apollo tyres ltd

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APOLLO TYRES LTD CHAPTER - 1INTRODUCTION APOLLO TYRES LTD INTRODUCTION Apollo Tyres is one of the largest tyre manufacturing companies in India.The company was incorporated in 1972 and commenced its production in1977. It was the first company to receive ISO9001 accreditation in Indian tyreindustry.The company can be traced back to the 70’s when hard-nosed MNC’s andIndian tyre major dominated the tyre industry. Apollo set up its very f i r s t manufacturing unit in Perambra, Kerala in 1977, with a very huge production capacityof 185 tonnes. It was in 1982, that Apollo formulated and put into action a series of pragmatic project generating policies that led towards a turn around. A dynamic newmanagement team under the leadership of Vice-Chairman and MD, Mr. Onkar SKanwar took over the helm of the company affairs. Objectives were redefined andservice aggressive market penetration and expense containment became order of theday.Apollo Tyres Ltd. is the leading Indian tyre manufacturing with annualrevenues of over US $ 1 billion. In fact it is the first Indian tyre company to reach thismilestone. In 2006, Apollo acquired Dunlop Tyres of South Africa. The company hasits operations in India, South Africa and Zimbabwe with a network of over 4,000dealerships in India alone. Sometime in January, the company also announced its plans to start its operations in Hungary.My project at Apollo tyres ltd. Perambra in Thrissur is a humble effort tounderstand and comprehend its organization. The project is intended to access and toacquire the knowledge regarding the functional as well as the management aspect of the firm. OBJECTIVES OF THE STUDY The organization study is to familiarize ourselves with the working of variousdepartments for a particular period, so that one can have an exposure to the practicalside.The objectives include:1.To understand the organizational structure of Apollo tyres2. To understand the various key functional areas of the company APOLLO TYRES LTD

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Page 1: Apollo Tyres Ltd

 APOLLO TYRES LTDCHAPTER - 1INTRODUCTION

   APOLLO TYRES LTDINTRODUCTIONApol lo Tyres i s one of the largest tyre manufactur ing companies in India . The company was incorporated in 1972 and commenced its production in1977. I t was the f i rs t company to receive ISO9001 accredi ta t ion in Indian tyre industry.The company can be t raced back to the 70’s when hard-nosed MNC’s and I n d i a n t y r e m a j o r d o m i n a t e d t h e t y r e i n d u s t r y . A p o l l o s e t u p i t s v e r y f i r s t manufacturing unit in Perambra, Kerala in 1977, with a very huge production capacityof 185 tonnes. It was in 1982, that Apollo formulated and put into action a series of  pragmatic project generating policies that led towards a turn around. A dynamic newmanagement team under the leadership of Vice-Chairman and MD, Mr. Onkar SKanwar took over the helm of the company affa i rs . Object ives were redef ined and service aggressive market penetration and expense containment became order of the day.A p o l l o T y r e s L t d . i s t h e l e a d i n g I n d i a n t y r e m a n u f a c t u r i n g w i t h a n n u a l revenues of over US $ 1 billion. In fact it is the first Indian tyre company to reach thismilestone. In 2006, Apollo acquired Dunlop Tyres of South Africa. The company hasi ts operat ions in India , South Afr ica and Zimbabwe wi th a network of over 4 ,000dealerships in India a lone. Somet ime in January, the company a lso announced i t s  plans to start its operations in Hungary.My project a t Apol lo tyres l td . Perambra in Thr issur i s a humble effor t to understand and comprehend its organization. The project is intended to access and toacquire the knowledge regarding the functional as well as the management aspect of the firm.OBJECTIVES OF THE STUDYThe organization study is to familiarize ourselves with the working of variousdepartments for a particular period, so that one can have an exposure to the practical side.The objectives include:1 .To unders tand the organizat ional s t ructure of Apol lo tyres 2. To understand the various key functional areas of the company

