North America continues to be a priority for Apollo Tyres Ltd. as it continues to develop products specifically for that market. The India-based tire maker discussed its strategy moving forward with Tire Business.
Q: How would you describe business thus far in 2019?
A: Business for 2019 has been stable. It is going as per our yearly plan.
Q: How have tariffs and/or antidumping and countervailing duties affected your company? How are you reacting to them?
A: The North American operation for Apollo Tyres gets its products from its manufacturing facilities in the Netherlands and Hungary and hence imports and tariffs haven't affected us.
Q: Do you expect to roll out any additional products in 2019?
A: The year 2019 is a critical year for the company's North American operation. Over the past three years, the company has had a small team working on defining its product strategy, working with its global R&D centers based out of India and the Netherlands to develop product lines specifically for the North American market.
Apollo Tyres is planning to introduce two products in the second half of 2019. The products to be introduced are for the PCT UHP AS and PCT HP, CUV AS segments. We continue working with our global R&D teams and have planned to introduce multiple products in the coming 18-24 months.
Q: Apollo Vredestein recently launched the Quatrac Pro, your first all-weather tire designed for the UHP segment. What is the main benefit of this product? Is this an area the company has targeted for growth?
A: The Quatrac Pro is the first tire that has been tested and tuned for the North America market. With the introduction of Quatrac Pro, we are offering customers driving on UHP tires a product that is specifically for their requirement.
The all-weather is an interesting segment of the company. We've been one of the few brands offering an all-weather proposition for the last many years. Unlike, all-season tires, all-weather tires stay soft and give grip at temperatures above and below 7C, so they've become a popular year-round tire in cities like Boston, Chicago, Toronto and Vancouver, where drivers need tires to get them through mountain passes and to ski hills on weekends.
The other option for the customers is to change between winter and all season / summer tires or have all-weather tires year around. We are seeing a good traction in Canada, northern parts of America and many states in the US with mountain ranges.
Q: Can you provide an update on the plant in Hungary? How is production of truck tires progressing?
A: The production in the Hungary plant is as per schedule. The company is confident that its European and North American operations will show a strong performance in the current year on the back of increased supplies from Hungary.
Q: Can you update the status of your fifth plant, in Andhra, India? What is the timeline?
A: Currently, the company has four manufacturing facilities in India — two (including a leased facility) in Kerala, and one each in Gujarat and Tamil Nadu. The company is investing in another Greenfield plant in Andhra Pradesh to further strengthen its market share in India. The project continues on track and is expected to go on-stream towards the end of 2019.
Q: Does North America remain a priority?
A: North America will be an important market for the company. We are put this in place a team to grow our presence in the U.S. over the next few years. We are working on brand and sales strategy, focused on identifying the right product fitment for the market and these are being productionized and soon launched in the market.
Q: Do you foresee building a U.S. plant in the future?
A: We are focusing on the Hungary plant and later on our Andhra Pradesh plant and want to get them to a similar capacity utilization levels like those of our other plants. We will decide on the next course of actions after we have achieved these priorities.
Q: Do you foresee any price hikes in the second half of the year?
A: The company does not foresee any price hikes. However, if there are changes in the external environment, we will evaluate and take decisions accordingly.
Q: Do you expect any major investments in the next six months?
A: The management has earmarked a sizable budget for the development of seven product lines catering to the American market. We are confident that with the investment planned, including marketing spend and the product offerings, we will aggressively reach out to the dealer community and to the consumers about the superior value proposition being offered by the company.
Q: Do you have a minimum advertised price (MAP)?
A: We believe in the philosophy of "profitable growth" for us and our various stakeholders, including our channel partners. We have been building our dealer network with people who are in alignment with this way of working. In India and Europe, we have seen that long-term relationships are the key for our combined success and will replicate a similar model in this market. At our current stage of business, a MAP may be restrictive and may not allow us to react swiftly to business opportunities.
Q: How has the car manufacturers' move to light trucks, SUV and CUVs impacted your product mix?
A: While some of our CUV sizes are extremely high in demand, we are yet to see a significant impact on the composition of the industry by the move by car manufacturers shift to light trucks, SUV and CUVs. The PCT market is still over 50 percent of replacement potential, and we do not see a change in this for the next few years.
Q: How has the UHP market fared in light of the proliferation of LT, SUVs and CUVs?
The LT, SUV and CUV space is showing a higher growth rate, led by growth of CUVs. Also, we see the LT and SUV segments as a big growth opportunity for the company and product development is under way for these segments.
Q: What is your online strategy? How is it evolving?
A: For the U.S. market, we see digital/online forming the center of our marketing communication strategy. We are working on this strategy and will be rolling it out soon. From an online sales perspective, we are not looking at exploring that possibility. Our focus remains on building a strong dealer community.
Q: Is there anything else you'd like to add?
A: The company has a two-pronged growth strategy of investing in building our brand, and upping our technological prowess continues. It is gradually increasing its R&D spends to come up with technologically superior products in various segments; this is also helping it with incremental OE contracts, both in India and Europe. Its spending on R&D is the highest in the industry in India, which is close to 2.5 percent of its sales.
From the R&D perspective, we have a dedicated team focused on North America product development. All the products to be launched in the U.S. market are being extensively tested locally in North America — both on test tracks and on the ground to ensure that we have the right products for the market.