule 20 of Central Excise Rules to allow them procure tubes and flaps without payment of duty for exports. Year Peak rate on Non Agriculture goods 50% 10% On Tyres On Natural Rubber 20% 20%
1996-97 2010-11
50% 10%
> The following key raw materials of tyre industry are NOT manufactured domestically: HS Code Raw Material (s) Estimated Consumption - Tyre Sector FY 2009-10 (MT/ p.a.) 4002 3100 Butyl Rubber 36000 5% Existing Customs Duty
4002 70 00 4002 19 00
EPDM
3500
10% 10%
Styrene Butadiene 101000 Rubber (Tyre Grades)
> Tyre Industry is raw-material intensive. Raw material cost accounts for approx. 62% of tyre industry turnover and 70% of the production cost. It would be appropriate to reduce basic Customs Duty on following principal raw materials, where the domestic capacity / production is insufficient to meet the current / future domestic demand: S. No. 1. 2. 3. 4. 5 5902 10 10 4002 20 00 3812 10 00/30 10 7312 90 00 5902 20 00 Nylon Tyre Cord PBR Rubber Chemicals Steel Tyre Cord Polyester Tyre Cord HS Code Raw-Material(s) Existing Proposed
Customs Duty (%) 10% 10% 7.5% 10% 5% 5% 5% 2.5% 5% Nil
The tyre industry has asked for duty free import of one lakh tonnes of natural rubber to bridge the gap between domestic production and consumption, in the pre-budget memorandum. Autmotive Tyre Manufacturers Association (ATMA) has also asked for waiver of customs duty on those raw materials that have no domestic production. These include butyle rubber, SBR (tyre grade), EPDM and polyester tyre cord. ATMA chairman Neeraj Kanwar said the tyre industry has passed through an extremely difficult phase of continuous increase in prices of rubber and other key raw materials. Since raw materials account for 70 % of industry turnover, the input cost pressure has resulted in severe erosion of net margins of tyre industry. According to Kanwar, the tyre industry has pumped in an investment of over Rs 12,000 crore. All large tyre companies have made substantial investments for new projects and expansion primarily in radial truck and passenger car tyres. Tyre companies are yet to buy a large chunk of 40,000 tonne of rubber, the import of which has been sanctioned by the government. But imports look difficult now as international price trends are not favourable. According to Budhraja, it would have been viable if the companies had shipped the material in March.
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Economic factors
The Demand Cycle of the Tyre Industry
Growing Economy Increase in level of income Increase in Income for disposal Increase in demand of freight movement Increase in Commercial Vehicle Demand Increase in Tyres Demand from OEMs Creates Tyr replacement demand after 12-18 months Increase in tyre sales
Creates Replacement demand for Tyres Increase in wear & tear of tyres
Increase in demand for passenger cars tyres
Demand for Replacement in 24 to 48 months
There is a hike in the tyre prices due to the devaluation in rupee. Around 15 % decline in rupee in the month of May and June has put pressure on the margins of tyre companies as the raw material costs have gone up. Growth in M&HCV replacement demand is affected by a slower economic growth. Since there is a slowdown in demand the tyre giants are evaluating how much of the increase in cost can be passed on to the customers. Raw materials comprise almost 85 % of the cost of the tyre and with the devaluation of rupee, the import cost has gone up. The tyre makers are still importing rubber, a key raw material, as it is cheaper. The OE tyre market is sluggish while the replacement tyre market is stable. The car sales are expected to pick up in the second half of the year provided the interest rates come down. In the current situation exports have become viable for the tyre companies. The economic turmoil in Europe has not affected exports as the region is not a big buyer. Indian exports are made to South America and Africa for exports in a big way, The number of steel wheel outlets of JK Tyres, which provide total car solutions to the customer, in the country will be raised from 131 to 200 by next year. A drop in passenger car sales is forcing tyre makers to trim production or step up export to keep the inventory in check. Automobile companies have reported poor sales in the current quarter and there is speculation that demand will remain flat in the coming months with a soaring fuel bill and a rise in interest rates.