   APOLLO TYRES LTD3. To get an idea about existing business operations at Apollo tyres4. To interact with managers at various levels of the organization hierarchy5. To analyze the practical aspect in relation to the theoretical aspect of theorganization6. To gain a clear picture about the challenges and activities faced by theorganization7. To observe the work culture existing in the organization8. To identify the strength and weakness of the organization9. To analyse competition within the industry.SCOPE OF THE STUDYApollo Tyres, Perambra has all those function areas such as production,finance, personal, and marketing etc. The study is focused on the functioning of eachdepartment of the organization giving emphasis to their working.METHODOLOGYTo conduct the study, different methodologies have been adopted. The studywas undertaken by visiting the plant. Both Primary and Secondary data are used.DATA COLLECTION1 . P r i m a r y S o u r c e soDirect interview with the department headsoDiscussion with the divisional heads

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oInteraction with workers in the companyoData collected by observing the function of the organization2 . S e c o n d a r y S o u r c e s•Annual reports of the company•Department manuals•Periodicals, books, etc. published materials by the company•Internet websites (www.apollo.com, www.google.com)

Company History - Apollo Tyres

1972 - Apollo Tyres Ltd. (ATL) was incorporated 28th September, 1972 as a Public Limited Company and obtained certificate of Commencement of Business on October 24, 1972. The Company was promoted by Bharat Steel Tubes, Ltd. Raunaq International Pvt. Ltd., Raunaq & Co. Pvt. Ltd., Raunaq Singh, Mathew T. Marattukalam and Jacob Thomas. The Company manufacture automobile tyres and tubes, camel back/retreading materials and rubber conveyor belts. - 15,00,000 No. of equity shares issued to Bharat Steel Tubes Ltd., 2,50,000 No. of equity shares to Kerala Govt. and 13,50,000 No. of equity shares to promoters, etc. and associate companies. 75,000 pref. shares and 46,50,000 No. of equity shares offered at par to the public in October 1975. 1978 - 35 Pref. and 13,06,200 No. of equity shares forfeited in 1977-78. During 1978-79 forfeiture on 22,200 No. of equity shares annulled. 1980 - Forfeiture on 2,30,050 No. of equity shares annulled. 1981 - After the expiry of the original agreement the Company negotiated with General Tire International Co., U.S.A., for the renewal with General Tire International Co., U.S.A., for the renewal of the technical collaboration agreement for a further period of 5 years. This agreement expired on January 1987. - Forfeiture annulled on 700 No. of equity shares during 1981-82 and on another 610 No. of equity shares during 1981-83. 1983 - 6,88,950 forfeited equity shares reissued. 1984

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- 3,63,700 forfeited shares reissued. 1986 - `General Tire International Corporation', U.S.A. was taken over by `Continental Gummi werke GmbH', West Germany. 1987 - During the year, the Company acquired interest in Gujarat Tyres Ltd., for implementing an industrial licence to manufacture automobile tyres and tubes in Gujarat State. - The Company finalised a proposal for promoting a company in joint participation for carrying on business in pipe laying, drilling, coating contracts and other engineering, designing, consultancy and management services. - 6,52,000 No. of equity shares allotted at par to financial institutions in conversion of loans. 1988 - The Company set up a plant with a capacity of 6.75 lakh tyres per annum at Limda, Baroda, Gujarat at an estimated cost of Rs 168.96 crores. - The Company promoted a new Company under the name of Raunaq Aker Drilling, Ltd. in technical collaboration with Aker Drilling A/s, Norway. The company was to undertake multifarious onshore and offshore drilling services/related activities in India. - The Company entered into an agreement with Persterp AB, Sweden for promotion of joint venture company in the name of Gujarat Perstorp Elektronics Ltd. It undertook manufacture of electronic grade copper clad laminates. 1989 - Radial tyres for Maruti cars and premium tyre for trucks were launched during the year. - During August, the Company offered 42,01,000-12.5% secured partly convertible debentures of Rs 100 each on Rights basis in the ratio 1 debenture : 2 Equity shares held. Additional 6,30,150 debentures were allotted to retain over subscription. - The Company also issued 2,10,050 - 12.5% partly convertible debentures to the employees' (including Indian working directors) of the Company (only 8,875 debentures were taken up). The unsubscribed portion of 2,01,175 debentures was allowed to lapse. - Rs 35 (Part A) of the face value of each debenture was automatically and compulsorily converted into one equity share of Rs 10 each at a premium of Rs 25 per share. - Rs 40 (Part B) of the face value of each debenture was automatically and compulsorily converted into one equity share of Rs 10 each at a premium of Rs 30 per share at the end of 12 months from the date of allotment of debentures.

