Apollo Tyres

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Apollo Tyres Ltd. is a leading Indian tyre manufacturer which commenced its production in 1977 under the leadership of Raunaq Singh. It is built around the core principles of creating shareholder value through reliability in its products and dependability in its relationships with stakeholders. The company offers a range of tyres to consumers in heavy, light and passenger vehicles category. The company has four manufacturing units in India and through its recent acquisition of Dunlop Tires, South Africa, now possesses two manufacturing units each in South Africa and Zimbabwe.

In this report we are presenting a brief strategy analysis of the company, an analysis of the financial performance of the company over the last three fiscal years (2004 to 2006) and a brief financial comparison of the company with the US tire manufacturer Goodyear. We conclude with our views on the financial prospects of the company.

Strategy Analysis
Analysis of the Industry Indian tyre market is estimated to be a Rs.14,500 crore industry with CAGR of 11% in terms of volume in last 5 years (2002-06). It is concentrated as the top four companies Apollo Tyre, JK Tyre, Ceat and MRF control 78% of the total revenue. 70% of the industry revenues are contributed by commercial vehicles (Truck, Bus & LCV)i Passenger car segment is growing faster (CAGR 16%) than HCV, LCV and farm segment, a drastic shift towards a global structure where passenger cars and light trucks constitute 88% by volume and 63% by sales is not expected in the next 3-5 years.

Key Factors affecting industry are: 1. Health Of The Economy: GDP growth rate of 8% plus and stable growth forecast for next 5 years implies continued growth for the tyre industry. Increased economic activity will boost road transportation industry which handles 60% of goods and 80% of passengers in India.ii 2. Interest Rates affect tyre industry directly by increasing the cost of financing. Indirectly, customers like OEM (vehicle sales through financing) and general economic activity get hit. Hence, upswing in the interest rates is detrimental to the tyre industry. 3. Infrastructure Development Projects like Golden Quadrilateral and NSEW corridor project would boost passenger movement & transportation of goods. 4. OEM Demand (commercial and passenger vehicles manufacturers): Commercial vehicles sales grew at about 33 per cent with multi-axle trucks segment posting 112 per cent growth in the year 2006-07.iii Light vehicles growth forecast for 2007 is 11.2 percent. Passenger vehicles sales are likely to grow at 14.9 per cent till 2010.iv 5. Replacement Demand – Replacement demand of tyres was 59% of total sales in 2003 (HCV, LCV, Farm, passenger vehicles and two wheelers) of which HCV and LCV formed 22%. It is relatively high in India because of poor road conditions and over loading. Radial tyres cut down replacement but form only 2%

in HCV and LCV (which forms 70% of revenue). Hence replacement market would be a force to reckon with. 6. Auto Export Industry: With several OEMs seeking to build a future production base for potential exports from India, it is being seen as a sourcing hub for worldwide sales by the auto industry. Production in 2007 is expected to outpace sales by 8 percent. Tyre exports in 2006 was $516 million, an increase of 27% over previous year and hence, is an important source for demand 7. Cost Pressures: The industry is highly raw material intensive which form 70% of the production cost. Natural rubber prices increased by approximately 24% compared to 2005-06. Hike in carbon black due increased crude oil prices pressured the margins.


www.capitaline.com http://www.projectsmonitor.com/detailnews.asp?newsid=7675 iii http://www.rediff.com/money/2007/may/04car.htm ii



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