There is a strong possibility of a cut in tyre production if vehicle sales continue to be negative. Several car companies have already cut output due to a weak demand. Tyre production went up by 5% in 2011-12 with passenger car tyres showing a 4% growth. Sales in April were okay but have declined in May and June. While OEMs have scaled down their operations, the replacement tyre market hasn't shown significant buoyancy. To avoid a cut in production, companies will consider raising the exports as the rupee-dollar rate favours shipments. Apollo Tyres, which is not trimming production, is planning to export more. "Our units will continue to produce at near 100% capacity and we would utilise the extra capacity to service the demands of the replacement and export markets where we are unable to meet the requirements due to capacity constraints," said Satish Sharma, chief of India Operations, Apollo Tyres. The company, having a focussed export strategy, clocked a 60% growth in exports in the last fiscal. Vikram Malhotra, vice president, marketing and sales of JK Tyres, said: "We think exports will provide us a window of opportunity to deal with excess production due to a sluggish demand in the domestic market." Rajiv Budhraja says the export strategy may work as tyre companies are not dependent on Europe, which is facing a debt crisis. Domestic tyre industry has witnessed a remarkable recovery in FY10 and FY11, after a slowdown in FY09. This growth was driven by strong revival in automobile demand on the back of resurgence in economy, rise in employment levels, and easing of interest rate scenario. The concerns about slowdown in the growth levels in new automobile sales would dampen the demand from OEMs in the short term. However, strong growth in automobile sales in last 7-8 years barring the slowdown of FY09, have resulted in significant expansion of vehicle population that would transform in healthy replacement demand for tyres in medium to long term period. The tyre industry is on a brink of a major structural change. T&B which is a dominant segment in terms of tonnage is witnessing a gradual rise in the proportion of radial tyres. Going by the global trend it seems that the radial tyre demand in India is at inflection point and with almost 98 per cent of the passenger car tyre production has been radialised, T&B tyre category is the next major category to witness spurt in the demand for radial tyres. And with improvement in road infrastructure and better cost economics the proportion of radial tyres in T&B category is expected to expand by around seven times from the current levels. Sighting this opportunity, almost all the expansion plans for T&B category tyres are for radial category tyres. The sovereign debt crisis in Europe and lower offtake by China have kept the global rubber prices depressed. In Indian market, the future contracts are showing a bearish phase. A weaker rupee may provide some relief as it will help boost tyre exports. Total rubber exports have risen around 180% to 12,219 tonne for the five-month period ended August 2011. With international price remaining Rs 7 higher at Rs 225 per kg, rupee depreciation is expected to accelerate the trend.
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Social factors
Explosion in the number of nuclear families: As the joint-family system crumbles and the number of nuclear families explode, more samll families seem to be demanding a two/four wheeler for themselves. This ahs directly resulted in higher sales of tyres in the past decade. Higher car density per family: The number of upper-class and upper-middle class families is more than one car per family, seems to be increasing expotentially. This is especially true in cities where Brand Strategy Analysis working couple find it difficult to survive without more than one car for transportation. With higher disposable incomes, these families are finallyu able to afford this need. Shifting Savings to EMI culture: Another notable trend that seems to be fuellingcar sales (and therefore tyre sales) is the shift in the middle-class consumer saving habbits. The Indian middle-class family has long been known for its saving frenzy. But with a younger workforce, higher disposable incomes, lower unemployment and the influence of globalization, the average Indian middle-class family is slowly warming up the idea of EMI and buying on credit. This has helped in furthering the sales of passenger cars significantly. Rubber has helped the farmers to get a steady income, and they are able to get good money for their produce almost throughout the year. Rubber has certainly helped in giving the people a sustainable income, the best part about rubber is that it can yield almost throughout the year, only except for a brief gap in summer and here in winter. So, that gives a steady income to the farmer and prices now are good. If the economic growth improves, then consumption of rubber will also go up. Products and services embossed with ISO certification give confidence to consumers, the manufacturers and exporters to comply fully with the prescribed standards. National standards play a vital role in the present era of World Trade Organisation (WTO). India, which is a signatory to the WTO Agreement on Technical Barriers to Trade, should harmonise Indian standards, wherever feasible, with global standards. The international standards gives manufacturers, confidence to reach out to the global markets with the knowledge that their products will compete globally and users can be confident and assured of the uniformity in the quality. Bureau of Indian Standards (BIS), the national standards body, has so far formulated over 18,600 Indian standards in accordance with the needs and priorities of the country. ? Technical factors
The Indian tyre market has attracted global manufacturers on account of encouraging growth figures. These manufacturers are expected to invest huge amounts into the industry over the next few years, with a major proportion of this investment directed towards the Truck & Bus (T&B) radial tyre capacity expansion. As per the study, several “Greenfield” plants are in pipeline to include new capacities. The implementation of brown-field projects is executed to cater to the growing demand. Greenfield units are expected to go on-stream in the coming
years, just by the time when there will be an urgent need to bridge an increasing demandsupply gap in T&B radial tyre segment. India is known to be an appetizer of invention and implements new technologies and products, and tyre industry is no exception to this. The concept of „green tyres? is becoming a paradigm of the country?s competitive edge. This new category of tyres is now being widely accepted in India, and it is expected that in the coming years, the demand for green tyres will outperform the overall passenger tyre demand in the country. India?s market for radial tyres in commercial vehicles section is still an infant. The passenger car segment switched to radial tyres in a short period of time, with radial tyre penetration level for the category reaching 98%. Besides, the penetration level of radial tyre has also started to increase rapidly in the light commercial vehicles and truck & bus segment. This segment will be the largest growth area over the next few years.
