The formal inauguration of Apollo Tyres’ second manufacturing unit in Hungary last week turned out to be an event of national importance with the Hungarian Prime Minister, Viktor Orban, giving an emotional speech on how the investment is critical to the east European country and how he considers the Kanwars as part of the large Hungarian family.
Located less than 100 km from the capital Budapest, the Gyongyoshlasz plant is Apollo Tyres’ first greenfield facility outside India. With its European operations contributing almost 26 per cent to its turnover, the company is attempting to secure its position in Europe before moving to its next important target market — the US. After the plant’s inauguration, Neeraj Kanwar, Vice-Chairman and Managing Director, Apollo Tyres, shared his experience in setting up the plant in an exclusive interview with BusinessLine. Excerpts:
The Hungarian Prime Minister mentioned at the inaugural event that Apollo Tyres had chosen Hungary for its second European plant after much deliberation. Can you share why you zeroed in on Hungary?
I and my team visited some eight countries in east Europe including Poland, Czech Republic, Lithuania and Latvia. The list narrowed down to two countries in the final stage of selection — Hungary and Slovakia. Of the two sites, Hungary was better.
Two, liveability for Indian expatriates who will be working in the plant was also better in Hungary. Three, the government was very very friendly. It was a one-window approach. The Prime Minister was very forthcoming, as you have seen today. He was supposed to be at the inauguration for an hour and a half, but he stayed for three hours. He is very open, casual, relaxed… He was like this two years ago too when the process of setting up the plant began. There is a feeling of happiness that you get here.
Were the incentives offered by the Hungarian government to Apollo Tyres also a major draw?
The incentives given by the Hungarian government and by Brussels to Hungary were quite good. On an investment of €475 million, we got incentives worth about €110 million. We got upfront cash incentives worth nearly €55 million; the remainder was in the form of tax incentives.
Why East Europe? Is it due to the proximity to the European market?
Yes. Our European plant in Holland is running at over 90-95 per cent capacity. So, we need another plant in Europe. Currently, we are exporting 1 million tyres from India to Europe. If you add the freight, the product becomes more expensive. So, we want to manufacture more in Europe.
What about the labour cost? Is there saving on that front too?
Relative to our other European plant, the labour cost in the Hungarian plant is about one-fourth. That’s because western Europe is much more expensive than eastern Europe. However, when compared to India, the cost in Hungary is much higher. Labour cost inflation is growing very fast in Hungary too.
How did the laser show of Apollo Tyres on the ancient chain bridge, the prime tourist location of Budapest, came about?
We got special permission from the government to play the laser show once every 30 minutes for three minutes. It started after 8 pm, and went on beyond midnight. The idea was initiated by me. I wanted to paint the bridge with colours of Apollo Tyres. The Indian Ambassador observed to me at the inaugural event, “Hey, somehow your colours were on the bridge yesterday.” I told him that it was all part of the marketing initiative. This is probably the first time that an Indian company has got such a privilege in Budapest.
With Brexit beginning to unravel, will your European operations be affected?
We do sell from here to the UK, but I don’t see it as a major concern. We are not a big player there, we don’t manufacture there. So that might not impact us much.
How inelastic is the demand for tyres because there are concerns now that rubber and crude oil prices are moving higher, tyre manufacturers have to increase prices?
Indian market today is mature, everyone is fighting for themselves. Because we have a cost-push due to increase in prices of rubber and oil, we have to increase prices, we have ensure that our shareholders do not lose out. We have already done some price correction in India and will continue to do this. I don’t think tyre demand will be hurt by price increases, because the economy is growing at a healthy pace. Given that volumes are increasing, there is room for prices to adjust a little.
Chinese imports are a major problem in India. What about Europe? Are there enough anti-dumping laws in place here?
In Europe too, around 10-15 per cent of tyre demand is being met by Chinese imports. But the problem in India is that they come in at a very low price. They are present almost everywhere.
(The writer was in Budapest on the invitation of Apollo Tyres)
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