Download pdf - Apollo Tyers

COMPANY PROFILE

Apollo Tyres, Ltd.

REFERENCE CODE: E16AA60E-380B-49C8-9C23-BFC7C2AB3058PUBLICATION DATE: 6 Apr 2012www.marketline.comCOPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.

TABLE OF CONTENTS

Company Overview..............................................................................................3

Key Facts...............................................................................................................3

Business Description...........................................................................................4

History...................................................................................................................5

Key Employees.....................................................................................................7

Key Employee Biographies..................................................................................8

Major Products and Services............................................................................12

Revenue Analysis...............................................................................................13

SWOT Analysis...................................................................................................14

Top Competitors.................................................................................................20

Company View.....................................................................................................21

Locations and Subsidiaries...............................................................................23

Apollo Tyres, Ltd. Page 2© MarketLine

Apollo Tyres, Ltd.TABLE OF CONTENTS

COMPANY OVERVIEW

Apollo Tyres Limited (Apollo or ‘the company’) manufactures and markets tyres, tubes and flaps.The company provides tyres for trucks and buses, light trucks, passenger cars, jeeps, and farmvehicles. The company primarily operates in India, South Africa Netherlands and Zimbabwe. It isheadquartered in Gurgaon, India, and employs around 16,000 people.

The company recorded revenues of INR88,677.2* million ($1,933.2 million) in the financial yearended March 2011 (FY2011), an increase of 9.2% over FY2010.The operating profit of the companywas INR2,323.4** million ($50.6 million) in FY2011, a decrease of 74.8% compared to FY2010.Thenet profit was INR4,401.6 million ($96 million) in FY2011, a decrease of 32.6% compared to FY2010.

* Revenues excludes other non operating incomes.

** Operating income is calculated by subtracting only the operating expenses including manufacturingand other expenses and depreciation.

KEY FACTS

Apollo Tyres, Ltd.Head Office7 Institutional AreaSector 32Gurgaon 122001HaryanaIND

91 124 272 1000Phone

Fax

http://www.apollotyres.comWeb Address

88,677.2Revenue / turnover(INR Mn)

MarchFinancial Year End

16,000Employees

500877Bombay StockExchange Ticker

APOLLOTYRENational StockExchange of IndiaTicker


Apollo Tyres, Ltd.Company Overview

BUSINESS DESCRIPTION

Apollo Tyres Limited (Apollo or ‘the company’) is one of the leading tyre manufacturers in India. Thecompany currently produces the entire range of automotive tyres for passenger cars, truck and bus,bicycle, farm and off-the-road vehicles.The company also produces tyres for industrial and specialtyapplications like mining, retreaded tyres and retreading material.These are produced across Apollo'snine manufacturing locations in India, the Netherlands, Southern Africa and Zimbabwe.The companyproduces more than 1,939 kinds of tyres under the brand names: Apollo, Dunlop, Maloya, Regal,Vredestein, Kaizen, DuraTyres and DuraTread. It has a network of over 900 dealerships acrossAfrica and South America, of which 200 are Dunlop accredited dealers.

The company operates its business under one business segment: automobile tyres, automobiletubes and automobile flaps.

Apollo's largest unit is in Limda, in the western Indian state of Gujarat. Two other units are locatedin the southern Indian rubber-producing state of Kerala, and a latest plant commissioned nearChennai, Tamil Nadu.These four units together have a combined production of around 1,200 tonnesa day. In South Africa, the Ladysmith and Durban plants account for a combined capacity of around180 tonnes, and the Enschede plant in the Netherlands adds another 150 tonnes a day. The totalproduction capacity of the company is around 1,550 metric tonnes a day. In FY2011, the companyproduced 438,524 metric tonnes of tyres.

In the three domestic markets of India, Southern Africa and Europe, Apollo operates through anetwork of branded, exclusive or multi-product outlets. In South Africa, the company operates 'DunlopZones' branded outlets, while in India its outlets include: Apollo Tyre World (for commercial vehicles)and Apollo Radial World (for passenger cars). Exports out of these three key manufacturing locationsreach over 70 destinations across the world, including Europe, Africa, the Middle East and South-EastAsia.


Apollo Tyres, Ltd.Business Description

HISTORY

Apollo Tyres Limited (Apollo or ‘the company’) was incorporated in 1975. In the same year, it waslisted on the Bombay Stock Exchange. After two years, Apollo started first plant in Perambra inCochin, Kerala.

The company began manufacturing passenger car radial tyres in Kerala, in 1982. In 1991, Apolloestablished its Baroda plant in India. The company acquired Premier Tyres located in Kerala, India,in 1995. In the following year, the company's exclusive tubes plant was commissioned in Pune,Maharashtra.