Competitor Analysis: Top 4 Leading Market players: MRF 1 24% Apollo Tyres 2 22% JK Tyres 3 17% CEAT 4 14%
Rank Market share (in terms of revenue) Highlights
? Leadership presence ? Strong brand recall ? High Quality ? Price-maker status ? 19% share in T&B segment (largest segment in tyre industry)
? Largest 22% player, 82% product mix in T&B ? 80% of revenue from replacement market where EBITDA margins are higher, hence their operating levels are better ? Strong brand recall
? Ranks first in MHCV (product mix 79%) and passenger car tyres (7%) ? Export accounts for 17% of gross sales
? MHCV product mix is 68%and passenger car tyres (7%) ? 60% of revenue from replacement market
Current Stock Price Comparison (22.07.2012)
Current Company Price Apollo Ceat Ltd. JK Tyre MRF Ltd.
Change (%Chg)
83.05 0.15 (0.18%) 101 1.10 (1.10%) 94.85 -1.95 (-2.01%) -46.10 (10059.85 0.45%)
TODAY Low / High 82.30 / 83.70 98.60 / 102.35 94.10 / 96.00 10,007.35 / 10,195.70
52 WEEK Low / High 50.80 / 95.00 66.20 / 114.30 53.50 / 110.00 6,200.00 / 11,570.00
Volume
EPS PE 3.6 2.2 2.68 1460.5
141190 23.1 50525 45.9 19564 35.4 1081 6.89
SWOT Analysis of Tyre Industry: ? ? STRENGTHS Establishes brand names (key in the replacement market) Extensive distribution networks – For example, Apollo Tyres 118 district offices, 12 distribution centres and 4,250 dealers Good R&D initiatives by top players ? WEAKNESSES Cost Pressures – The profitability of the industry has high correlation with the prices of key raw materials such as rubber and crude oil, as they account for more than 70% of the total costs. Pricing pressures – The huge raw material cost have resulted in pressure on the realisations and hence, the players have been vouching to increase the prices, although due to competitive pressures, they have not been able to pass the entire increase to the customer. Highly Capital Intensive – It requires upto Rs. 4 billion to set up a radial tyre plant with a capacity of 1.5 million tyres and Rs.1.5-2 billion for a cross-ply tyre of 1.5 million manufacturing capacity THREATS Continuous increase in the prices of rubber which accounts for one third on the cost of raw materials Cheaper imports from China selling at very low prices have been posing a challenge. Landed price is approximately 25% lower than the corresponding Indian truck/LCV tyres. Imports from China, now consists around 5% of the market share. With crude prices scaling up, hike in raw material cost is expected. Ban on overloading leading to lesser wear and tear of tyres and subsequent slowdown in replacement demand. However, this would only be shortterm negative. Cyclical nature of automobile
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OPPORTUNITIES Growing Economy ? Growing Automobile Industry ? Increase in OEM demand ? Subsequent rise in Replacement demand With continuous emphasis being placed on the Central Government on development of infrastructure particularly roads, agriculture and manufacturing sectors, the Indian economy and automobile sectors/tyre industry are poised for an impressive growth. Creation of roads has given and will increasingly give a tremendous fillip to the road transportation in the coming years, The tyre industry will play a major role in this road infrastructure changing dynamics. Access to global resources of raw
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material due to economies of scale Steady increase in radial tyres for MHCV, LCV
industry.
