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Apollo Tyres explores equity tie-up with Continental AG - Views on News from Equitymaster
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  • Oct 14, 1999

    Apollo Tyres explores equity tie-up with Continental AG

    Newspaper reports reveal that Apollo Tyres is courting Continental AG of Germany (fourth largest global tyre manufacturer) for an equity tie-up.

    Apollo Tyres is a leading tyre manufacturer in the country, with large exposure to the truck and bus segment (T&B), which accounts for 80% of total revenues. It is the second largest company in the T&B segment with 15% market share.

    Currently, Apollo Tyres has a technical tie-up with Continental Tyres AG. Last month, it inducted Continental's International Business Unit chief on the board of directors. It now wants to cement the relationship with an equity tie-up.

    An equity tie-up (if and when it goes through), will ensure greater commitment on the part of Continental AG. It will give the company a foothold in India. Where Apollo Tyres is concerned, it will give the company a big technical edge over rivals (mainly MRF). Currently, the biggest priority for the company is to develop high-end truck radials based on state-of-the-art technology sourced from Continental AG. The company plans to increase focus on new generation radial tyres and wants to add value to its brands. The equity tie-up will enable Apollo Tyres to achieve all this and more. Continental's equity participation will also open up European markets for the company's exports.

    Currently, Apollo Tyres is competing with MRF for a piece of the T&B action. With Continental's equity participation and technical strengths, it shall be able to enhance market share in this segment from the current 15%. However, if Continental contributes to equity it may demand greater say in the company's functioning, which could lead to problems in the future. Several JVs that began with a bang, dissolved, when matters came to a head between the two partners.

    Another matter of concern for Apollo Tyres is the fact that currently Continental AG has technical tie-ups with JK Tyres and Modi Rubber. Industry sources reveal that both these companies are also actively wooing Continental for an equity tie-up. So, as far as Apollo Tyres is concerned, it's a case of catching the big fish before the competition.

    Market view:
    Analysts have recommended a 'BUY' on Apollo Tyres as they see improved performance on the back of a demand recovery in commercial vehicles (CV) and firming up of freight rates.



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