Apollo established Apollo Tyres Health Care Clinic for HIV-AIDS awareness and prevention in Delhi,in 2000. Five years later, the company proposed an INR1,700 million ($35.9 million) expansion andmodernization program at its Limda plant near Baroda.

The company acquired Dunlop Tyres International (Proprietary) (now renamed as Apollo TyresSouth Africa) located in South Africa, in 2006. In the following year, the company launched Regaltruck and bus radial tyres. In the same year, the company began production of DuraTyre.

In 2008, the company started the "off-the-road" tyre production facility at its manufacturing unit inLimda. In the same year, Apollo opened its first full-service branded commercial vehicle tyre outletin Salem, Tamil Nadu. In the following year, the company acquired 100% stake in the European tyremanufacturer, Vredestein Banden (VBBV), based out of the Netherlands.

In 2010, the company won an agreement with Volkswagen to supply the VW Polo assembled inIndia with Apollo tyres as original equipment. In the same year, brand Apollo was launched in Europe.In addition, Apollo entered into a joint venture with the Rahimafrooz Group to market its commercialvehicle tyres in Bangladesh. This marked the company's entry into the Bangladesh market.

Apollo signed a MoU with the Tamil Nadu government to invest INR21,000 million ($443.3 million)as part of its Greenfield project, in January 2011. In the following month, Apollo entered into apartnership with Kwik-Fit to sell the Apollo brand of tyres through their 180 Kwik-Fit car servicecenters across Netherlands. In the same month, the company inaugurated its global tyremanufacturing unit in Chennai, Tamil Nadu, making it the fourth manufacturing unit in India.

In June 2011, Apollo announced its plans for the Middle East market to be its export hub.The regionwill be catered to by exports out of India, with Dubai as the hub of operations. In the same month,the company entered the Sri Lanka market through a tie-up with Ideal Motors, the automobiledistribution and marketing arm of the Ideal Group of Companies.

Apollo acquired 10,000 hectare on lease in Laos for planting rubber in August 2011. It will take aboutseven years for the company to get the yield from rubber trees.


Apollo Tyres, Ltd.History

In March 2012, Apollo the company planned to invest around E400 million ($529.2 million) to set uptwo new facilities in East Europe and Brazil in the next 3-4 years as it aims to expand its globalfootprint. In the same month, the company planned to build a tyre plant in Eastern Europe with aninvestment of $135 million.

In April 2012, Apollo planned to open a specialized concept store in Dubai in order to provide buyerswith an enhanced customer experience and a better feel for the brand.


Apollo Tyres, Ltd.History

KEY EMPLOYEES

CompensationBoardJob TitleName

140740000 INRExecutive BoardChairman and Managing DirectorOnkar S. Kanwar

76310000 INRExecutive BoardVice Chairman and ManagingDirector

Neeraj Kanwar

18980000 INRExecutive BoardChief Financial OfficerSunam Sarkar

10690000 INRExecutive BoardChief, Corporate AffairsU. S. Oberoi

Executive BoardCompany SecretaryP N Wahal

Non Executive BoardDirectorV P Joy

Non Executive BoardDirectorNimesh N. Kampani

Non Executive BoardDirectorS. Narayan

Non Executive BoardDirectorM. R. B. Punja

Non Executive BoardDirectorArun Kumar Purwar

Non Executive BoardDirectorAlkesh Kumar Sharma

Non Executive BoardDirectorShardul S Shroff

Non Executive BoardDirectorRobert Steinmetz

Non Executive BoardDirectorK. Jacob Thomas

Senior ManagementChief Executive Officer, ApolloVredestein

Rob Oudshoorn

Senior ManagementChief Executive Officer, Apollo TyresSouth Africa

Luis C. Ceneviz

Senior ManagementChief, India OperationsSatish Sharma

Senior ManagementChief, ManufacturingSatish Agarwal

Senior ManagementChief, Research and DevelopmentPeter Becker

Senior ManagementChief, Group Advisory ServicesS Asoka Iyer

Senior ManagementChief, Human ResourcesTapan Mitra

Senior ManagementChief Advisor, Research andTechnology

P. K. Mohammed

Senior ManagementChief, ProjectsK Prabhakar

Senior ManagementGroup Head, Corporate Strategyand Finance

Gaurav Kumar

Senior ManagementGroup Head, Corporate PurchaseKaushik Roy


Apollo Tyres, Ltd.Key Employees

KEY EMPLOYEE BIOGRAPHIES

Onkar S. Kanwar

Board: Executive BoardJob Title: Chairman and Managing Director

Mr. Kanwar is the Chairman and Managing Director at Apollo Tyres Limited. He is a former memberof the Government of India's National Manufacturing Competitiveness Council and the KeralaDevelopment and Poverty Alleviation Advisory Council. In past he has held the position of Presidentat Federation of Indian Chambers of Commerce & Industry (FICCI), International Chamber ofCommerce (ICC), Automotive Tyre Manufacturers' Association (ATMA), and Director at Export CreditGuarantee Corporation of India and of the Kerala State Industrial Corporation. He is also a memberof Indian Institute of Information Technology, Design and Manufacturing (IIITD&M), Kancheepuramand Indian Institute of Management, Kozhikode.

