Amid the turbulent times experienced by the Indian automotive industry over the last few years, some innovative companies have found ways not just to stay afloat, but march ahead of competition. Tyre giant Apollo Tyres is one such company that has been able to create growth in a tough economic and market scenario. It has successfully managed to stay ahead of the Indian tyre industry's growth and continues to pursue aggressive plans on a global scale. Satish Sharma, President (Asia Pacific, Middle East & Africa), Apollo Tyres Ltd helped us understand the company's strategy better over a recent freewheeling interview.
In his present capacity, Satish Sharma guides strategy and oversees the implementation of key functions like manufacturing, sales & marketing, customer relations and profitability in Asia-Pacific, Middle-East and Africa. A member of the company's Management Board, Sharma is credited with Apollo's steady sales growth, which in the last five years has grown at a CAGR of 17 % in India.
Sharma began his career with JK Tyres, joining Apollo Tyres in 1997 as a Product Manager and was gradually promoted to the position of Chief, Marketing. He took over as the Chief, India Operations for Apollo Tyres in April 2006. In early 2014, he was designated as the President for Asia-Pacific, Middle-East & Africa region. A Chemical Engineer from the National Institute of Technology, Raipur, Madhya Pradesh, Sharma also holds a PG diploma in Business Management from the Institute of Management Technology, Ghaziabad. He is a member of the Institute of Engineers, Indian Rubber Institute and All India Management Association (AIMA).
ATR _ What are your thoughts on the present state of the tyre industry and Apollo's performance with respect to it.
SATISH SHARMA _ Broadly, the industry in India is in a bit of sputter, which is in line with the other BRIC countries. The economy in general hasn't performed great and much of the installed capacities are underutilised. Most of it is related to the vehicle production, medium & heavy commercial vehicles of which tanked after 2011. Although there are signs of recovery, the segment is far from its earlier peak around 2011. With a few exceptions, most segments in the automotive industry have been negative and the tyre industry is in the low-single digit growth area. That said, we now see incremental progress taking place.
Apollo Tyres, in particular, has been securing multiple new businesses in the car segment for OE fitments. We're making our bets on some new vehicles, which we believe will do well in the future. Most of the winning models on the road are anyways equipped with Apollo tyres today. Our trucks & buses radials products have done well in the CV segment and we have since 2010, come a long way to be ahead of the market by a significant margin. We've already reached our full capacity for this division and are looking at expansion on the back of OE acknowledgements, aftermarket orders and increasing exports.
In addition, we've been refreshing our product range and have done our product brand activities with Manchester United, enhancing our brand awareness.
Is global acceptance the reason for choosing soccer over other sports for marketing?
Yes, in addition to the increasing popularity of the sport in India, we've always tried to adopt a differentiator strategy compared to our peers in the Indian tyre industry. In 2006, we did an acquisition in South Africa; in 2009, we set up an R&D centre in Holland, followed by one in Chennai. We also attempted to acquire Cooper Tire, which unfortunately didn't go through. We broke ground a couple of months back for our first Greenfield facility outside India in Hungary. This is in addition to setting-up of various offices for different functions in multiple countries.
Hence, in my opinion, we've been walking the talk and are in line with our vision of becoming a major global player. We've been investing continuously in R&D, which is paying dividends. Although we're a leading player in the Indian market, today we're also being seen as an emerging company with great potential in foreign markets.
What has been the status with raw material prices?
Many of our raw materials are derivatives of crude oil, and the decrease in crude prices in recent times has resulted in drop in our raw material prices. Hence, while sales weren't too good, lower raw material prices were of good help in improving the bottom line.
While Indian market is down, which other markets have grown for you?
As a whole, Europe's performance has been very good but for the region I supervise, which is the Asia-Pacific, we've made focussed attempts in ASEAN, which after India and China is the next largest growing region. Middle-East is an area, which is culturally aligned with us and even before Apollo was launched there, the brand was already well-known. Except the political volatility, the region is growing and holds good potential. We have strong focus on Africa as well, and the proof of our success is the fact that the industry was down last year in terms of exports but we grew by almost 20 %. We, however, do not look at it as exports since we have legal entities in these regions. The investment in R&D has helped us develop a wider portfolio of products suitable for these regions and the vehicles operating there.
How is your production mapped out across the globe?
