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Apollo Tyres takes the 2010 x 2010 call

Apollo hopes to become a $2-bn corporation by the end of the decade through organic and acquisition-led growth.

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That's $2 billion sales in four years through organic and acquisition-led growth.

MUMBAI: A lot of action can be expected out of 7 Institutional Area, Gurgaon, in the coming months.

It is from here that Apollo Tyres, India's second-largest domestic tyre manufacturer, would spearhead its ambition to become a $2-billion corporation by the end of the decade. To put that in perspective, the company would have to treble its revenues over the next five years, meaning a compounded annual growth rate of 25%. In contrast, it grew 13% in FY06 over FY05.

"Early this year, we formulated our growth and strategy and coined it 2010 (million dollars) by 2010," says Neeraj Kanwar, joint managing director and chief operating officer.

Kanwar realises that the Rs 3,000-crore company can't achieve that kind of topline from simple domestic operations, only through tyres, or only through organic growth. So, on the cards are ambitious plans involving exploring newer export markets, acquisitions, penetrating the passenger car tyres, and venturing beyond tyres.

Apollo demonstrated its intention by acquiring Dunlop South Africa for Rs 290 crore in January. This financial year, Dunlop SA's revenues would fully accrue to Apollo, which would take the parent past the billion dollar mark, making it the largest Indian tyre company. Apollo's strategy chief Sunam Sarkar says the company is evaluating "more than one" acquisition proposals in various national and international geographies.

But Modi Tyres is not one of them.

"Our interest in Modi Tyres remains, but we don't think we would get it. Over the last three years, there have been several occasions when we thought we have got it, but something would keep cropping up at the last moment," he says.

The acquisition target should provide one or more of the following attributes: market, production facility, distribution network, and technology. Dunlop SA provided each of the above. It gave Apollo three production units (total capacity 180 tonnes a day), technology (tyres for specialised vehicles for mining and off-the-road segment), a strong brand name (Apollo can use the Dunlop brand name in 33 English-speaking African nations), and a distribution network.

Thrust on exports would be another focus area, since in spite of the booming domestic auto market, it would still not provide the required topline growth. The company is developing passenger car radial products - it has over 120 people at its R&D centre in Baroda — for the highly competitive European market.

Before the end of the year, it hopes to begin selling in the region. This new geography is extremely lucrative and competitive and if Apollo manages to get its game right, exports can take a quantum jump from the current levels of 12-15%.

This move is significant, since most tyre exports out of India, including Apollo's, are bias tyres, which bring lower realisation. Developed markets have moved entirely to new generation radials, which offer better margins.

On offer for the domestic markets are tyres for OTR (off-the-road) vehicles, technology for which will come from Dunlop SA. The OTR market is still small, about Rs 200 crore annually.

That covers inorganic, export growth, and product expansion. But these still can't take the company past the magic $2-billion mark.

Apollo has entered the tyre re-treading business by launching re-treading material for commercial vehicles (CV). The idea is ‘if you can't beat ‘em, join em'.

Under 5% of CVs in India run on radials and the rest are bias, which can be given a new lease of life by re-treading. Since radialisation of CVs is taking too long - it is expected to be 10% by 2010 — Apollo has decided to tap the unorganised re-treading market and offer a branded service to the CV owners.

Another new source of revenue would be from ‘tyre-plus' sources. Without providing more details, Sarkar says the company is exploring a retail strategy where it can claim a larger share of the customer's wallet. It has already launched alloy wheels for passenger cars. Expect some more product launches.

In all this, doesn't entering into the booming two- or three-wheeler tyre segment, which is low-value, but high-volume, make immense sense to shore up the topline? Kanwar wouldn't say. "It's possible," is all he is willing to comment.

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