Making tracks around the world

PARAN BALAKRISHNAN | Updated on January 12, 2018 Published on June 27, 2017

The big wheel: India’s tyre industry is gathering pace across the world. A file picture of Apollo Tyres’ Chennai facility

The Indian tyre industry’s a low-key star that’s rolling along at ever-greater speeds around the globe

It’s a place with a tongue-twisting name but that didn’t stop Apollo Tyres from opening its newest factory near Gyongyoshalasz, a 100-km drive from Hungary’s capital Budapest. In fact, the launch of Apollo’s factory last month near this village was significantly big to draw Hungary’s prime minister, Viktor Orban, as chief guest. Apollo is hoping the greenfield factory will spread the company’s tyre tracks to the farthest corners of Europe.

When Indians talk about global-scale industrial successes, examples springing to mind are usually info-tech and pharmaceuticals which have made their mark internationally. Tyres are almost a part of an older industrial age and, anyway, for many people, more something that need to be serviceable and roadworthy rather than especially eye-catching.

A success story

But the Indian tyre industry is one of the country’s less trumpeted success stories that’s been moving from strength to strength – and that’s despite fierce global competition from low-cost Chinese challengers. “To be a global player, we need to be present in the biggest and the most challenging markets across geographies,” says Apollo Tyres vice-chairman and managing director Neeraj Kanwar.

Shift gears to the fast-growing Mexican market where JK Tyres is firmly established as a major producer with three factories in the country. JK Tyres bought up local brand Tornel in 2008. It’s just completed a $22-million expansion and has revved up production to five million tyres from 3.5 million. From its low-cost Mexican base, JK Tyres has been selling into the highly competitive NAFTA (North American Free Trade Area) embracing Canada, the US and Mexico.

Now take a look at BKT (the former Balkrishna Industries) and nine-year-old Alliance Tire Group, which have made their mark in a remarkably short time. Both companies are key players in off-highway tyres and export almost their entire production to different corners of the globe. BKT already has six per cent of the global market and is targeting 10 per cent.

But undoubtedly, the company that’s undergone the biggest makeover in slightly just over a decade is Apollo Tyres. Back in 2006, the company ambitiously decided to go global. Today, 40 per cent of its revenue comes from international markets and it’s pushing that number higher. Says Kanwar: “India will continue to grow at a better pace than some other markets, but with the Hungary plant, we expect revenue contribution from outside India to grow to 45 per cent.”

Apollo’s been aggressively moving to grab a larger market share outside India. In 2009, it snapped up 100-year-old Dutch company Vredestein, which gave it a strong beachhead in the developed world. Says Kanwar: “Vredestein has become a launchpad for Apollo’s entry into the challenging Europe market, and to some extent, into the US as well.”

Global moves

While Apollo’s been taking bold steps, the other tyre companies have also been making global-scale moves. Top players from MRF to CEAT are exporting and looking for breakthroughs. “Companies typically start with an overseas distributor. Then you get your own distribution or marketing network,” says Rajiv Budhraja, director-general of the Automotive Tyre Manufacturers Association (ATMA). If that goes well, he adds, companies then look at getting their tyres made by a third party. Apollo, for instance, has bought Reifencom GmBH, one of Germany’s large tyre distributors with physical and international B2C portals.

As Indian tyre companies accelerate onto foreign roads, their successes haven’t gone unnoticed. In March, Japan’s Yokohama Rubber Co, a passenger-car tyre-maker, snapped up the Alliance Tire Group for $1.2 billion from US private equity star KKR and, in the process, bought itself a presence in the booming global off-road agricultural, construction and other tyre business. The sale by KKR represented one of the biggest private equity departures from an India-focused investment. Alliance, which makes over 3,000 types of tyres and sells in 120 countries globally, has two Indian plants and a third in Israel.

Alliance was founded in Israel in 1950. But its growth really picked up speed when the Mahansaria family, which was involved in turning BKT into a global winner, acquired Alliance, backed by private equity fund Warburg Pincus. Warburg then sold it to KKR for a reported $500 million-$600 million and KKR sold to Yokohama three years later in 2016. “The acquisition by Yokohama has given us access to the best technical expertise in the industry and our ambition is to have a $1-billion turnover by 2020,” says Alliance CEO Nitin Mantri. With increased automation in fields such as construction and farming, the company, which had global sales of close to $600 million in 2015, believes it’s on an off-road route to significant growth.

The China factor

Indian tyre companies are carving out their international markets while facing facing really tough competition in the domestic market, mainly from the Chinese, who are muscling into lucrative sectors such as truck and bus radials (TBR). Indian firms accuse the Chinese of dumping. Ironically, though, Indian tyre manufacturers reckon demonetisation hit the sales of Chinese tyres because transactions are often cash. However, the Chinese pressure may ease as the US has decided not to impose anti-dumping duties on Chinese TBR tyres. During the dumping probe, Chinese tyres were re-routed to India, according to industry sources. Now that China can restart exports to the US, some dumping in India may be curbed.

And on the export front, it’s not looking too bad out there in the wide world. India gets an advantage from its lower labour costs compared to other countries.

That’s particularly true for companies such as BKT and Alliance, which have labour-intensive operations and produce thousands of different types of tyres for different off-road operations. Certainly, the foreign markets are “heavily competitive,” says Budhraja, with exporters from Korea, Thailand, Vietnam Indonesia and Sri Lanka all striking abroad.

But tyre-makers can also look forward to satisfying pent-up replacement demand in the agriculture and construction segments, according to analysts, who see tyre exports growing annually at six-to-eight per cent over the next few years as global acceptance of Indian tyres gains traction.

Published on June 27, 2017
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