Apollo's mission to conquer the world

Apollo Tyres is on a roll. On May 15 this year, the Indian tyre maker swallowed Vredestein—a bluechip, hi-end Dutch tyre maker—for $235 million (Rs 1,128 crore) and vaulted over its Indian competitors MRF and JK Tyre by pumping up its $1 billion (Rs 4,800 crore) revenue stream by a cool $415 million (Rs 1,993 crore). This deal is the second high-profile international acquisition for Apollo. In 2006, it acquired Dunlop’s South Africa operations and, in a snap, added 25 per cent to its top line growth. The company promises that more acquisitions are around the corner. “We want to be in the top five tyre makers in the world,” says Apollo Chairman, Onkar Kanwar. “Why, you don’t think we can?” he asks, with a smile.

Onkar Kanwar

Now, if the folks over at the Michelin headquarters in Clermont-Ferrand, France are reading this, they’re probably rolling on the floor with laughter at Onkar Kanwar’s hubris. Michelin, after all, is the gold standard for tyres — it actually invented the removable pneumatic tyre in 1891 and radials in 1946. It has 20 per cent of the global market share — Apollo’s is negligible — and fifteen times more revenue than Apollo. In fact, the rest of the top ten or twelve tyre makers — which include Yokohama, Sumitomo and Hankook — are a notoriously scrappy bunch in a ruthlessly competitive industry.

Still, Onkar Kanwar is not an easy man to ward off. He loves a good fight. Kanwar has taken Apollo from a bankrupt, rudderless company—even wresting it away from his father in a prolonged, public and debilitating family spat—into one of India’s top truck tyre makers with global ambitions. Question is, can his son Neeraj, 38 — who has been in charge of the firm’s operations for several years now—continue Apollo’s dream ride?

Trucks—the lifeblood of the transportation system in India—run through their tyres every six months or so and replacing them is big business for Apollo, making up 70 per cent of the firm’s revenues but just 60 per cent of total production tonnage. Two tectonic changes, however, have come along and threatened Apollo’s dominance in truck tyres, sending the company scrambling for new strategies. Indian truckers are increasingly opting for radials—which Apollo has been a laggard in. Up to now, truckers loathed radials. They are as much as 40 per cent more pricey than a nylon-threaded, cross-ply tyre (or “bias”). Plus, biases allow you to do the one thing that Indian truckers are best at—overloading, and that too, by as much as 50 per cent. Radials give you less of a cushion and don’t handle overloading as well.

Today, though, radials are suddenly hot thanks to an infrastructure boom. With better roads to drive on, truckers are beginning to realise that radials can, in fact, save them more money per kilometre, on gas, than biases— Rs 9/km versus Rs 14/km. Radials also have a longer life and far fewer punctures. Consequently, radial penetration for trucks has zoomed—from two per cent a few years ago, to around 10 per cent today, and is slated to reach 25 per cent by 2013. A veritable war to corner the truck radial market is likely to be waged across Indian truck dealerships in the next five years.

South Asia is also in the middle of an automobile boom and despite lowmargins, to be a serious global player you need to have a significant presence in passenger car tyres, says Rajiv Budhiraj, Director General of the Automotive Tyre Manufacturers Association. Producing car radials in India—the industry is 98 per cent radialised— has been a problem for Apollo. Bridgestone’s car radials rule the market and Apollo clearly had to move fast or lose market share in both the car and truck segments.

The lynchpin to any tyre maker’s success today is superior technology—something that Apollo was frantically seeking since the year 2000 but just wasn’t able to close on. Around 2005, another realisation had set in: “If you are already amongst the largest players in the country, your growth would have to come from somewhere other than current core markets—that meant from outside of truck and outside of India,” says Apollo’s CFO Sunam Sarkar. The company decided to set up a greenfield manufacturing plant in Hungary to make tyres for the European and Indian markets, but the deal was torpedoed by local interest group who didn’t want a tyre plant sullying their pristine landscape.

Licking its wounds, Apollo retreated to India, where almost instantly—and magically—the deal of a lifetime fell into its lap. Michelin, the world’s most reputed and secretive tyre maker, wanted to come to India, and specifically wanted to team up with Apollo. “The late Eduardo Michelin approached Apollo—not the other way around— and said, ‘I can help you with radials in the Indian market’,” says Neeraj Kanwar. “Obviously, we felt elated,” he adds.