Neeraj Kanwar

Board: Executive BoardJob Title: Vice Chairman and Managing DirectorSince: 2009

Mr. Kanwar has been the Vice Chairman and Managing Director at Apollo Tyres Limited since 2009.He began his career with Apollo in 1995 as the Manager of Product and Strategic Planning. In 1998,Mr. Kanwar became the Director and Chief of Manufacturing and Strategic Planning. Later in 2002,he took over as the Chief Operating Officer, when he introduced key changes in HR and IT and inincreasing the competitiveness of Apollo products across the board. He was appointed Joint ManagingDirector in 2006 and elevated to Vice Chairman in 2008.

Sunam Sarkar

Board: Executive BoardJob Title: Chief Financial Officer

Mr. Sarkar is the Chief Financial Officer at Apollo Tyres Limited. He is a commerce graduate fromSt Xavier’s College in Kolkata, India. In addition, he also holds an International Masters in PracticingManagement from Lancaster University, the UK. Prior to Apollo, Mr. Sarkar has worked with XeroxIndia.

U. S. Oberoi

Board: Executive Board


Apollo Tyres, Ltd.Key Employee Biographies

Job Title: Chief, Corporate Affairs

Mr. Oberoi is the Chief of Corporate Affairs at Apollo Tyres Limited. He joined the company in 1980,as the Deputy General Manager of Marketing. In addition, he served as the Vice President of Projectsin 1990 and was instrumental in the setting up of Apollo’s Limda Plant.

Rob Oudshoorn

Board: Senior ManagementJob Title: Chief Executive Officer, Apollo VredesteinSince: 1994

Mr. Oudshoorn has been the Chief Executive Officer at Apollo Vredestein, a subsidiary of ApolloTyres Limited, since 1994. He began his career in real estate development before joining Michelinin 1981 at their Amsterdam operations. At Michelin, he played a key role in establishing their marketingdepartment in The Netherlands. Mr. Oudshoorn has also served as the Resident Director in MichelinSouth Africa and then Director of Commercial Operations at Michelin Japan.

Luis C. Ceneviz

Board: Senior ManagementJob Title: Chief Executive Officer, Apollo Tyres South Africa

Mr. Ceneviz is the Chief Executive Officer at Apollo Tyres South Africa, a subsidiary of Apollo TyresLimited. He has a work experience in lean manufacturing, process engineering, organizationaldevelopment and operations, spanning the three continents of Asia, Australia and South America.Prior to Apollo, Mr. Ceneviz was with Goodyear as the Chief Executive Officer in Australia, Indiaand Colombia.

Satish Sharma

Board: Senior ManagementJob Title: Chief, India Operations

Mr. Sharma is the Chief of India Operations at Apollo Tyres Limited. Prior to this, he was the Chiefof Marketing. He began his career with JK Tyres before joining Apollo.

Satish Agarwal

Board: Senior ManagementJob Title: Chief, Manufacturing



Mr. Agarwal is the Chief of Manufacturing at Apollo Tyres Limited. He joined the company in 2000.Before that, he worked in diverse industry sectors with organizations like ITC and Samtel Colour.

Peter Becker

Board: Senior ManagementJob Title: Chief, Research and Development

Mr. Becker is the Chief of Research and Development at Apollo Tyres limited. He works acrossgeographies with Apollo’s material sciences, research, technology, design and testing teams basedout of the three technology centers in Limda, India; Durban, South Africa and Enschede, Netherlands.His last assignment was with Goodyear Dunlop Germany where he oversaw all aspects of tyredevelopment. Mr. Becker has also spent a significant part of his career working in various positionsof leadership at the Sumitomo Group’s testing facility SP Reifenwerke at Hanau, apart from threeyears spent developing special vehicles at Opel.

S Asoka Iyer

Board: Senior ManagementJob Title: Chief, Group Advisory Services

Mr. Iyer is the Chief of Group Advisory Services at Apollo Tyres Limited. He joined the company in1998 as the Chief of Marketing. Previously, he was the President at Harrisons Aquaculture andHarrisons Universal Flowers.