APOLLO TYRES LIMITED About the Company Business: Manufacture and sale of automotive tyres Established in :1976 Shareholding: Traded in India on the Bombay, National and Kochi Stock Exchanges, with 5 3% shares held by the public, government entities, banks and financial institutions. (March 31 , 2012) Shareholding pattern: Holder's Name Promoters Foreign Institutions NBanks Mutual Funds General Public Other Companies Central Govt Foreign NRI Financial Institutions Foreign Promoter Others Foreign Ocb Foreign Industries No of Shares 23,45,94,242 11,36,38,289 5,50,85,958 4,48,94,779 3,80,22,151 1,00,00,000 26,26,201 22,77,850 19,77,000 9,03,800 3,500 1,000 % Share Holding 46.54% 22.55% 10.93% 8.91% 7.54% 1.98% 0.52% 0.45% 0.39% 0.18% 0.00% 0.00%
Turnover: FY12 Rs 121.5 billion/ US$ 2.5 billion/ Euro 1.8 billion (March 31, 2012, exchan ge rates) Topline trend: CAGR of 20% for the last 5 years
Acquired entities: In May 2009, Apollo acquired Apollo Vredestein BV (originally Vredeste in Banden BV) in the Netherlands, producer of niche high end passenger car and specialty tyr es with a manufacturing facility in Enschede and an extensive distribution network across Eur ope. In April 2006, Apollo Tyres acquired Apollo Tyres South Africa (Pty) Ltd (originally D unlop Tyres International (Pty) Ltd), manufacturer of tyres across automotive segments, with brand rights to 32 African countries, 3 tyre manufacturing units and a retreading unit in South Africa and Zimbabwe Manpower: Approximately 16,000 employees based across India, Southern Africa and Euro pe Manufacturing facilities: Apollo?s largest unit is in Limda, in the western Indian state of Gu jarat. Two other units are located in the southern Indian rubber?producing state of Kerala, and the latest next generation plant is near Chennai, Tamil Nadu.These 4 have a combined production capacity of 1250 tonnes a day. In South Africa, th e Ladysmith and Durban plants account for 180 tonnes, and the Enschede plant in the Netherl ands adds another 180 tonnes a day. Taking current production capacity to around 1600 metri c tonnes a day Product portfolio: The entire range of passenger car, SUV, MUV, light truck, truck?bus, agri culture, industrial, specialty, bicycle and off?the?road tyres; retreading material and tyres Brands: Apollo, Dunlop (32 countries in Africa) and Vredestein are the three key brands. Ot hers are Kaizen (truck?bus tyres), Maloya (passenger car) DuraTyres (retreaded tyres) and Du raTread (retreading material) Key markets of operation: India is the largest market accounting for 67% of revenues, Euro pe 23% and South Africa 10%, exporting to 100+ countries from India, Europe and South Afr ica Sales channels: In each of the domestic markets the company operates through a vast networ k of branded, exclusive and multi?product outlets. Management Board: Onkar S Kanwar, Chairman and Managing Director Neeraj Kanwar, Vice Chairman and Managing Director Luis C Ceneviz, Chief, Africa Operations Gaurav Kumar, Group Head, Corporate Strategy & Finance Tapan Mitra, Chief, Human Resources P K Mohamed, Chief Advisor, Research & Development
Rob Oudshoorn, Chief, Europe Operations Kaushik Roy, Group Head, Corporate Purchase Sunam Sarkar, Chief Financial Officer Satish Sharma, Chief, India Operations As of: July 2012 Location: Corporate Headquarters: Apollo House 7 Institutional Area Sector 32, Gurgaon 122001 Haryana, India T: +91 124 2721000
Registeres Head Office: Apollo Tyres Ltd VI Floor, Cherupushpam Building Shanmugham Road Kochi 682031 Kerala, India T: +91 484 2381902 to 3
Financial performance of the company in FY12 (Rs. In crores) : Sales: 8,906.54 Net profit: 181.33 Segment wise performance: Segmental Details YoY (Rs Mn) 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 (%) QoQ (%)
Europe Net Sales Results Margins (%) Capital Employed ROCE (%) South Africa Net Sales Results Margins (%) Capital Employed ROCE (%) India Net Sales Results Margins (%) Capital Employed ROCE (%) 17,616.0 19,608.0 18,449.0 20,932.0 22,590.0 28.2 1,244.0 7.1 1,157.0 5.9 816.0 4.4 1,211.0 5.8 1,804.0 8.0 45.0 92 bps 7.9 48.9 220 bps 3.2 3,539.0 122.0 3.5 4,328.0 2.8 2,800.0 51.0 1.8 4,260.0 1.2 3,023.0 26.0 0.9 4,049.0 0.7 3,832.0 3.0 0.1 3,941.0 0.1 3,394.0 112.0 3.3 3,688.0 3.0 4.1 191.4 -675 bps 14.8 11.4 6,230.0 373.0 6.0 7,231.0 5.2 6,035.0 589.0 9.8 7,771.0 7.6 7,492.0 795.0 10.6 8,720.0 9.1 8,197.0 1,290.0 15.7 9,591.0 13.4 6,774.0 1,190.0 17.6 8.7 218.9 1158 bps 17.4 7.7 184 bps 13.7
10,900.0 50.7 10.9
-323 bps 6.4
21,727.0 22,276.0 22,548.0 22,989.0 23,714.0 9.1 5.7 5.2 3.6 5.3 7.6
