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The Rediff Interview/ Onkar S Kanwar

'We are tying up a bunch of alliances'

Modi Rubbers Ltd is currently closed because of financial problems. Through the acquisition, Apollo will add MRL's installed capacity of around 24 lakh (2.4 million) tyres and same number of tubes to its capacity of 35 (3.5 million) lakh tyres and 31 lakh (3.1 million) tubes per annum.

Onkar S Kanwar, chairman and managing director, spoke to Utpal K Choudhury about the company's business plans and turnover target over the next three years. His father, Raunaq Singh, passed away on September 30.

What is the progress on MRL's acquisition? How did its closure help you gain market share?

As a part of our expansion plan, Apollo is interested in buying the tyre assets of MRL. We are only concerned with the assets and liabilities of the tyre business.

Apollo Tyres is already performing at optimum capacity utilisation and is seeking additional production capabilities.

This move will now enable us to effectively meet our surging sales demand and consolidate our leadership in the industry. MRL's strength in commercial vehicles will complement our already dominant market share.

You have invested Rs 110 crore (Rs 1.10 billion) for making radial tyres for trucks and buses. Do you feel our roads are radial-friendly?

In India car radialisation has reached a level of 65 per cent, while the truck and bus radialisation is at an abysmal level of less than 1 per cent.

Poor road and support infrastructure coupled with the traditional vehicle design have also been a barrier to radialisation in commercial vehicles.

Investment in the national highway programme, including the Golden Quadrilateral, and the structural changes being incorporated by vehicle manufacturers will, however, herald a second wave of radialisation in CVs.

Radial technology for trucks and buses will help increase operating efficiencies by delivering better mileage and minimising wear and tear.

It will generate more profits for the customer. We are the number one player in commercial vehicle tyres. Thus, through this investment, we are building on our strength in a market that we believe will surely shift towards radialisation.

Apollo Tyres is setting up a plant to produce truck and bus radial tyres at Vadodara in Gujarat in a technical alliance with German tyre maker Continental AG.

The modern unit is being set up with an investment of Rs 200 crore and would start production from April 2004. As a precursor we have started importing radial tyres from Continental and feeding them in the local markets. Regular feedback is sent back to Continental, which will help us customise commercial radials for Indian conditions.

Can you describe how exactly are you planning to be a complete solution provider for the commercial transport sector?

It is with this foresight that the company aims to become a market leader in the domestic tyre industry in terms of turnover besides offering a complete range of products.

To this end, the company is tying up a slew of alliances to fulfill its vision of becoming a 'complete solution provider' or 'one-stop shop' by providing holistic maintenance solutions to our commercial customers.

Our collaboration with Kotak Mahindra for finance, TVS Srichakra for two-wheeler tyres and the most recent one with Cummins Auto Service Ltd translates our strategy into action.

It is our endeavour to ensure that the customer is the true end beneficiary and is able to derive the maximum operating efficiency, leading to better profitability.

In addition we also plan to convert our dealerships into 'one-stop shops'. We aim to provide a complete range of products and a host of services such as insurance, maintenance and technical counsel under one roof.

This holistic approach, we are confident would add tremendous value to our customers and foster continuing patronage.

Why did you decide to market TVS Srichakra's product instead of pushing your own brand?

Apollo Tyres has entered into strategic tie-up with TVS Srichakra for the marketing of two-wheeler tyres. Our focus is on commercial application and hence we do not wish to manufacture 2/3 wheeler tyres.

However, it makes business sense for some dealers in semi-urban markets to sell 2-wheeler tyres too. The arrangement with TVS was done keeping in mind the need to broaden the offering to our dealers.

You are targeting a Rs 2,000 crore (Rs 20 billion) turnover this fiscal and Rs 5,000 (Rs 50 billion) crore by 2005. How do you plan to achieve this target? In the context of the ongoing recession and delayed monsoon do you think that your target is not overstated?

Despite the challenges thrown by the global economic slowdown, Apollo has witnessed continued growth and has grown at a compounded annual growth rate of 14 per cent over the last 3 years.

We have steadfastly withstood the challenges of the changing industry scenario and evolved and adapted to the business realities and customer expectations.

Despite the subdued demand faced by the tyre industry last year, the company made substantial gains in all our areas of operations.

Industrial growth this year has touched 6.4 per cent and the rains have picked up in certain areas. Over the next three years, we foresee a healthy economic growth, keeping with the 5.4 per cent GDP growth this year.

The basic indicators suggest that the tyre market will certainly grow. It is only a matter of consolidating market share by introducing better product lines and improving customer service.

Did you factor in the fluctuation of your raw material prices while fixing your target for 2005? How are you prepared to face the volatility of raw material prices?

In the tyre industry most companies enter into long-term agreements for procuring raw materials thus fluctuation in raw material prices does not immediately affect our topline.

Our inventory management systems, including demand forecasting, are the best in the industry and we hope to effectively meet any future volatility in raw material prices.

In the 1st quarter of the current fiscal your net profit had gone up by more than 100 per cent. Is it primarily because of your significantly low interest expense in the quarter?

The company's high growth quarter has been due to its thrust in the non-truck segment such as car radials, LCV and jeeps that grew by 59 per cent, 26 per cent and 28 per cent respectively driving the overall sales and profitability, overall cost reduction and operational efficiency, effective current asset management that has enabled a 50 per cent reduction in finance cost.

Investments made last quarter in channel expansion have helped the topline performance this quarter.

We have been able to save a huge amount on interest expense due to increase in operating cash flow by better management of current assets, replacement of high cost debt, and prepayment of high cost debt through internal accruals.

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