Tapan Mitra

Board: Senior ManagementJob Title: Chief, Human Resources

Mr. Mitra is the Chief of Human Resources at Apollo Tyres Limited. He comes from a backgroundof managing HR challenges in various manufacturing companies. His last assignment was withBallarpur Industries (BILT) responsible for People Development and Communications.

P. K. Mohammed

Board: Senior ManagementJob Title: Chief Advisor, Research and Technology

Mr. Mohamed is the Chief Advisor of Research and Development at Apollo Tyres Limited. He isconsidered one of the founding members of Apollo’s technology journey and continues to be a keyadvisor in all research and technology initiatives at the company. Mr. Mohamed is a Fellow Member



of the Rubber and Plastic Institute, London. He has presented and published various research paperson material science, development and testing of tyres.

K Prabhakar

Board: Senior ManagementJob Title: Chief, Projects

Mr. Prabhakar is the Chief of Projects at Apollo Tyres Limited. Post the acquisition of Dunlop Tyresin 2006, Mr. Prabhakar was the Chief Operating Officer. He joined Apollo Tyres in 1989 as the SeniorManager of Industrial Engineering. In 1995, he was instrumental in setting-up a world-class radialplant for passenger car tyres in Gujarat, India. Mr. Prabhakar began his career as a consultant withthe National Productivity Council in Kanpur and Chennai, India.



MAJOR PRODUCTS AND SERVICES

Apollo Tyres Limited (Apollo or ‘the company’) manufactures and markets tyres, tubes and flaps.The company's key products and brands include the following:

Products:

Automotive tyres Off-The-Road vehicles tyres Retreaded tyres and retreading material Alloy wheels Tubes and flaps

Brands:

Apollo Dunlop Vredestein Regal Kaizen Maloya DuraTyres DuraTread


Apollo Tyres, Ltd.Major Products and Services

REVENUE ANALYSIS

Apollo recorded revenues of INR88,677.2 million ($1,933.2 million) in FY2011, an increase of 9.2%over FY2010. For FY2011, India, the company's largest geographic market, accounted for 61.5%of the total revenues.

The company’s operations comprise of only one business segment: automobile tyres, automobiletubes and automobile flaps. However, based on the product, the segments can be classified as:truck-bus (43% of the total revenues in FY2011), passenger vehicles (33%), light trucks (10%),agriculture and off-the-road (10%), and others (4%).

Revenues by product category

In FY2011, the truck-bus product category recorded revenues of INR38,131.2 million ($831.3 million).

The passenger vehicles product category recorded revenues of INR29,263.5 million ($637.9 million)in FY2011.

The light truck product category recorded revenues of INR8,867.7 million ($193.3 million) in FY2011.

The agriculture and off-the-road product category recorded revenues of INR8,867.7 million ($193.3million) in FY2011.

The others product category recorded revenues of INR3,547.1 million ($77.3 million) in FY2011.

Revenue by geography

India, Apollo Tyres' largest geographical market, accounted for 61.5% of the total revenues in FY2011.Revenues from India reached INR54,562.7 million ($1,189.5 million) in FY2011, an increase of 8.3%over FY2010.

South Africa accounted for 13.3% of the total revenues in FY2011. Revenues from South Africareached INR11,770.9 million ($256.6 million) in FY2011, an increase of 7.6% over FY2010.

Europe accounted for 25.2% of the total revenues in FY2011. Revenues from Europe reachedINR22,343.6 million ($487.1 million) in FY2011, an increase of 12.3% over FY2010.


Apollo Tyres, Ltd.Revenue Analysis

SWOT ANALYSIS

Apollo Tyres Limited (Apollo or ‘the company’) manufactures and markets tyres, tubes and flaps.The company provides tyres for trucks and buses, light trucks, passenger cars, jeeps, and farmvehicles. Apollo has a strong brand recall. The company sells a range of tyres under various brandnames in India, Africa and Europe. Brand recall facilitates easy customer recall and better acceptanceof new product launches. However, intense competition could force the company to reduce prices,which could impact the bargaining power of the company and strain its margins.