Product wise revenue segmentation suggested that while the truck-bus segment continues to be the major revenue earner, it is very slowly yielding space to passenger vehicle and light truck categories.
SWOT Analysis of the Company ? STRENGTHS Diversified market base across 3 continents has enabled it to reduce its dependence, and thereby, the inherent risks of banking on a single market, as compared to its Indian competitors. The presence of strong and established brands in the Company's portfolio, in each of its country operations, lends credence to its growth plans. The key brands are “Apollo” in India, “Dunlop” in South Africa and “Vredestein” in Europe. An extensive distribution network supporting Apollo Tyres' brands and products in all its 3 key operations. Continued leadership position in the commercial vehicle tyre segment in India, including price leadership in the cross ply segment. A leading position in the fast-growing passenger car tyre segment in India, reaching the #1 position in production and #2 in market share. Strong player in the ultra high performance (UHP) passenger car tyre segment in Europe, particularly in high margin winter tyres. Dynamic and progressive leadership. OPPORTUNITIES Apollo Tyres' enjoys an early mover advantage, with a large production capacity in the rapidly growing truckbus radial segment in India, well ahead of key competitors. Entry into truck-bus radial retreading segment in India, by further leveraging its leadership position in the commercial segment – this enables the Company to provide a complete solution to its customers ? WEAKNESSES Absence in the two-wheeler and three-wheeler tyre segment in India, which is large and continues to show good growth. Sub-optimal production facilities in terms of economic size in South Africa. Market dynamics and intense competition in some key markets do not allow passing on cost pressures as and when reasonably required.
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THREATS Potential growth slowdown in the Indian economy due to rising interest rates. Increased competition from global players like Michelin and Bridgestone as they enter the truck bus radial segment in India. Degrowth in the truck cross ply segment faster than anticipated. Extreme raw material price volatility and cost pressures.
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and thus, enhance its brand equity. Cultivating a sizable market for brand Apollo in Europe by capitalising on the existing European distribution network. This further improves brand recognition and enhances profitability. Increased sales of brand Vredestein tyres by providing competitive cost production base out of India and/or sourcing tyres from other players. Entry into the off-highway tyre segment in India. Introduction of truck-bus and offhighway tyres in Europe. Penetrating newer markets in Africa, including tapping into the potential of the Dunlop brand. Entry into high potential markets like South America, Australia and Eastern Europe
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Exposure to the South African market which continues to face both a country and currency risk. Economic downturn in Europe leading to decline in demand.
Strategies employed in the past 2 years R&D reorganization Apollo has been in the process of setting up passenger car R&D as a standalone business within Europe, both in terms of basic research, and the implementation [into products], industrialization part will be done by small groups at the various factories, but the research will be done at a separate center and should be operational soon at a new location in Enschede, the Netherlands, away from the factories. The idea is that people who are doing their ongoing [R&D] jobs should not get involved [in the factories] once the product has been conceived and tested. Apollo plans to develop PCR tires for all markets in the new center, which will be headed by the top management. Various projects have been initiated to tap into the latest technology and research trend. These include reduction of cycle time in all operations, optimisation of components in the tyres, and standardisation of materials and processes. New technological approaches and computing capabilities have also been tried to improve productivity and quality in manufacturing processes like mixing, extrusion, calendaring, building and curing. While some projects are underway to understand the possibility of using more of synthetic rubber and eco-friendly raw materials for manufacturing.
