The acquisition of Cooper Tires by Apollo Tyres is a continuation of the company’s strategy to expand its global footprint. While its acquisition of Netherlands-based Vredestein Banden in May 2009 gave Apollo a foothold in the European markets, Cooper Tires will help the company spread its wings in the US.

Cooper derives about three-fourths of its revenues from the North American markets. After this buy, Europe and US will together bring in 55 per cent of Apollo’s consolidated revenues.

Similar to Vredestein, Cooper caters predominantly to the tyre replacement markets. For tyre companies, a tilt in the sales mix towards the replacement segment has two advantages — one, it is reasonably shielded from the cyclical nature of new vehicle sales; two, replacement sales bring in higher margins.

Resilient demand

Cooper complements Vredestein in terms of product line. While the latter focuses on winter and speciality tyres, these tyres contribute only to 10 per cent of the revenues for the former. Cooper instead focuses on light vehicle tyres.

The demand for these tyres from Cooper has generally proved to be resilient to a slowdown in the US. In 2012 for instance, its passenger and light truck tyre shipments grew by 1.5 per cent and 12.5 per cent respectively (year-on-year), as against the 2-2.5 per cent fall recorded by the tyre industry as a whole in these segments.

Finally, Cooper’s manufacturing base in China is an advantage to Apollo. Its reputation as a low-cost manufacturing base and proximity to India and rubber producing nations of South-east Asia will stand Apollo in good stead. The acquisition cost of Rs 14,500 crore is about 0.6 times the company’s sales for 2012. The management expects the deal to immediately add to Apollo’s earnings.

Related Topics