WeaknessesStrengths

Absence in two and three wheeler tyresegments

Strong brand recallRobust distribution and dealership network

Involvement in cartelization attracts finesInorganic growthLeading market position

ThreatsOpportunities

Competitive pressurePositive growth perspectives in the Indianautomotive market Volatility in raw material pricesExpansion into Sri Lankan automobilemarket through tie-up

Labor unrest and lock outs hits financialsand production

Growing demand for radial tyres in India

Strengths

Strong brand recall

Apollo has a strong brand recall. Brand diversity is one of the company's strengths. The companysells a range of tyres under various brand names in India, Africa and Europe. Manufactured in India,South Africa and the Netherlands, the company's product portfolio covers the entire range ofpassenger car and 4×4 (summer and winter tyres), light truck, truck and bus, agriculture, industrial,off-the-road and bicycle tyres, and also includes retreading material, retreaded tyres and alloy wheels.Apollo, Vredestein and Dunlop are the company's three flagship brands. Other brands include Regaland Kaizen (truck bus tyres), Maloya (passenger car) DuraTyres (retreaded tyres) and DuraTread(retreading material). The presence of strong and established brands in the company's portfolio, ineach of its country operations, lends credence to its growth plans.

Furthermore, according to the industry experts, Dunlop which is sold in 32 African countries emergedas the leading brand in the tyre category in South Africa's iconic brands in FY11.Therefore, Apollo'sstrong brand portfolio facilitates easy customer recall and better acceptance of new product launches.


Apollo Tyres, Ltd.SWOT Analysis

Robust distribution and dealership network

Apollo has a strong distribution network within India, South Africa and Europe.The company operatesthrough a network of branded, exclusive or multi-product outlets in India, Southern Africa and Europe.It has a network of over 900 dealerships across Africa and South America, of which 200 are Dunlopaccredited dealers. The company operates 'Dunlop Zones' branded outlets in South Africa, while inIndia its outlets include Apollo Tyre World (for commercial vehicles) and Apollo Radial World (forpassenger cars). Apollo exports its products to over 70 countries across the world, including Europe,Africa, the Middle East and South-East Asia. Strong distribution network helps Apollo to improve itssales and to strengthen its market position. In addition, Apollo’s diversified market base across threecontinents enables it to reduce its dependence, and thereby, the inherent risks of banking on a singlemarket, as compared to its Indian competitors.

Inorganic growth

Apollo focuses on acquisitions to expand its business and to earn more revenues. For instance, thecompany acquired Dunlop Tyres International (Proprietary) (now renamed as Apollo Tyres SouthAfrica), South Africa, in 2006. Following this acquisition, Apollo now holds brand rights for the Dunlopbrand across 30 African countries. Additionally, in FY2009, the company acquired 100% stake inthe European tyre manufacturer, Vredestein Banden (VBBV), a Netherlands based tyre manufacturingcompany with a production capacity of 5.5 million tyres per annum. This acquisition marks Apollo'sefforts towards realizing its goal of becoming a global player. Thus, the acquisition of VBBV benefitsApollo by providing access to the high-end passenger car radial technology and a well establisheddistribution network for entry into Europe. The acquisition also helps the company's combinedoperations through reduced raw material costs as a result of consolidated purchase and access tocost competitive manufacturing base.

Leading market position

Apollo is one of the leading Indian tyre manufacturing companies. The company currently producesthe entire range of automotive tyres for ultra and high speed passenger cars, truck and bus, farm,off-the-road, industrial and specialty applications such as mining, retreaded tyres and retreadingmaterial. The company has strong presence in all the three major segments, including truck andbus, light truck, and passenger car. For instance, the company is the leading manufacturer in thefast-growing passenger car tyre segment in India, reaching the number one position in productionand number two in market share. It is also a strong player in the ultra high performance (UHP)passenger car tyre segment in Europe, particularly in high margin winter tyres. In addition, Dunlophas more than 25% market share in South Africa, and produces tyres for the entire spectrum ofvehicular needs.

Strong market share enables the company to gain more business and increase the investor'sconfidence. In addition, it also enhances the company’s brand image and provides an edge over itscompetitors.

Weaknesses



Absence in two and three wheeler tyre segments

Apollo has no presence in the two and three wheeler tyre segments, especially in India where it isa high growth segment. In comparison, the company's competitors such as CEAT and MRF, selltyres to the two wheeler product segment. The Indian two wheeler market has witnessed a stronggrowth in the recent past and the trend is likely to continue in the future. According to Society ofIndian Automobile Manufacturers (SIAM), sales of two wheelers registered a growth of 15.2% duringApril-December 2011. During this period, mopeds, motorcycles and scooters grew by 9.7%, 14%and 22.5% respectively. In addition, the growth figure for two wheelers was at 8.5% in December2011 when compared to December 2010.

Thus, absence in two and three wheeler tyre segments deprive Apollo an opportunity to capitalizeon this market and expand its revenues and profits.

