Apollo acquires Dutch tyre maker

INDIA’S largest tyre maker Apollo Tyres has acquired Dutch tyre maker Vredestein Banden for an undisclosed sum, gaining a foothold in the lucrative European tyre market and raising its annual turnover by a quarter. Vredestein Banden, with an estimated annual revenues of 300 million euro ($403 million), was a subsidiary of Russia’s largest tyre manufacturer Amtel-Vredestein, which went bankrupt last month.

“This strategic acquisition will bolster Apollo’s plans for its European customers. We have acquired one of the most profitable tyre makers in Europe, and will get direct access to Vredestein’s large market in Europe,” said Delhi-based Apollo Tyres’ chairman and managing director Onkar S Kanwar on Monday.

The Dutch firm, which is likely to be renamed Apollo Vredestein, will be integrated with BSE-listed Apollo in the next few months. The process will be undertaken jointly by both the companies to develop synergies in the field of marketing, technology, manufacturing and human resources. Apollo Tyres’ share price jumped 9.43% to Rs 29 on BSE on Monday from Friday’s closing price of Rs 26.50.

Vredestein has a compounded annual revenue growth rate of 8.5% for the past five years, and has capacity to produce 5.5 million tyres annually, which takes Apollo’s total tyre capacity to 16.8 million.

The acquisition will push Apollo Tyres’ annual turnover to Rs 7,200 crore. The company targets Rs 10,000 crore revenues by fiscal 2010. Apollo Tyres raised funds for acquisition through a combination of internal accruals and debt. The company was advised by KPMG, Nomura and CMS Derks Star Busmann on the transaction.

Mr Kanwar said Apollo has deferred its plan to set up a greenfield plant in Hungary with a proposed investment of 200 million euros to produce 70 lakh tyres a year. This is due to land acquisition problems in the East European country. Instead, it will now concentrate on consolidating operations in Holland. Vredestein is Apollo’s second international acquisition.

China’s Stock Bubble Passes Acid Test

CHINA’S stock-market boom is as clear a bubble as you will find, the conventional wisdom says. When might it burst? Nobody knows if it will. The Shanghai Composite Index has surged 45% this year. Just because China has deep pockets in this time of global crisis doesn’t mean its economic health supports this rally. In a sense, buyers are betting on China’s socialist tendencies rather than its success in fostering free markets. Rather than boding well for China’s long-term outlook, this rally serves as a reminder of risks facing the world’s third-biggest economy.

The strength of China’s fiscal position got a headline- grabbing endorsement this week from Nobel Prize-winning economist Joseph Stiglitz. In the same address, though, Stiglitz undermined that argument in the long run. “We are at the end of the beginning, rather than the beginning of the end,” Stiglitz said. “The global economy may be declining at a slower rate and we may see a bottom soon, but it doesn’t mean a full recovery.” Global Downshifting: The rapid growth rates of the mid-2000s are a thing of the past. The downshifting of global expectaions is taking place from New York to Shanghai. Even with the trillions of dollars of stimulus the U.S. is pumping into markets, American households face a multiyear process of saving more and spending less. The $4.4 trillion Japanese economy isn’t much better off. Gross domestic product contracted an annualized 16% in the first quarter, following a fourth-quarter drop of 12%, according to the median estimate of economists surveyed by Bloomberg News.

With the U.K., Germany and much of the euro area in recessions, feel free to engage in the fiction that China’s $3.2 trillion economy will save the world. Stiglitz isn’t wrong to think China will have a better 2009 than other major economies. Its 4 trillion yuan ($585 billion) stimulus plan and record bank lending are helping to fill the void left by plunging exports. The trouble is, that’s a void too far, even for an economy that’s as top-down as China’s. Flawed Assumptions: Be afraid when just about every economist agrees on something. Everyone seems to think China can pull this off that it can artfully influence a vast, underdeveloped economy of 1.3 billion people.

The flaw in this assumption is that it takes for granted that all those stimulus yuan will be spent wisely on worthy projects and companies. It assumes that those investments, much of them funded with debt, will morph into well-paying jobs that generate wealth for China’s people.

It’s hard to know how China can avoid vast amounts of public money being siphoned off by local government officials to speculate on stocks or property. At What Cost: Even if China ekes out healthy growth this year, the question is what it will cost. China may be setting the stage for a Japan-like bad-loan crisis a few years from now. One also has to wonder if China is moving fast enough to rebalance its economy away from exports toward domestic demand.

China’s public-relations machine is working overtime to spin this story. Its success in getting the global media to play along explains why investors are rushing into Chinese shares. Just because China has built a more sustainable bubble, supported by the promise of ever more government largess, doesn’t explain away the challenges facing the fastest-growing major economy. Officials in Beijing will be hard-pressed to replace the role of the U.S. consumer. China’s stimulus efforts are no substitute for demand from American households, which are entering into a rare period of thrift. If you are sitting on big paper profits in China, it may be time to take them.

Bloomberg

Car majors build on digital marketing

AFTER the rural market rejuvenated car sales, auto companies are now building on digital marketing activities to tap onto a new set of tech savvy customers. The strategy is to generate business through consumer interface over internet and mobile phones, say auto marketers.

Maruti claims over a lakh cars it sold last year originated from digital marketing initiatives while Tata Motors saw 4,000 customers booking its low-cost car Nano over the internet. Other automakers are also witnessing a similar response on their digital platforms.

Honda’s third generation of flagship car, City, regained its leadership position in the mid-size car segment in the first month of its launch in November on the back of strong digital interface with customers. Not to be left behind, Volkswagen is using Net and mobile to tap the 2.5-lakh strong customer base in India, owning cars over Rs 10 lakh, for its Jetta and Passat premium sedans.

Passenger carmaker leader Maruti Suzuki India (MSI) first tasted success with online marketing with its small car A-Star, which generated huge interest on the net with over 2.5 lakh online hits. “We sold around 4,000 A-Stars based on customer interface on internet and have doubled online marketing activity for the new hatchback Ritz with a microsite launched a week ahead of the launch and offering various exclusive options to loggers. Around 17-18% of our sales now are estimated to originate from digital marketing from mere 2-3% in 2005,” MSI chief general manager (marketing) Shashank Srivastava said. Other carmakers are also actively tapping the interactive social networking sites and blogs on the web advertising space.

Honda is launching a new programme in July to track sales originating from net. “Our cars are primarily targeted at rich and younger customer who are net savvy and take keen interest in blogs and different web activities. Digital marketing helps us build a strong brand,” Honda Siel Cars veep (sales & marketing) Jnaneshwar Sen said. He added that preliminary estimates suggest internet is responsible for 5% of Honda’s total sales in India.

Earlier, Tata Motors’ dedicate website on Nano got a little over 30-million hits from the date of launch of the car to the closure of the booking. “It’s easier to reach professional like doctors and engineers and other target audiences with a strong influence on their purchase decision,” said Amardeep Bajpai of Webisdom.

By Chanchal Pal Chauhan NEW DELHI, chanchal.chauhan@timesgroup.com