Besides the two main division, smaller teams across key markets will work on customising each global product to market requirements and testing under local conditions, he added. This structure allows for a sharper focus on basic research, increased usage of alternative raw materials and market-led product performance. Investments Onkar Kanwar recently inaugurated a new state-of-the-art component preparation unit at Apollo?s Ladysmith tire manufacturing facility in South Africa. This 6,500m sq.unit, with a potential for further expansion to facilitate future growth, has been installed with an investment of US$35 million, and has a new calendering machine and triplex extrusion line. The management feels that South Africa has enormous potential. The new unit will remove capacity bottlenecks and further improve quality and productivity, while enabling capacity expansion. The unit will feed both the Durban and Ladysmith factories, thereby increasing the commercial vehicle tire capacity of Durban by 20%, and the Ladysmith passenger vehicle and light truck tire capacity by 30% Expansion Strategies Riding on a strong demand from the replacement market, the Company in addition to opening 3 Vredestein Design stores - multi-brand outlets - in Belgium and Germany, also expanded its highly popular Quatrac 3 range of passenger vehicle tyres by introducing the revolutionary Quatrac Lite. Amongst the first few green all season tyres, Quatrac Lite, meets all the environmental regulations due to be implemented across the European Union in2012 and is focused on fuel efficiency. At the same time, the new Quatrac Lite meets the premium quality and safety standards for which Apollo Vredestein is acknowledged. Apollo Vredestein launched its largest ever mega billboard campaign to coincide with the opening of the Geneva Autosalon in March 2011. The billboards which featured theVredestein Sportrac 3-in an attempt to communicate to customers that Apollo Vredestein is not just a winter tyre specialist but also manufactures world-class summer tyres - were on view in 37 major European cities, stationed across prime locations with heavy traffic. While the participation in tyre and auto shows allowed Apollo Vredestein to interact with its key OE partners, suppliers and auto aficionados, promotional campaigns enabled it to create awareness amongst its customers in a refreshing and clutter-free fashion. Brand Promotion Keeping up with its innovative marketing practices, Apollo Vredestein also devised a strategic brand promotion called Premium Styling By Vredestein-a new concept focused on the Company's ultra high performance tyres. It is designed to attract the attention of car tuning and styling firms, who improve the performance and appearance of exclusive cars. Thus far, the Company has partnered with Carlsson and Arden Automobilbau GmbH, both recognised luxury car styling boutiques.
Hierarchical: At the corporate level, business unit level and functional or department level of the firm: ? Since the acquisition of the former Dunlop Tyre facilities in South Africa in 2006, Apollo has invested around 700 million rands ($85 million) towards upgrading machinery and increasing manufacturing efficiencies in both plants. Apollo Tyres leases 10,000 hectares in Laos for rubber plantation. With the domestic tyre industry facing a crisis due to the global shortage of natural rubber, Apollo Tyres Ltd has taken on lease about 10,000 hectares of land in Laos, in South-East Asia, for rubber plantation. The company will pump Rs 40 crore into its Perambra unit, in Chalakudy, and Premier Tyre facility, at nearby Kalamassery to be utilised for capacity augmentation at the Chennai plant, which manufacturers tyres for trucks and cars. The plant capacity would be enhanced to produce 6,000 tyres per day for trucks, compared to 3,000 at present, and 16,000 cars tyres per day, as against 8000 at present. On the industrial climate in Kerala, where Apollo declared a lockout some months ago at its Perambra unit, he said both plants are doing well. By and large, labour was good. But in Chennai and Gujarat, there was very a different environment, he said. Human Resource at Apollo is guided by its vision to be a strategic partner to the business and create value for the organisation by developing human capital. Programmes geared to nurture global leaders like the Enhanced and Advanced Leadership Development continue to enrol a larger number of promising employees, giving them exposure and learning opportunities in some of the best institutes in the world. Apollo Vredestein has been also chosen as the Best Business Education Employer in the Twente region of the Netherlands. The award was in recognition of the integrated education policy of the Company. Apollo South Africa continued with its Care and Growth Leadership Development process, by which practical skills around people management for day-to-day requirements are taught. Recognition programmes like Roll of Honour were held in India and South Africa. Long Service Employees were also recognised and rewarded by South Africa. The Performance And Career Enhancement (PACE) module and online software has been redeveloped to suit the organisation's global growth needs, and operations have been moved to SAP to enable a uniform approach to performance management. This year both India and South Africa hired a fresh batch of Graduate Engineer Trainees(GET) from various leading engineering colleges. As is the norm, the GETs will undergo a year-long training programme to expose them to the various facets of tyre development, post which they are assigned to their department of choice. Chennai, Apollo's newest plant produced its millionth passenger vehicle tyre and is well on its way to becoming a leading top-notch facility. With the leanest structure of four levels, the plant is setting a benchmark trend in aspects of culture, transparency,
