The New Delhi-based Apollo Tyres Ltd is considering building a greenfield tyre plant in south India. It is looking at Tamil Nadu and Andhra Pradesh as options.

According to Onkar S Kanwar, Apollo's vice chairman and managing director, "The project outlay will be around Rs 300 crore and the plant capacity will be 100 tonnes per day." The project will be funded out of internal accruals and term loans. Kanwar rules out any equity infusion. It may be recalled that Apollo Tyres recently issued partly convertible debentures to the promoters.

According to Mr Kanwar, the proposed facility will roll out truck and bus (radial and bial) and earthmoving equipment tyres. Further, if negotiations with Hyundai Motors (India) Ltd for original equipment supplies succeed, the plant will also roll out car radials.

The new investment is part of the Rs 400 crore investment announced by the company recently. The company commissioned its Rs 80 crore, 1 lakh tyres per annum capacity car radial tyres plant at Baroda this January.

For Apollo Tyres, a plant in Chennai makes economic sense. The company would be able to cut freight costs while supplying to Ashok Leyland (truck tyres), Tafe (tractor rear tyres) and Hindustan Motors Ltd for its earthmoving equipment -- all of whom are located in and around Chennai -- and also for catering to the southern replacement market.

Currently, Apollo Tyres has two facilities in Kerala, from where the southern demand is met. "The south accounts for 15-18 per cent of the country's total truck tyre market," according to Mr Kanwar.

The peaceful labour environment in Tamil Nadu would help Apollo Tyres. The company has had serious labour problems at its plants. The company can control costs better with its own new facility -- it is currently outsourcing a sizeable number of tyres from the Tyre Corporation of India Ltd, S Kumars, Stallion. And, since Chennai is a port city, exports too will become competitive.

Adds Neeraj Kanwar, chief, manufacturing and strategic planning, at Apollo Tyres, "We are studying the economics - incentives, sales tax exemptions, etc. - of locating the unit in Chennai and Andhra Pradesh."

The new facility, wherever it may come up, will boost Apollo Tyres' capacity from the current levels of 2.44 million tyres annually.

In the meanwhile, Apollo Tyres' talks with Continental AG remain inconclusive. When asked about these negotiations, which could result in the German company taking a 15 per cent stake in the Indian tyre maker's equity, Onkar S Kanwar says, "The final decision will be taken in three months."

The Rs 8,500 crore Indian tyre industry has attracted substantial foreign interest. Global majors, such as Bridgestone and Michelin have already invested in Indian production facilities. Korean tyres are being imported.

An equity partnership with Continental will enable Apollo Tyres to access advanced technology. All the global tyre giants spend huge sums in R&D efforts. Apollo Tyres' own R&D expenditure is a meagre Rs 15 crore. This effort is focussed on the study of use of different types of rubber chords and chemicals in tyre manufacture, according to Neeraj Kanwar.

The problem: Continental is also talking to two other Indian companies - JK Tyres and Modi Rubber -with both of whom it has technical collaboration.

Amazing performance

A marginal player in the tyre industry a decade ago, Apollo Tyres leads the replacement market in the heavy vehicle and car radials segments. It has achieved this through acquisitions and contract manufacturing.

One of the reasons for Apollo Tyres going in for a greenfield project is its confidence to expand its market share. "The focus is to increase our market share to 25 per cent from 15-18 per cent in all the market segments," Mr Onkar Kanwar says.

Bus and truck tyres account for a lion's share of the industry's revenues. Since the OE market is margin-sensitive, all the action is focussed on the lucrative replacement market, especially in the heavy vehicles segment. According to Satish Sharma, product manager at Apollo Tyres, "The size of the truck tyre replacement market is 4 lakh tyres per month, and our share in that is 25 per cent."

Though the volume will be small, talks have been initiated with Volvo India.

Apollo Tyres is also giving MRF Ltd, the leader in the car tyres market, a run for its money. Its Apollo Excel tyres, rolled out from its Baroda plant, have received an excellent response in the marketplace, according to the company.

In the OE segment MRF has been losing its hold to Bridgestone. And in the replacement market, Apollo Tyres has become a major threat. Apollo Tyres is now negotiating with Hyundai Motors and Hindustan Motors for OE sales.

The Kanwars want to reach top spot in the light commercial vehicles segment by March 2001. In the two wheeler market, Apollo is focussing on the motorcycle tyres market.

To boost sales, Apollo Tyres has tied up with Castrol India and Kotak Mahindra Finance. Apollo Tyres dealers will stock Castrol lubes and improve their earnings. The tie-up with Kotak Mahindra will facilitate sales by providing finance for tyre purchases, for the first time in India. Apollo Tyres has increased its ad budget to Rs 35 crore from Rs 25 crore earlier, in order to push sales.

With all car makers planning to expand capacities, the car radial market is expected to expand rapidly. According to the Apollo management, the company sells 1.1 lakh of the 5 lakh car radials sold per month in India today.

At present, the company's tyres are fitted as OE in Hindustan Motors' Ambassador and Contessa models, in tractors from Tafe, Punjab Tractors and Mahindra & Mahindra, and trucks made by Ashok Leyland and Telco.