Perhaps, it was never meant to be. The reasons for the implosion of the 51:49 Michelin-Apollo deal—where the two companies would jointly invest in a radial plant—are many and varied, and they all probably have some merit. “The market is supposed to have grown at 12 per cent by our calculations, but it just didn’t,” says Neeraj. Industry insiders also make allusions to the famously superior French attitude that soured things a little. Onkar’s version, however, probably comes closer to the truth: “They wanted access to the market but did not want to give access to technology,” he says.

Once again, the entire pantheon of Greek gods must have been shining upon Apollo—a mere two weeks after the Michelin deal went bust, Apollo learnt that Dunlop was selling its South Africa operations. The company went after it like a hound chasing a hare. Onkar jetted to Amsterdam, landed in time for a breakfast meeting with the Dunlop head and made him an offer he couldn’t refuse. In under twenty-four hours, Apollo added three tyre plants, 25 per cent more revenues and all the pieces to the puzzle that it had been seeking: namely, a well-run company that was a gateway to a growth market—in this case, Africa; sophisticated radial technology; an export base from which it could send tyres to South America and Europe.

The recent Vredestein deal similarly gives Apollo both sophisticated technology and easy access to the coveted European replacement market. It will get a chance to fit Apollo-Vredestein branded high-end tyres onto state-of-theart machines such as Porsches, BMWs and Audis that slalom up and down autobahns at dizzying speeds of over 250 kilometres an hour.

The Vredestein coup marks a long, tough road for the soft-spoken Onkar Kanwar who returned home after studying in California in the ’70s, to work for industrialist father Raunaq’s tyre company—the licence for which Raunaq had purchased in a distress sale. In the early ’80s, Apollo was bleeding Rs 30 crore annually but had capital of only Rs 8 crore. While Onkar wanted to grow the firm to be India’s leading tyre maker, Raunaq had been ploughing all of Apollo’s cash into ventures run by his other sons. An intense struggle between father and son to control the company got underway in early ’90s and lasted nine long years. “It was terribly upsetting for me,” says Onkar. “For one year, I was very sick and went through many problems,” he admits. Neeraj, who was in the US at the time, came back to India in time to witness the internecine battle for Apollo. “It was a big shocker. I didn’t want to get involved, and stayed out of it,” he says.

Eventually, the board appointed Onkar as the sole Managing Director. Raunaq would remain chairman, but this was, in reality, merely an honorarium. Did Onkar and the father ever make-up? “Both of us had a lot of acrimony but we did reconcile… However, when you create a crack in the glass it doesn’t really mend. Similarly, our relationship didn’t stay the same,” says Onkar.

Through all of this, Onkar was building Apollo in unconventional ways. He picked “children of station masters and school teachers” from tier two universities knowing that they would be more loyal than their elite IIM brethren. He also learnt through failure: The firm sourced technology from US’s General Tire, but found that “tyres were being rejected faster than they were being made,” says Kanwar. Apparently, the outsourced formula was from “cold compounds,” and ideal only for American roads.

Today, Apollo has a big leg up over its domestic rivals. Its foreign plants give it cutting edge technology which it has leveraged for its domestic business. For instance, both radial tyres that Apollo sells to Indian truckers come from South Africa. It is able to attract world-class talent—its technology chief is a German, Peter Becker, who spent 23 years testing tyres for Dunlop. The firm is consistently profitable—Apollo was the only Indian tyre company to make money in the first nine months of FY09. It also leads in tyre exports by a long shot.

Still, Apollo’s domestic rivals, JK Tyres and MRF, are no pushovers, with respected brand names—even stronger than Apollo’s in passenger cars. Both companies are rapidly building additional tyre plants and JK Tyre has even begun its own global foray, picking up Mexico’s Tornel tyre company for Rs 800 crore last year, giving it access to the US, the world’s largest tyre market.

Also, fending off a Michelin onslaught on home turf — the firm is planning a plant in Tamil Nadu, which will jumpstart its India operations—will be a considerable challenge for Apollo. The French company has recently announced plans to build a mammoth Rs 7,000-crore greenfield unit in Tamil Nadu, which will flood the Indian market with its radials. Apollo will also be forced to compete with emerging giants like Hankook and Kumho who have several plants already in China, and are poised to go after the same markets that Apollo is eyeing.

Consequently, Neeraj Kanwar has been preparing for battle. The company has spent Rs 1,300 crore on a car and truck radial plant in Chennai, which he says will make Apollo the undisputed market leader across all segments. “My thinking is very clear. Whatever, business I want to get into, I want to be a leader in. Otherwise there’s no point putting money there,” says Neeraj. That’s a bold plan, but keeping Apollo on its ambitious growth track amidst brutal competition might require greater chutzpah than what Onkar Kanwar has demonstrated so far.