Apollo Tyres has obtained an enabling resolution to raise USD 200 million and will look to fuel its growth through the organic route, Neeraj Kanwar, vice chairman and managing director of the firm has said.
Also read: How the Apollo, Cooper Deal was botched
Apollo had made an ambitious USD 2.5 bid for US-based Cooper Tires -- something that did not play out – but in an interview with CNBC-TV18's Shereen Bhan, Kanwar said the company may dilute equity to fund its future growth.
Kanwar also discussed the company's Indian and global plans and said that even as competition in its local market was increasing, it expected to maintain its market share.
Below is the edited transcript of the interview on CNBC-TV18.
Q: You have been spending a fair amount of your time in London. London is home for you now. What does India look like now that you paid a visit back after the new government has taken over?
A: India today at least when I am in London there is a lot of positive noise of India being back on track. A lot of investments, I see the same guys who were saying that they were very negative about the economy and very negative about the country for business are now becoming more and more positive. Everyone is still sitting on the boundary line. They are still waiting and watching on when is the right move to come into the country.
Q: So they are waiting for concrete decisions to be taken by this government in terms of policy?
A: In terms of policy, we are seeing that there is something actually happening at the ground level, implementation of policies, opening up of infrastructure. The government has made all the pro growth noises and one has to see whether they are going to be implemented physically on the ground and that is what the world is waiting to watch to see.
Q: How confident are you feeling about the auto sector because after a painful 12 months the passenger car business seems to have started to see a turn around, we have seen three months of consistent growth coming in for the passenger car segment, commercial vehicles still looking not so good and the prescription from commercial vehicle manufacturers seems to suggest that at least another two quarters before we will see some real visible turnaround in the sector. What is your own sense?
A: The passenger segment has started like you are saying it has started growing but we need to see a whole six month period of how the passenger vehicle will grow. We are now running up to Diwali and that is the main season to see pre Diwali, post Diwali what happens.
So there is a general tendency for people to buy before Diwali but post Diwali is that curve still going up and the trend still going up this is what we need to see. As far as commercial vehicle (CV) is concerned we are seeing signs of a growth coming in from before, not that they have reached their peak because peak was in 2011. They are nowhere close to that vehicle manufacturing.
Q: Only the deceleration has stopped at this point in time in a sense?
A: Yes, so they are coming back up but again, like I said people are waiting to watch. Once the infrastructure growth project starts then you will see CV booming but there is a lot to be seen on the ground. As far as farm is concern and that is a big concern for us. Farm sector is really down. The Q1 was very bad and Q2 has even seen worse.
Q: Speaking of challenge and problems and you announced your results a short while ago. There was a fair degree of volatility as far as your stock was concerned and there is a mixed set of opinions on the street; some positive and some not so positive. Let me get you to address some of the concerns that investors have. I am bringing up the concerns that brokerages who have a sell call on Apollo Tyres have raised. Let me start by getting you to address them one by one. The first concern is the increasing focus of multinational companies and technological advantages in truck, bus and radials which would results in a market share loss for domestic players like yourselves. Do you believe that this is an exaggerated threat or do you believe that you are well poised both on the technology R&D front or do you really see an erosion as far as your market share is concerned on an account of competitive pressure?
A: As far as India for Apollo is a concern I can talk about myself. We are very well positioned as far as technology and products are concerned and why I say that is today our truck radial product has grown 25 percent Year-on-Year (Y-o-Y). We have a brand new facility in Chennai which is up and running which is reaching terminal capacities. We have garnered market share, we are today clearly the leaders at around 30 percent market share in the Indian truck market.
If you see competition, multinational specifically, they all are here. Michelin has put up a plant in Chennai; Bridgestone is putting up a plant in Pune. So we have all of them here. As far as technology is concerned today customer's voice is the main voice and that shows in the market leadership and the price positioning.
Today I will not say we are clearly the leaders in price because there would be a gap of 1 percent from the international competition but we are clearly the market leaders and that shows in the technology that we have created for our products for our customers in India.
Q: Will you be able to hold prices?
A: Not the prices but even the market share. What we have gone and done is we have created a customer centric force team within India which is really looking at customers and working along with the customers to educate them the benefits of having a truck radial. We operate with them in their markets also; for instance in Europe we are competing with the best multinationals over there in Europe.
We have learnt our way on how to compete with the multinationals. I don't see us losing market shares at all in India. This is our home turf we are only going to make it more stronger and stronger as we go up in the ladder. In fact we are even making a decision to expand our truck radial capacity because today truck is running for us at around 85-90 percent utilisation and we see a big wave of radialisation coming in the industry in the years to come. Today radialisation is around 30 percent in truck. We believe in three to four years it will be 50 percent and the company is well poised to look after that growth and that is what we believe we will be able to keep up with and compete with the multinational.
Q: Since you are talking about expansion then you are obviously talking about capital expenditure as well. One of the other concerns is the enabling resolution that you have already had cleared from your board to raise about USD 200 million either by way of debt or equity, do you really need to through with this at this point in time because you are generating enough cash?
A: We have taken an enabling resolution up to USD 200 million. So, we have an expansion programme of around Rs 1500 crore for the truck radial to remain as leaders in the truck market and this is a profitable business for us. So, we are generating double EBITDA margins through selling truck radials and through the Chennai facility. So, that is a positive for us.
We are also looking at restructuring our Kerala unit which are very old units running on old technology. So, we are going into off-highway tyres (OHT) which is industrial, OTR, floatation tyres, agri tyres, which will incur a capex of around Rs 500 crore.
Q: So, altogether about Rs 1,900-2,000 crore.
A: Yes. Rs 2000 crore and this is to be spent over the next three years. So, nothing here and now that we have taken an enabling resolution. This is something that will give us strength to go and do these capital expenditures.
Q: What would you prefer debt or equity because there are concerns on equity dilution?
A: As a promoter I can tell you we are looking at equity coming in.
Q: How much would that mean in terms of dilution?
A: We have not finalised the number right now, we are still studying the market. We are in no rush to go and pick up this USD 200 million.
Q: What would be the tentative timeline that you could look at for this fund raising?
A: We have a one-year window and that is what we are operating in.
Q: The markets are doing well at this point in time, I would imagine that you would want to go through with it sooner rather than later?
A: Not really because I see a huge rush in the market to go and pick up money and you have seen a lot of money has been raised in the past two months. So, I am in no rush. I need to see the right price. That is when Apollo will come out.
Q: You were hoping that Cooper would give you a big leg-up as far as the global tyre pecking order is concerned. That obviously did not go through, so how does that change your aspirations on the global map?
A: I am not in the race of getting up the pecking order.
Q: But you have said that several times over, I want to be in the top 10 [globally] by 2016.
A: I have gone away from that because I have learnt a lot.
Q: What is the target for you -- and I am not talking to you about a short term target, about the next 12 or 24 months because a lot of these things won't even kick-in by then – but is there a five-year target?
A: Right now there is no target in our minds right now because we are just putting these plans into place. Once these plans are totally ironed out then I can come out and say that this is my five-year target.
We are looking at a 2020 target which will be fueled by organic growth and obviously it might [also] be something inorganic we would look at.
Q: But the preferred option at this point in time is organic growth?
A: Yes, 100 percent.
Q: So by 2020 will you be in the top-10?
A: I hope so.