Involvement in cartelization attracts fines

Apollo is involved in price fixing and price hike allegations in FY2011 which attracted heavy fines.For instance, in January 2012, South African Competition Commission imposed a penalty of INR300million ($6.5 million) on Apollo for indulging in price fixing and price hike in South Africa in 2008when the company was managed by Dunlop.The penalty represents 4.8% of its 2008 total turnover.The fine impose came as a result of South African Commission’s investigation against South AfricanTyre Manufacturers Conference (SATMC) and four local tyre manufacturers and suppliers includingApollo, Goodyear South Africa, Continental Tyre South Africa and Bridgestone South Africa.

Such activities results in imposing heavy penalties on the company which would adversely increasethe operating costs of Apollo and ultimately impacts its profitability.

Opportunities

Positive growth perspectives in the Indian automotive market

The outlook of the automotive industry in India remains positive. It is primarily due to the higherdisposable incomes and easier vehicle financing options available in the country. India is the sixthlargest auto market in the world, with an annual production of more than 3.7 million units in 2010.The passenger car segment, truck and bus, commercial vehicle, two-wheeler, three-wheeler andthe tractor, almost all of these segments are showing exponential growth for several months in arow.

According to the Society of Indian Automobile Manufacturers, annual vehicle sales are projected toincrease to 5 million by 2015 and more than 9 million by 2020, from current levels of 3.7 millionvehicles in 2010. By 2050, the country is expected to top the world in car volumes with approximately611 million vehicles on the nation's roads. The economic liberalization in India that happened in1991 brought in an increase in competitiveness and a relaxation in restrictions. Post 1991, the Indian



car market has been displaying steady growth. Many Indian automotive majors like M&M, MSIL andTata Motors expanded their base both in India and abroad. The Indian automobile sectors healthyand financially viable growth led to the internal development and also gave rise to noteworthyIndia-specific investments by multinational car makers. Major global players like General Motors,Ford, Mercedes-Benz, Volkswagen, Suzuki, Honda, Fiat, Hyundai, Porsche, Audi and more areactive in the country, so does in all other segments of the automotive industry.

Apollo is a dominant player in the automotive tyre market in India. Hence, the company can leverageits strong position and exploit the growing automotive market in India.

Expansion into Sri Lankan automobile market through tie-up

The company is focused on expanding its operations geographically to strengthen its global presence.In this context, in June 2011, the company entered the Sri Lanka market through a tie-up with IdealMotors, the automobile distribution and marketing arm of the Ideal Group of Companies. The IdealGroup is one of Sri Lanka’s fastest growing automobile companies with a focus on assembly,distribution of automotive spares and accessories with multiple outlets throughout the Island. Idealhas also formed a new company, Ideal Wheels & Tyres, for the distribution and retailing of Apollotyres.

Initially Apollo Tyres will focus on passenger vehicle and cross-ply truck and light truck tyres. Thiswill be gradually expanded over time to include Apollo’s entire range currently sold in India, includingtruck bus radial, agriculture and off-highway tyres.The $50 billion Sri Lankan economy is at a criticalinflection point in its growth, spurred by large scale development projects, and is expected to growat a healthy 7% to 8% over the next few years. With its entry at this point in time, Apollo is lookingto partner Sri Lanka in this growth phase of construction of key infrastructure projects, with tyresthat can meet the country’s evolving transportation needs.

Growing demand for radial tyres in India

The demand for radial tyres is growing steadily in India from the past few years. Improved roadinfrastructure, coupled with government's curbs against overloading of trucks along the major freightcorridors, is paving way for a structural shift in India’s tyre industry. The traditional cross-ply tyre fortrucks and buses is losing its sheen and is being replaced by radial tyres. Companies like Apollo,and others have lined up major investments in greenfield radial tyre plants with international tyremajors like Michelin, announcing plans to set up a INR4,000 million ($87.2 million) radial tyre plantin Chennai.

For instance, in February 2011, Apollo inaugurated its fourth manufacturing unit in India near Chennai,Tamil Nadu which currently produces 7,000 passenger vehicle tyres and 1,300 commercial vehicletyres a day, while CEAT is warming up to commence radial tyre production at its greenfield Halolplant in FY2011. With new capacities being added and consumers slowly but gradually shiftingtowards radial tyres, tyre companies are expecting a 25% growth in radial tyres consumption in thenext two to three years from the current 9%.



Radial tyre usage has some advantages as well. The fuel efficiency of a radial tyre is 5% higher incase of new vehicles and 3% when it comes to old vehicles. The sidewall height as a function (or apercentage) of the section width is called the aspect ratio. While cross-ply tyres have an aspect ratioof 0.40, that for a radial tyre is 0.12. The lower aspect ratio leads to better manoeuvrability andsteering capacity. Also, radial tyres can be retreaded thrice compared to twice in case of a cross-plytyre. The annual cost of retreading radial tyres is higher by INR4,335 ($94.5), while the annualsavings on account of its longer life is INR14,865 ($324). The savings on fuel cost is INR15,295($333.4). The total savings is INR25,824 ($563) in comparison to a vehicle running on cross-plytyres. The longevity of radial tyres is twice that of a cross-ply tyre.

