India’s Apollo Tyres rolls from United Motors to Ideal Motors

India’s largest tyre manufacturer Apollo brand last week rolled to Ideal Motors Ltd. (IML) from United Motors (UML) with hope of better prospects.

Ideal Motors announced its partnership with Apollo last week, whilst the brand was serviced by UML since 2007.

For UML, despite producing its best-ever financial results in 2010/11 thanks to growth in motor business, the tyre division posted a loss. The company’s other popular tyre brand is Yokohama.

UML said high debtor and inventory holding costs were the main reason for loss in the tyre business.

The operations of this division resulted in large provisions being made for debt and obsolete inventory. Dealer management is very critical in ensuring profitability of this business. Curtailing credit results in stock pile-ups and finally obsolete inventory and is not a path to be taken.

The business model of the tyre operation is being reviewed and a new model is being developed, UML said in its 2010/11 Annual Report, which first announced the decision by the company to discontinue with the Apollo brand.

The new model is likely to be on a distributor operation instead of dealer network-driven.

UML subsidiary Unimo Enterprises added Apollo Tyres to its product range in October 2007 whilst in February 2009 Apollo truck and bus tyre range was introduced.

Though it suffered a loss in 2010/11, UML’s tyre division in the previous year was the sole segment which saw growth in revenue. 

This was mainly attributed to the introduction of new truck tyre series from Apollo as well as the increase in market share of Yokohama tyre.

Nevertheless inherent problems of the tyre business remained. In its 2009/10 Annual Report, UML said the bottom line (in tyre business) did not reflect the same due to the huge stock and debtors carried, which attracted a heavy finance cost. 

The 55,000 tyres a month commercial vehicle market in Sri Lanka is dominated by cross ply tyres. The other growing segment is the 75,000 per month passenger vehicle tyres.

Despite negative sentiments from UML, IML and Apollo sounded optimistic about their new partnership. See Page 12 for the formal announcement of the Apollo-Ideal partnership.