Apollo Tyres in talks with 2-wheeler firms for direct supply

Apollo Tyres has initiated talks with two-wheeler manufacturers in India to supply tyres as part of its plans to expand business in the new segment where it is currently present only in after sales market.

The firm, which had forayed into two-wheeler segment in March, is also likely to start "discussing and debating" sometime next year on whether to start manufacturing the tyres on its own. It currently outsources manufacturing of two-wheeler tyres from a third party.

"We started with the replacement market but already some of the OEMs (original equipment manufacturers) have reached out to us and we have begun a dialogue. But like for any product category the OEM approval goes through a certain process. So we are unlikely to have any OEM volumes in the current year," Apollo Tyres Chief Financial Officer Gaurav Kumar told analysts.

When asked whether the company might have some OEMs volumes from next year onwards, he said "yes".

He, however, did not disclose the names of two-wheeler manufacturers that Apollo Tyres has initiated talks with.

Company sells its Apollo Acti series of tyres for motorcycles and scooters in the aftermarket.

On company's strategy for manufacturing of two-wheeler tyres, Kumar said: "As of now we do not have plans to enter manufacturing, we are still within the first year and based on our tie up, we think we have enough at least to last us a couple of years even if we go on an aggressive scale up mode on the two-wheeler volumes. So this is a question we would start discussing and debating probably somewhere next year."

On availability of spare capacity in industry for two- wheeler tyres, he said Apollo Tyres hasn't felt any kind of capacity crunch from its supplier.

"We have got a certain dedicated capacity for ourselves," Kumar said.

Outlining company's strategy of not pursuing two-wheeler tyre volumes at the cost of profitability, he said: "We have in fact had a fairly significant launch expense coming in when we started in previous quarter and that was factored into the overall costs and we still maintained profitability."

Kumar further said there are typically higher expenses in the initial stages of entry into any segment but "we are not looking at subsidising this segment as just a strategic segment and sacrificing profitability".

He said Apollo Tyres' entry into two-wheeler segment "continues to work well and has provided us opportunities for new distribution network in the rural areas".

"The penetration of two-wheeler tyres is particularly more significant in the rural markets. Earlier given the fact that we did not have two-wheeler tyres there were certain tyre distribution people who would have an inclination to go with some of our peers because we did not have this particular segment in our arsenal. And that sometimes was the limitation in some cases," Kumar said.

Although the company has a market share of low single digits in the replacement market where it operates, Kumar said "But we do have plans and ambition to be a decent player in that overall segment".