Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Apollo Tyres Vs Michelin - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 1, 2003

    Apollo Tyres Vs Michelin

    In a move that will have wide ranging implications on the Indian tyre industry, Apollo Tyres, India's largest manufacturer of bus and truck tyres, joined hands with Michelin, a transnational player, to manufacture tyres for the truck and the passenger car industry. Against this backdrop, let us compare the two companies across key financial parameters.

    Apollo Tyres: It is one of India's leading tyre brands and has a leadership in the truck tyre replacement market. Besides having a strong presence in the commercial vehicle OEM segment, the company also supplies to car and tractor OEM majors.

    Michelin: Michelin, on the other hand, is a global behemoth and the world's largest tyre maker commanding a near 20% market share. It manufactures tyres for all the business segments viz cars, trucks and two-wheelers and even aircraft radial tyres. Besides tyres, the company is also into the manufacturing of suspension systems and has travel and tourism oriented publication services.

    Since we are comparing two companies, which do not cater to the same market, it becomes imperative for us to have a look at the dynamics of the market that each of the two companies operate in.

    Michelin is a market leader in a global tyre industry whose size is pegged at close to US$ 70 bn and where almost 85% of the demand comes from the car and truck segment. The world tyre industry is highly consolidated one and the top three players account for nearly 61% of the industry market share. Close to 87% of Michelin's revenue are generated from the mature markets of Europe and North America and therefore if the company has to grow at a faster rate in the future, it will have to concentrate on developing regions such as China and India.

    Michelin's Indian counterpart, Apollo Tyres, operates in an industry whose size is estimated at US$ 2.7 bn (4% of world market share). The industry is expected to grow at a healthy rate of around 12% to 15% on account of availability of cheap financing for vehicles and ever improving road infrastructure. While the unorganized sector accounts for nearly 50% market share in low value add bicycle tyres, more than 70% of the market share in car, bus and truck tyres is constituted by top 5-6 players.

    Let us have a look at how the two companies compare on various financial parameters:

    Parameter Units Apollo Tyres Michelin**
    Operating ratios      
    Net Sales (Euro m) 303 15,645
    CAGR-5 years (%) 14.8% 5.8%
    OPM (%) 10.3% 14.9%
    NPM (%) 5.9% 3.7%
    Sales/NFA (x) 2.0 2.7
    Working capital to sales (%) 13.1% 39.9%
    R&D as a % of sales (%) 0.3% 4.5%
    Return ratios      
    RONW (%) 29.0% 12.9%
    ROIC (%) 20.9% 9.1%
    ROA (%) 11.7% 3.6%
    Valuation ratios      
    Current price (Rs)* 242 33
    P/E (x) 7.3 8.1
    P/BV (x) 2.2 1.0
    Market Cap/Sales (x) 0.6 0.3
    EV/EBDITA (x) 7.9 6.5

    *Michelin price in Euros, **December 2002 ending

    Revenues of Apollo Tyres have grown at a faster clip than Michelin mainly on account of the fact that Apollo Tyres is present in a developing country, which has seen a surge in the sales of automobiles owing to introduction of newer models and relatively hassle free financing. Michelin, on the other hand, is present in mature and developed markets and as a result has experienced modest growth rates in the past 5 years. Moreover, increased use of technologically superior tyres and better quality roads, help in ensuring the longevity of tyres, thus resulting in lower off take in the replacement market as well.

    On the operating front, Michelin has proved to be more cost effective than its Indian counterpart mainly on account of its diversification and huge size that helps it to leverage on the economies of scale and command bargaining power over its suppliers. Apollo Tyres, however, steals the thunder from its counterpart by clocking higher returns at the net profit levels and also various return ratios.

    As far as the alliance between the two is concerned, we believe that it is a win-win situation for both the companies. The alliance gives Michelin, an opportunity to gain a foothold in the Indian tyre market which is showing a lot of potential and it also does away with the need to set up a marketing network of its own as Apollo Tyres has one of the best distribution network in the country (around 4,000 dealers). Apollo Tyres, on the other hand, will benefit from the technical expertise of Michelin and help it come out with better variants in bus and truck radial tyres and thus help it maintain its leadership in this segment. Not only this, it will also help Apollo Tyres, make inroads into the car tyre market.

    On the valuations front, the high valuation given to Michelin despite its presence in mature markets underscores the company's market leadership and the growing presence in emerging markets. The valuation of Apollo Tyres on the other hand, is likely to see an increase once the alliance with Michelin manifests itself in the bottomline growth of the company. However, the increase in rubber prices (major raw material for the tyre industry) and competition from cheaper imports from China might prove to be a cog in the Apollo wheel.



    Equitymaster requests your view! Post a comment on "Apollo Tyres Vs Michelin". Click here!


    More Views on News

    Atul Auto: Demonetization Impacts Volumes and Profitability (Quarterly Results Update - Detailed)

    Mar 1, 2017

    Atul Auto has reported a 11.2% YoY decline in the topline while the bottomline has declined by 23% YoY.

    Endurance Technologies Ltd (IPO)

    Oct 4, 2016

    Equitymaster analyses Initial Public Offering (IPO) of Endurance Technologies Limited

    GNA Axles Limited (IPO)

    Sep 14, 2016

    Should you subscribe to GNA Axle IPO?

    Precision Camshafts (IPO)

    Jan 27, 2016

    Precision Camshafts Ltd (PCL) is one of the world's leading manufacturer and supplier of camshafts, a critical engine component, in the passenger vehicle segment.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 21, 2017 (Close)


    • Track your investment in APOLLO TYRES with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Compare Company With Charts