India and Holland are the two largest production plants for the company today, with India having four facilities and Holland one. We produce about one million Apollo branded tyres, all in Chennai. We also produce winter tyres and many other types of tyres for markets outside India. The European plants largely produce for their continent but also for South America.
In India, which vehicle segments hold the most growth potential for the next five odd years?
Among the passenger vehicles, MPVs, compact SUVs and pick-ups offer good potential, of which pick-up is a new and upcoming trend. The segment is popular is ASEAN region already and the same culture should get extended here as the rural areas grow and demand for technology grows in wake of need for increased productivity. The C-segment cars too should witness good growth as smaller segments have already witnessed healthy growth and the consumer's maturity curve continues to evolve.
There's large potential in the two-wheeler segment, which you are not present in. Is this segment in your plans?
We have considered the two-wheelers segment, but really haven't pushed seriously. However, given the size of the market, we continue to examine it. We considered it low-tech and low-margin in the past, but in present times both things have advanced significantly. We admit that we've been proven wrong on our assessment of the segment. As of today, our team asks for it, strategy asks for it and the trade too asks for it so we need to get all the things aligned. Where it gets missed out is our scan of urgent matters and scale of importance since we feel we can do much more in car tyres, which is our strength. Having said that, there is market potential and one of our competitor's recent success in the two-wheeler segment is encouraging. There are plans for us on the drawing board.
What is your view of the premium two-wheelers segment?
If we enter the two-wheeler market, it will be for the mass-scale Indian products and not the premium ones. It is in line with our priorities and the structure of the company. Also, the two-wheeler question keeps coming up only for the Indian market. In the ASEAN region, there are already many players for the same and we don't see any demand for products from us. Two-wheeler tyres are a capacity area for us, where we achieve economies of scale backed-up by our existing network. It could be integral to our India strategy but not to our global strategy.
The Chennai R&D centre works specific to Indian demands or global ones?
The Chennai centre is a sub-set of the larger global ecosystem of Apollo. In terms of CV tyres, the centre of gravity is in India. However, the Chennai plant is also making products for Europe and other regions, which account for about 10 % of the total production for CV tyres. For passenger vehicles, the percentage for countries outside India would be higher.
What has been the response from global players such as Bharat-Benz and Scania?
Bharat-Benz is our neighbour in Chennai and we are supplying to them with a fitment rate of about 40 %. We're also supplying to Scania and Volvo, reflecting our strength in the CV space. Also, CV makers are quicker in adopting Indian tyres as imported tyres would not work optimally in Indian conditions. Factors such as bad infrastructure and overloading make it essential for them to adopt tyres from local companies like ours.
Give us the revenue segmentation for global and Indian operations.
Overall, the OE business accounts for 22 % of our revenue, while the remaining 78 % comes from the replacement market. In India, OE business contributes 24 %, replacement accounts for 67 %, while the remaining nine per cent is attributed to exports. In terms of product segmentation globally, trucks & buses account for the 45 %, PVs contribute 36 %, light trucks and off-highway tyres bring in 6 % and 11 % respectively, while the remaining two per cent is accounted for by others. In India, the largest share is retained by trucks & buses, while PVs contribute 17 %. Farm equipment and light trucks account for 11 % and 8 % respectively.
What is the growth you're eyeing?
I believe we are well-poised for exploiting any opportunities that come by in the coming years. Being a strong systemically-organised company helps us significantly and we've continuously looked at improving. We also understand that the Indian story has to be the strongest for us to realise our global goals, and hence there is a lot of attention to detail in our approach for the market.
What investments are we talking about?
We're investing Rs 1,500 cr in our Chennai facility to increase the truck bus radial (TBR) production from 6,000 units to 9,000 per day. We're also investing about Rs 500 cr in off-highway tyres in Kerala.
Are you also looking at further capacity expansions in other segments?
In the car tyres segment, we've already invested ahead of the market; so we first need to utilise that. Also, once the Hungary plant becomes operational, some of the tyres we make for Europe will get shifted there, freeing capacity here. In the CV space, the technology is changing so the demand for radial tyres is going up. The key then lies in converting the existing demand to cater to changing demands rather than increasing capacity. In the aftermarket segment, radials account for about 28 % of the demand, while among OEMs, this number is much higher.
Interview & Photo: Arpit Mahendra