Europe’s biggest tyre maker, Michelin, will buy 14.9% of leading Indian tyre maker, Apollo Tyres Ltd., giving it a firm foothold in India’s $US2.2 billion-a-year tyre market, according to Reuters.
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The report said Michelin and Apollo will also set up Michelin Apollo Tyre Ltd., a joint venture to make truck and bus radial tyres in India in which Michelin will hold 51% and Apollo 49%.
Michelin, based in Clermon-Ferrand, France, will pay about $28 million for 5.71 million new shares that Apollo will issue through a preferential allotment, Reuters said, adding that the price of 236 rupees a share, decided by a pre-determined formula fixed by the Indian market regulator, is an 8.6% discount on Apollo’s closing Monday price of 258.15.
Reuters said the joint venture will invest $70 million over the next four years to set up a plant to make truck radials bearing the names of both companies and will also market Michelin tyres in India.
Michelin will also provide technical assistance in making Apollo passenger car radials, the report added, noting that Apollo, which has almost a quarter of India’s tyre market, also said it had ended its existing technology supply agreement with Germany’s Continental AG.
“Apollo and Michelin, both of us are convinced that Indian roads have reached a stage of development which requires radial truck tyres,” Michelin’s managing partner Edouard Michelin told Reuters.
“Secondly, Apollo has a fantastic distribution network in India. Thirdly, we are the only one to have proven we know how to make radial truck tyres for India,” he reportedly added.
Reuters noted that truck and bus tyres make up more than 70% of India’s $2.2 billion tyre industry but less than 2% of tyres are radials which, in contrast, make up more than 75% of car tyre sales.
The report said that radials account for 80% of the heavy vehicle market in Europe and 60% in the United States but Indian transporters have shied away from radial tyres, seeing them as not rugged enough for the appalling roads and rampant overloading in India though, increasingly, a new network of highways is improving conditions.
Reuters said Apollo, whose main domestic competitors are top-ranked MRF Ltd. and JK Industries Ltd., said it still required Foreign Investment Promotion Board approval for the joint venture and the stake sale, which it expects in a month.
The two companies said it would take 18-24 months to set up the plant, the location for which has still not been decided, Reuters said, adding that the new firm will begin importing tyres from April from one of Michelin’s southeast Asian plants to seed the Indian market.