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empowerment, quicker decision making and of course automation. The Chennai plant ushers in a new era in manufacturing at Apollo Tyres. The Perambra plant was in a lock-out for part of the 1st & 2nd quarters of FY11.However, after successful settlements with the Union, the plant has resumed smooth and uninterrupted operations. The Kalamassery plant was also successful in signing a proactive settlement with the Unions. The total unionised strength of both plants is around 3000.This year, Apollo South Africa also concluded its 2010 wage negotiations early in the year, but unfortunately not without a lengthy strike. The agreement reached, is valid for3 years and during this time, the Company will engage with the Unions on various productivity improvement initiatives. Apollo Tyres South Africa has also actively concentrated on improving its previous year's score on the BBBEE Score Card (Broad Based Black Economic Empowerment Act). Apollo Tyres South Africa has now moved up to a Level 6status in the Codes of Good Practice. Apollo Vredestein has 3 employee Unions, management holds 2 meetings every year with Union representatives to brief them about the operational performance of the Company and future plans. Wage negotiations take place once a year. The Company has a Works Council, which is involved in the operations and plans. There are meetings between Management and Works Council on different business topics. The relationships between Management, Unions and Works Council have been constructive and cordial.
Business Division – Products, Divisions and Market: ? For a burgeoning Indian automobile market, Apollo Tyres introduced a slew of new products and sizes. The Company emerged to be the leading producer in the passenger vehicle tyre category, with the simultaneous release of Aspire and Acelere Maxx ranges, especially for A3+segments in India and Europe. A new 17 inch size was added to the Hawkzrange, making it the ideal choice for premium sports utility vehicles. In the commercial vehicle segment, the Company further fortified its dominance by introducing the Enduracerange of radial tyres, which was confirmed by the Automotive Research Association of India as being the most fuel efficient radial tyres in the category. The agriculture segment was boosted with the launch of Krishak Gold cross ply tyres meant for hard soil applications. Simultaneously, with OEM demand growing to 1.2 million tyres per month, the Company's India Operations, which has always worked in close collaboration with its OE partners, expanded and intensified its OE presence in FY11. Apollo now dominates the OEM business with presence in more than 34 leading car models like Volkswagen Polo, Mahindra Scorpio and Xylo, Maruti Suzuki SX4 and Fiat Linea.
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Regional: Strategies devised as per regions, geographies, etc. ? The Enhanced Leadership Programme went cross-geography this year, with participants from Apollo India, Apollo South Africa and Apollo Vredestein. In the area of manufacturing expertise, Apollo India launched its programme on manufacturing excellence with NITIE, while Apollo Vredestein concentrated its
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programmes on Operator Training - with each operator on the shop floor mandatorily going through a 3 to 5 year programme. Meanwhile, global commercial vehicle tire development will be led by P. K. Mohamed and based on the campus as the Chennai factory. In both cases, smaller teams in key markets will work on customizing global products to market requirements and testing under local conditions, backed by the increased spending on R&D that Apollo has pledged in recent weeks. The new R&D setup could also lead to business with the vehicle OEMs in Europe. Apollo already supplies tires to a number of manufacturers – domestic and foreign – who build and sell cars in India; now some of those relationships could be going global. Apollos are also being tested by BMW, Mercedes-Benz, and Toyota. The management feels that their work in Europe dates back to long before they took over Vredestein. In the past they have had collaborations with Michelin and Continental, so they always had a vision that this is their growth market. Even though it?s a very crowded market, they believe that once they have good acceptance from the replacement sector, there is no reason why they shouldn?t be able to go with the OEMs, because they already have great relationships with them in India.
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