Buyout in Germany to improve brand visibility: Onkar S Kanwar

Interview with Chairman, Apollo Tyres

Apollo Tyres’ recent acquisition of a tyre distributor in Germany will help Apollo and Vredestein brand tyres to be visible online as well as the offline retail space, says Apollo Tyres chairman Onkar S Kanwar in an e-mail interview with Ranju Sarkar. Excerpts:

How will the Reifencom buy improve your presence and margins in Europe?

Reifencom GmbH, one of the largest tyre distributors in Germany, will not only strengthen our sales and distribution presence in Europe, but will also help improve the visibility of Apollo and Vredestein brand tyres in online and offline retail space.

This will also prove to be a starting point for Apollo Tyres in terms of the e-commerce model of selling tyres. The margins in tyre distribution business are typically lower than our current business.

Will the current quarter be as bad as the last for European operations?

We were impacted in the last quarter due to maintenance-related break down and also due to the weak pick-up of winter tyres. While we do not provide an outlook on the future financial results, we can only say that steps have been taken to improve the situation from what it was during the last quarter.

Have lower margins in Europe and India partly offset the savings from input costs?

Our margins have improved on a consolidated basis and for India, in both the September quarter and for the first half of 2015-16. Earnings before interest, taxes, depreciation and amortisation (Ebitda) in Q2 FY16 were up 140 basis points to 16.8 per cent versus same quarter last year. Ebitda for the first half of 2015-16 was up to 17.7 per cent, from 14.8 per cent last year.

Have you been able to crack the original equipment (OEs) market in Europe? How much do you supply?

Apollo Vredestein traditionally has been an aftermarket player in the passenger car tyre segment. On an overall basis, 20 per cent of our Europe revenues come from OEs. Our teams are working with several leading automotive manufacturers to partner them in Europe for the passenger car tyre segment.

Why supplying to the OE market is crucial to grow share in the replacement market?

The first choice of a tyre brand for a customer normally is the brand that came fitted with his/her vehicle from the manufacturer. They believe that the auto maker would have selected the best tyre for the vehicle and, hence, choose to replace with the same brand when required. Such instances of replacing old tyres with the same brand of new ones is seen more often in countries like India vis-à-vis European consumers, who, to a certain extent, are more aware of their exact requirement, their driving habits, road conditions, etc.

How do you plan to protect your turf against Chinese imports in India?

The increasing imports from China in the truck-bus radials (TBR) segment are definitely a concern not only for us, but the entire tyre industry and the associated rubber industry. In the September quarter, TBR imports increased almost 100 per cent, compared with the same period last year. The economy/Chinese brands contributed nearly 90 per cent of that. While we have taken this up with the government a couple of times, we are yet to get a response.

How severe a setback was Cooper? How has your global strategy changed since then?

While I would not like to call it a setback, our growth plans were pulled back by a couple of years due to the ongoing transaction. However, we have continued with our broader global strategy after that. As a growth oriented organisation, we always look out for both organic as well inorganic expansion.

Once the latter didn’t happen, we quickly moved on with our organic expansion and announced the setting up of a greenfield facility in Hungary with an investment of EURO 475 million. This facility will start rolling out tyres in early 2017, and once completed, will have a capacity to produce 5.5 million passenger car and light truck tyres and 675,000 heavy commercial vehicle tyres. Our investments in India to maintain our leadership position continue in line with market developments.