In addition, the passenger car segment in India has almost migrated to radial tyres whereasradialization in the commercial vehicle (truck and bus and LCV tyres) is yet to gather momentum.Hence, expanding its operations into the growing radial tyre market enables Apollo to provide acomplete solution to its customers and thus, enhance its brand equity.

Threats

Competitive pressure

Apollo operates in a highly competitive industry. On a worldwide basis, the company competes withBridgestone and Michelin, among others. Other significant competitors include CEAT, GoodyearIndia, Govind Rubber and MRF. In addition, the company faces increased competition frommultinational tyre organizations, with deep pockets and huge spends on R&D and advertising,entering the truck radial segment in India.

Furthermore, the Indian tyre manufacturing industry is also suffering intense competition from lowpriced tyres manufacturers based in China, Thailand, Korea and Malaysia. For instance, several carmanufacturers in India are looking at importing tyres to make up for the shortages that are impactingtheir 2012 production plans. For instance, in 2011 major truck and bus manufacturers like TataMotors and Ashok Leyland imported tyres from China and Thailand to offset shortages in the domesticmarket.

Intense competition could force the company to reduce prices, which could impact the bargainingpower of the company and strain its margins.

Volatility in raw material prices

The principal raw materials used by Apollo are natural rubber, crude and steel based materials.Natural rubber typically accounts for significantly more than half of all rubber consumed by thecompany on an annual basis. Natural rubber continued its upward trend during FY2011 as the pricesmoved from a level of INR140 ($3) per kilogram (kg) in December 2009 to more than INR220 ($4.8)per kg in December 2011. In addition, it recorded INR200.5 ($4.4) at the end of March 2012. Thedemand and supply gap in the Indian industry widened to 100,000 metric tonnes due to production



shortfall and increased demand on the back of economic recovery. Natural rubber imports continueto attract customs duty of 10% in 2012 as against 20% in 2011. The production in Malaysia andIndonesia has been lower due to erratic weather conditions and has also been impacted by theunrest in Thailand.

The pricing volatility for natural rubber contributes to the difficulty in managing the costs of rawmaterials. Increasing costs for raw material supplies would increase Apollo's production costs andimpact its margins if the company is unable to pass the higher production costs on to its customersin the form of price increases.

Labor unrest and lock outs hits financials and production

The company has been involved in labor issues. For instance, in June 2010, Apollo's Perambraplant based in Kerala, Southern part of India, witnessed a production halt due to lockout and laborunrest due to long-term settlement negotiations. This unit constitutes a fourth of Apollo's dailyproduction output. The company mainly manufactures truck and bus cross-ply tyres (bias tyres) atits Perambra facility. Daily production is estimated at 300 tonnes per day or 100,000 tyres a month.Since each bias truck tyre costs INR9,000 ($190), the company incurred a loss of around INR900million ($19 million) a month or INR30 million ($0.6 million) per day. Normal operations was resumedin August 2010, after a more than two-month long lock-out which led to a loss of INR6,000 million($126.7 million). In other such incident, two of the company's units in South Africa faced labor unrestthereby completely disrupting production. Such labor issues disrupt operations which can hinder thereputation of Apollo. Further, the company also has to incur higher expenses to meet the expectationsand demands of the workforce which could strain its revenues. Hence, frequent lockout’s such asthese in the near future would have an adverse impact on the company’s overall production outputand also its revenues.



TOP COMPETITORS

The following companies are the major competitors of Apollo Tyres, Ltd.

Govind Rubber Ltd.MRF LimitedCeat LimitedJK Tyre & Industries LimitedThe Goodyear Tire & Rubber CompanyBridgestone CorporationCompagnie Generale des Etablissements MichelinContinental AGCooper Tire & Rubber CompanyPirelli & C. S.p.A.Toyo Tire & Rubber Co., Ltd.


Apollo Tyres, Ltd.Top Competitors

COMPANY VIEW

A statement by Onkar S Kanwar, Chairman and Managing Director of Apollo Tyres Limited is givenbelow. The statement has been taken from the company’s 2011 annual report.

