In line with the auto industry, the tire industry in India has also shown good growth over the past few years. In fact, since tires wear out every few years, growth prospects for the entire industry holds even greater promise than the industry it is so heavily reliant on. In FY11, the Indian tire industry is believed to have clocked a turnover in the region of Rs 350 bn with volumes increasing by as much as 30% in the passenger vehicle category.
The growth story is far from over though. With auto penetration in India, lower than even some developing nations, growth prospects are only likely to improve from here on. In view of this, we make an attempt to compare Apollo Tyres and MRF, two of the biggest tire manufacturers in India and make an attempt to find out which of these looks a better bet from a long-term perspective.
Background Of The Tires
Background of the Apollo tires it is the new produce in the Indian market and the entire range of automotive tires for ultra and high-speed passenger cars, truck and bus, farm, Off-The-Road, industrial and specialty applications like mining, retreaded tires and retreading material.
These are produced across Apollo’s nine manufacturing locations in India, the Netherlands and Southern Africa for the first time, in 2006 Apollo ventured outside India in its quest to test itself outside its home comforts apollo acquired Dunlop Tyres International Pty Ltd in South Africa (since renamed as Apollo Tyres South Africa Pty Ltd) and Zimbabwe, taking on southern Africa as the second big market of the apollo tire the company in holds brand rights for the Dunlop brand across 30 African countries in 2009, Apollo acquired Vredestein Banden BV in the Netherlands, and thereby adding Europe as its third crucial tyre market.
On the other hand, synonymous with its corporate mascot of a muscleman, MRF is the first tire company in India to reach a turnover of Rs 50 bn. In fact, its gross revenues crossed the Rs 100 bn mark in FY11 the company manufactures the largest range of tires in India and is the market leader with the largest market share in almost every segment of the tire industry. Since 1984, MRF Tyres has consistently been chosen as OEM fitment by almost every major automobile companies in India. Apart from tires MRF also manufactures conveyor belts, retreads, and advanced polyurethane paints.
Let us move on to the operational performance of the two companies in the last five years. As far as revenue and profit growth is concerned, there is very little to choose we believe. While Apollo Tyres has managed to improve its consolidated top line and bottom line by 26% and 37% average annual growth (CAGR) between FY06 and FY11, the same numbers for MRF have come in at 20% and 34% respectively. However, it should be noted that a good part of growth for Apollo Tyres has come on account of the acquisitions it has made in recent years. In other words, its growth also has some inorganic component to it. The growth for MRF, on the other hand, has been all organic. Also important to add that both the companies managed to improve their net profit margins during the period. While Apollo Tyres’ margins improved from 3% in FY06 to 4.7% in FY11, MRF’s 3.2% margins in FY11 were a significant improvement from 1.9% that it recorded in FY06