Page 4: Apollo Tyres Ltd

- The remaining Rs 25 (Part C) of the face value of each debenture was to be redeemed in two instalments of Rs 10 and Rs 15 at the end of 8th and 9th year respectively from the date of allotment of debentures. - During September the Company issued through a prospectus 42,59,715 - 12.5% secured partly convertible debentures of Rs 140 each of which the following debentures were reserved and allowed on a firm basis: (i) 4,30,000 debentures to Commonwealth Development Corporation (CDC); (ii) 1,00,000 debentures to SBI Mutual Fund and (iii) 3,57,000 debentures to UTI. - Of the balance 33,72,715 debentures (i) 3,55,000 debentures to shareholders of the promoter and other companies, viz., BST Mfg. Ltd., Bharat Gears, Ltd., Apollo Tubes, Ltd., Raunaq International Ltd., Raunaq & Co. Pvt. Ltd., Universal Steel & Alloys Ltd and Raunaq Automotive Exports, Ltd. (ii) 2,13,000 debentures to employees of the Company (only 650 debentures were taken up). The remaining 20,89,715 debentures along with 5,75,000 debentures not taken up under preferential quota were offered to the public. Additional 6,38,935 debentures were allotted to retain over subscription (53,550 debentures to UTI; 53,250 to promoters and 5,32,135 debentures to the public). - Rs 35 (Part A) of the face value of each debentures was automatically and compulsorily converted into one equity shares of Rs 10 each at a premium of Rs 25 per share at the end of 6 months from the date of allotment of debentures. - Rs 40 (Part B) of the face value of each debentures was automatically and compulsorily converted into one equity share of Rs 10 each at a premium of Rs 30 per share at the end of 12 months from the date of allotment of debentures. - Rs 65 (Part C) of the face value of each debenture was to be redeemed in three instalments of Rs 20, Rs 20 and Rs 25 each at the end of 7th, 8th & 9th year from the date of allotment of debentures. 1991 - The Company proposed to undertake exports of LVC and farm tyres in addition to truck tyres. 1993 - The Company undertook modernisation, upgradation of technology installation of line balancing equipments, setting up a state of are R&D centre, and to be financed by way of a Rights issue of non convertible debentures with detachable warrants. - Pref. Shares redeemed on 28.12.1990. 194,77,350 No. of equity shares allotted in part conversion of deb. (prem. Rs 35 per share for 97,38,675 shares and Rs 40 per share for another 97,38,675 shares). 1994 - A number of high technology radial products were developed and introduced. The Company created distribution network of more than 2500 dealers in the country. 1995