Dear Shareholder,

Five years ago, in my annual letter to you I first informed you of your company's strategic plan toreach a turnover of $ 2 billion by the year 2010-11. Many in the industry looked doubtfully at acompany that was then less than $ 500 million. However you, our shareholders, once again reposedin us your full faith and trust, and it is a matter of great delight for me to report to you that yet againthe team at Apollo has lived up to your confidence. Targets are set, and targets are achieved.However, what is often critical is the manner in which a goal is attained. My confidence in the futurestems more from the work that has gone into putting systems and processes in place for the comingyears, than the achievement which is already behind us.

What next for ApolloTyres?

We exist in an industry, and indeed a world, that is going through a period of ever-escalating change.Whether in our markets, or in our raw materials or indeed in our people and processes, we have tokeep pushing the envelope to ensure that we remain ahead of the game. Our imperative is to bemasters of our fate, and the only way to do that is to be flexible, alert, scaled up and yet agile.

For your Company, at all points in time, the mantra has been to deliver maximum value to each ofour stakeholders. We believe that realizing our own potential as an institution, as employees, asguardians of your trust is what allows us to deliver value year on year. This means that as we reacha milestone, it is time again to begin a journey in pursuit of the next – this time one that stretchesand challenges us even more than before, and one that seems more audacious than the last.YourCompany's aim is to be ranked among the Top 10 tyre manufacturers in the world! We believe,realizing our potential, is no different from dreaming dreams and then working hard to make thema reality.

In these past few years, your Company has made certain significant and large scale investmentstowards the future. These relate to building a series of world class infrastructure of plants andmachinery across India, South Africa and Netherlands, to be able to produce efficiently to satisfyrising market demands, including a state-of-the-art plant in Chennai. Significant investments areplanned in research and development, which will move your Company to a more sustainable future,with the use of 'green' materials, and increased fuel efficiency from our tyres. Most importantly, wewill continue investing in our people, empowering and enabling them to make all this possible, whileadhering to the highest standards of transparency and governance.


Apollo Tyres, Ltd.Company View

In short, we continue to create a foundation for future growth, which your Company will now use asa springboard to realize its true potential. Our plans going forward continue to remain as ambitiousas ever.

Expansion across geographies: A widening of our product range and providing best-in-class servicescontinue to remain focus areas. Even as we plan the path ahead to becoming one of the Top 10tyre manufacturers in the world, the challenges of operating in a global world are a reality like neverbefore.

For the tyre industry as a whole, it has become increasing difficult to secure profits – the much-neededresources to fuel future growth. The challenges before your Company and the industry are multiple.Uneven levels of growth, and the inability of some economies to recover fully from the slowdown,might be dampeners, but definitely are not deterrents for your Company. These are global realities.What works to mitigate this is a team that is in place, capable of strategic planning, continuedinnovation and quick implementation to work around today's global issues.

However, one critical area continues to plague our industry – unmitigated rise in the price of our rawmaterials. As you well know, this year, we have witnessed unprecedented natural rubber priceswhich show no signs of softening. Moreover, the gap between the demand for natural rubber acrossthe world, and its supply, is also increasing every day. I assure you, your Company is working onthis issue, on all fronts to address it effectively. Our research teams are working to find ways andmeans to decrease this unconditional dependence on natural rubber to whatever extent possible.Simultaneously, your Company is working to decisively enter the area of rubber plantations to securefor ourselves a captive source of natural rubber. We have made a small beginning, which we arenow looking to grow to its complete potential.

As I look ahead, I am confident and optimistic about the direction being taken by your Company.We believe that realizing our potential is not a one time job. The horizon expands every day.YourCompany will go the distance to bring to you its real potential in all that it does, year on year.

I would like to thank you for being an active partner throughout our journey so far, and seek yoursupport in the growth years that are ahead of us.

With all good wishes to you and your families.


Apollo Tyres, Ltd.Company View

LOCATIONS AND SUBSIDIARIESHead Office

Apollo Tyres, Ltd.7 Institutional AreaSector 32Gurgaon 122001HaryanaINDP:91 124 272 1000http://www.apollotyres.com

Other Locations and Subsidiaries

Apollo Tyres South Africa (Pty) LtdApollo Vredestein B VDunlop HouseIr. E L C Schiffstraat 370265 Sydney Road7547 RD EnschedeCongella, 4001NLDDurban 4000ZAF

Dunlop Road Cnr. DunlopApollo Tyres LtdPlumtree RoadsVI Floor Cherupushpam BuildingDonningtonShanmugham RoadBulawayoKochiZWEKerala 682031

IND


Apollo Tyres, Ltd.Locations and Subsidiaries

MARKETLINE | 119 FARRINGDON ROAD | LONDON, UNITED KINGDOM, EC1R 3DAT: +44 161 238 4040 | F: +44 870 134 4371 | E: [email protected] | W: www.marketline.com