Will e-retail spur growth for Apollo Tyres?

With the lines between offline and online business blurring, Gurgaon-based Apollo Tyres has taken the first step to bolster its ability to connect with buyers globally in a new way.

Last month, Apollo Tyres spent Rs 322 crore, raised through internal accruals, to acquire Germany-based Reifencom GmbH, giving itself a foothold in the online space.

Reifencom is one of the leading tyre distributors in Germany and has a strong online presence along with 37 brick and mortar stores in the region. With the acquisition, the Indian tyre manufacturer has joined the ranks of its global peers like Michelin which have been expanding their presence in the web-based distribution space. Michelin acquired Blackcircles.com, a Scotland-based online tyre seller in May this year. It was its second buy-out in the e-commerce space in 2015.

Reifencom has an online presence in six countries -Germany, France, Italy, Austria, Switzerland and Denmark. "This will prove to be a starting point for Apollo Tyres in terms of the e-commerce model of selling tyres," says Apollo Tyres Chairman Onkar S Kanwar.

In recent years, Apollo Tyres has been increasingly looking at acquisitions overseas to drive growth. It acquired Dunlop Tyres' South Africa business in 2006 and Dutch tyre company Vredestein Banden in 2009. It also made an unsuccessful bid to acquire US-based Cooper Tires last year.

Vredestein provided Apollo access to European markets along with an extensive distribution network. The Dunlop acquisition, on the other hand, paved the way for its Africa entry. Apollo continues to ship Vredestein and Apollo tyres to Africa even after selling its shares in Dunlop to Japan's Sumitomo Rubber in 2013.

The latest acquisition, apart from marking its presence in the online space, is expected to expand Apollo's product range to include car and two-wheeler tyres. However, it remains to be seen whether it will actually prop up sales. Apollo has been struggling to grow its top line, especially in India, where cheap imports of truck and bus tyres from China are eating into its profit.

The acquisition in one sweep has opened the doors to a large customer base for Apollo in Europe. The German company, which sells tyres of different brands on its online platform, caters to over 600,000 customers annually. While Reifencom will continue to be a multi-brand distributor even under its new owner, Kanwar believes the buyout will strengthen Apollo's position in comparison to other competing brands in the region.

It will also help Apollo in selling additional volumes that will start coming out of its plant under construction in Hungary once it is ready in early 2017.

Europe accounts for nearly 30 per cent of Apollo's consolidated revenue of Rs 12,725 crore. The acquisition could boost that further, but experts feel it won't help the company tide over the pressure from cheap imports. Apollo Tyres' stock price reflects that sentiment. It touched a 52-week low of Rs 151.10 on Monday, tumbling over 40 per cent from its yearly high in February.