Page 5: Apollo Tyres Ltd

- A new plant for manufacturing tubes and flaps at Ranjangaon near Pune was commissioned during the year. - The Company entered into an agreement with continental AG, Germany, for setting up a passenger car radial tyre factory with and initial production capacity of 4.7 million car radial tyres per annum and with a capital outlay of Rs 400 crores at Pune. This is a 50:50 joint venture between Apollo and Continental. - During January, the Company issued 69,69,838-14% secured non-convertible debentures of Rs 150 each with one detachable warrant, in the ratio 1 NCD : 4 equity shares held. - Each debenture shall be redeemed in three equal instalments of Rs 50 each at the end of 6th, 7th & 8th year respectively from the date of allotment of debentures. - The BIFR vide its order dated April 17, approved the rehabilitation scheme for revival of Premier Tyres Ltd. (PTL) envisaging take over of PTL. The scheme involves operation of Premier plant by Apollo for production of Apollo brands under a lease arrangement. The Company had become a subsidiary of the Company. - 10,25,667 No. of Equity shares issued against detachable warrants attached with 14% - NCDs on 31.3.1996. 5,52,492 Rights Equity shares of Rs 10 each (Premium Rs 90 per share) allotted on 30.3.96 (Propn. 1:1). - The Company emerged as the largest exporter of tyres registering a phenomenal 102 per cent increase in exports. 1996 - 4,17,389 shares issued on conversion of warrants. 1997 - The Company issued 12.5% NCD aggregating Rs 20 crores to IDBI on private placement for a period of 18 months. - 1,65,206 No. of equity shares issued on conversion of detachable warrants. - Apollo Tyres Limited has set up shop in the city opening its Apollo Tyre World (ATW) through Vora Tyres. - Apollo has been setting up ATW's all over the country equipped with state-of-the-art testing equipment. - ATL signed a letter of intent with the global major Continental AG for a 50:50 joint venture for setting up a 4.7 million passenger car radial facility. - The Apollo Tyres management has declared a lock-out at its Perambra unit, on Dec 6, lightning strike by its workers in the electrical, electronics, winding shop and instrumentation sections. - The week-long lock-out declared by the Apollo Tyres management at its factory at Perambra in Kerala has been lifted and the factory resumed operations from December 13.

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- ATL is the first Indian company to have an ISO 9001 accreditation for the entire product range. - ATL has emerged as the fastest growing tyre company in India (turnover up six-fold in the last five years) and the seventh fastest in the world. - The strike, by the electrical department workmen, began from November 30, demanding withdrawal of suspension of an employee. 1998 - Apollo Tyres has announced a voluntary retirement scheme (VRS) for the workers at its Perambra unit in Kerala with a view to optimise manpower utilisation and costs. - The Perambara unit in Kerala was one of the largest units with a capacity of 115 tonnes per day and its closure between April 10 to July 18 resulted in a massive production loss. - The company proposes to step up its radial capacity at Vadodara plant to 57,000 tyres per month, in addition to the current output of 8,500 radials at Kochi. - Apollo Tyres has desubsidiarised two wholly-owned companies - Apollo Finance and Apollo International - by diluting its holding in both to below 51 per cent. - For Apollo Tyres, its Perambara tyre plant has not been doing too well and acting as a drag on the company's resources. This is mainly due to the continued labour unrest and lock-outs leading to heavy production loss at that unit. - Apollo International recently set up a subsidiary firm, Infonet Worldwide, for providing IT solutions to corporate clients. - The company is setting up a greenfield project at Ropar in Punjab to manufacture 100 tonnes a year of agriculture and off-the-road tyres, that is, mainly tyres for tractors, earthmovers, etc. - The company has a total installed capacity of 1.5 lakh truck tyres per month. The two plants in Kerala have a capacity of 70,000 tyres per month, the Baroda plant has a installed capacity of 55,000 tyres per month and the conversion arrangement with TCIL contributes another 25,000 tyres per month. - Premier Tyres Ltd. became a subsidiary of the company. - 4,190 No. of equity shares issued on conversion of warrants and another 30,10,000 No. of equity shares issued on conversion of part-A of convertible debentures of Rs 92 each. 1999 - Apollo Tyres Limited (ATL) has signed an agreement with national Securities Depository Limited (NSDL) for holding and trading of shares in demant form. - Apollo Tyres Ltd. has informed the Mumbai Stock Exchange (BSE)

