Mumbai: Apollo Tyres Ltd may miss its 2020 target of becoming a $6 billion entity by annual revenue, chief financial officer Gaurav Kumar said Monday, as India’s second-largest tyre maker by sales said that it had acquired German tyre distributor Reifencom GmbH for €45.6 million (about 323 crore).

Kumar cited slower demand in Europe, price cuts and an influx of cheap imported truck and bus radial tyres from China as the main reasons why Apollo may miss the target.

“While we still have the ambition, the growth has to be a profitable one," said Kumar.

Until three years ago, growth in the European tyre market was outpacing the rest of the world. That has changed now, he said. “We are not insulated from the macro-economic factors."

Apollo has nursed the ambition of becoming a large global entity for years. In 2013, it tried to acquire the Ohio, US-based Cooper Tire and Rubber Co. in an all-cash transaction for $2.5 billion, but the transaction fell through because of obstacles created by Cooper’s Chinese partner Cooper Chengshan (Shandong) Tire Co. Ltd (CCT).

The deal would have been the largest in India’s automotive industry, ahead of Tata Motors Ltd’s $2.3 billion purchase of Jaguar and Land Rover in 2008. It would have catapulted Apollo to among the top seven global tyre makers with immediate control over Cooper’s 14 manufacturing plants around the world and a combined annual revenue of $6.5 billion.

The Delhi-based firm plans to spend 3,800 crore in setting up a factory in Hungary, the largest outside India for an Indian tyre company.

It also envisages 2,000 crore expenditure to expand capacity at its factory in Chennai, where it makes truck radials, and upgrading the machinery of the Kerala plant that will now be used to manufacture products for the agriculture and farm equipment sector. This investment, vice-chairman and managing director Neeraj Kanwar said in an interview in December 2014, will further Apollo’s cause in becoming a $6 billion company by 2020.

The weak demand in Europe, among other factors, may postpone the realization of Kanwar’s targets.

If not been for the adversities, CFO Kumar said, Apollo Tyres’s revenue would have been close to a $4 billion now. Revenues of Apollo Tyres stood at Rs5,812.22 crore, down 11% in the first half of the current fiscal.

In the quarter ended 30 September, revenue at Apollo Tyres’s European business declined 12% to €106 million, while volumes fell 9%, over the same period last year. Weak demand in Europe on account of the delayed onset of winter and high inventory of winter tyres at dealerships,owing to a weak winter last year, have hurt European operations, said the company’s management in a post-earnings call with analysts earlier this month.

Apart from the scheduled plant maintenance, effective available capacity for production has also been curtailed.

Part of the capacity has been blocked for conducting research and development work to meet changes in regulatory requirements related to the European Union (EU) tyre labels.

CFO Kumar is hopeful that the commencement of the company’s Hungary plant in the beginning of 2017 and the acquisition of the German distribution company, which is a first-of-its-kind initiative, will strengthen its European operations.

To be sure, it has its share of woes in its domestic market. A steep drop in the price of natural rubber—one of the key ingredients in tyre manufacturing— forced Apollo Tyres to cut prices, hurting revenue, said Nitesh Sharma, an analyst with Phillip Capital India Pvt. Ltd. Over the last three months, it has pared prices by 8% to 9%, said Sharma.

Slower growth in demand from the replacement segment of the tyre market, which accounts for three out of four rupees earned by the company, has also been weighing on Apollo Tyres.

Growth from the segment has slowed to 2% now from 6% per annum three years ago, Kumar said.

In the face of rising imports from China and heightened competition from local units of global tyre makers like Michelin India Pvt. Ltd and Bridgestone India Pvt. Ltd, Sharma expects the quarters ahead to be challenging for Apollo Tyres.

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