German tyre company Continental is likely to pick up around 30 per cent stake in India's unlisted Metro Tyres Ltd with which it currently has a technology transfer and tyre and tube sourcing arrangement.
The company was looking at expanding operations in the Indian market in a big way as well as catering to its export commitments from tyres and tubes made in India, Jorg Essiger, managing director (motorcycle tyres), Continental, told PTI in New Delhi.
"We feel our commitment with Metro is strategic and long-term due to which we are looking at picking up equity in the Indian company. For this, we have initiated the process and I feel it will be completed by this year-end," Essiger said.
He said the exact details on the percentage of equity to be picked up have yet to be decided by the two companies.
On the two-wheeler motorcycle and scooter tyre sourcing arrangement from Metro, he said the first shipment would be sent this month.
"Outsourcing of tyres will be from Metro's Ludhiana factory, as per our technical guidance. The first lot comprising about 50,000 tyres, mostly for low-powered bikes, will be for the European market," Essiger said.
As per the agreement signed with Metro last year, the company would also source tyre tubes for all types of vehicles, ranging from trucks to two wheelers, he said.
Continental is already sourcing bicycle tyres and tubes from Metro for the last few years. The Indian company shipped 1.5 million tyres and four million tubes last fiscal.
Metro Tyres managing director Rummy Chhabra also confirmed that the two companies were in talks on the issue of equity.
"Continental is looking at making investments in our company which, we feel, would be crucial for our growth. According to our estimates, we would be requiring a minimum of Rs 75-100 crore (Rs 750-1,000 million) in the next couple of years to fuel our expansion drive for which equity offload will definitely be the main route," Chhabra said.
Continental's seriousness on the partnership can be gauged by the fact that it has relocated three sophisticated tyre manufacturing machines from Germany to Metro's facility at Ludhiana.
"Each of these has a manufacturing capacity of 20,000 tyres per month and we will be bringing in two more such machines soon," Essiger said.
Essiger said the company had also zeroed in on India because of the low labour cost vis-a-vis that in Germany.
"The total savings per tyre can be as much as 20-40 per cent in case it is manufactured in India," he added.
Metro Tyres, owned by the Chhabra family, had a turnover of Rs 300 crore (Rs 3,000 million) in 2003-04 at a growth of around 15 per cent.
The company, which late last year started selling Continental co-branded two-wheeler tyres in the Indian market, is looking at a double digit growth this fiscal on the back of sales of two-wheeler tyres in India as well as greater off-take from the German partner.
Metro Tyres has its manufacturing facility in Ludhiana where it produces its bread-and-butter bicycle tyres and tubes as well as two-wheeler tyres, in technical collaboration with Continental.
The company is also setting up a new Rs 30 crore (Rs 300 million) manufacturing unit for tyre tubes in the National Capital Region. "We will be taking a final decision on the exact location by the next week and the new plant is expected to come up by this year end.
"It will have a capacity of 300,000 tonnes per annum," Chhabra added.