Page 7: Apollo Tyres Ltd

that the management has declared a lock-out at the company's Penrambra unit in Kochi with effect from 11th July. - No new technical collaboration agreement would be signed between ATL and Continental to include technology transfer for truck radials as the existing agreement. 2000 - The Company is planning to set up a Rs 300-crore radial tyre manufacturing unit either in Tamil Nadu or Andhra Pradesh with a capacity of 100 tonnes per day for radial tyres for trucks and off-the-road vehicles. - Crisil has reaffirmed the `AA-' rating assigned to the Rs. 104.45-crore non-convertible debenture (NCD) programme of Apollo Tyres Ltd. - The Company proposes to pump in Rs. 225 crore as equity in its new wholly-owned subsidiary which will set up a greefield manufacturing unit. - The Company is setting up a Rs 450-crore plant to manufacture cross/ply radial tyres. - The Company's plant at Limba was closed for 19 days from 1st May, to 19th May, on account of an illegal strike by workers. - In a bid to attract the Net-savvy customers, Apollo Tyres has tied up with indiatimes.com to accentuate brand association with safe and pleasant journeys. - The Kalamassery unit of Apollo Tyres has won the 26th National Competition for Young Managers for 2000 organised by the All India Management Association in New Delhi. - Credit rating agency Crisil has reaffirmed the high safety rating of `AA-' to the Rs 104.45 crore non-convertible debenture programme of Apolly Tyres. 2001 - Apollo Tyres Ltd. has zeroed in on Tamil Nadu for setting up its Rs 450-crore greenfield truck radial tyre manufacturing plant. - Apollo Tyres Ltd has posted a 48.48 per cent decline in net profit at Rs 3.22 crore for the quarter ended September 30, 2001. 2002 - Apollo Tyres Ltd has informed that the appointment of Shri Raunaq Singh as Managing Director. He will however continue to be a Director and Non-Executive Chairman of the Board of Directors, liable to retire by rotation. -Apollo Tyres Ltd has informed that the Board of Directors appointed Mr Onkar S Kanwar as the Chairman of the Board of Directors. The Board also appointed Mr D Sengupta former Chairman of GIC as an Additional Director of the Company. -Apollo Tyres Ltd has informed the Exchange that Mr. Raaja R S Kanwar

Page 8: Apollo Tyres Ltd

has been appointed as Director, liable to retire by rotation in the vacancy caused by the retirementof Mr. Raunaq Singh, Non-Executive Director and Chairman of the Board. 2003 -Technical & Financial Collaboration with Michelin Group. 2004 -Compagnie Financiere Michelin, Switzerland, acquire 57,12,500 shares amounting to 14.90% of the total paid up capital of Apollo Tyres Ltd. -Michelin Apollo Tyres Pvt Ltd (MATL), a 51:49 joint venture between Michelin Group and Apollo Tyres Ltd (ATL), has announced the launch of a range of truck and bus radials for the Indian market. -Apollo Tyres Ltd on August 9, 2004, announced the opening of Apollo Pragati Kendras , exclusive outlets for selling the entire range of its farm tyres to the agricultural community -Apollo Tyres introduces new range of tubeless car radials on october 27, 2004. 2005 - The first tyre-manufacturing unit of the Apollo Tyres Ltd (ATL) at Perambra in Thrissur district celebrates its 30 years of successful operations on 17th April 2005. - Apollo Tyres Ltd has entered into a distribution tie-up with Triveni Khushali Bazaar - specialised farm goods supermarkets being promoted by Triveni Engineering & Industries Ltd - for retailing its farm tyres. 2006 -Apollo Tyres rolls out DuraTreads -Apollo Tyres executes MOU with Tamilnadu Government for setting up Tyre Manufacturing Facility -Apollo Tyres to acquire Dunlop South Africa for Rs 290cr 2007 - The Company has splits its face value from Rs10/- to Rs1/-. -Apollo diversifies into transport and logistics 2008 -Apollo Tyres establishing plant in Hungary 2009 -Apollo Tyres - Acquisition of 100% shareholding control of Vredestein Banden B.V., Netherlands

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Page 9: Apollo Tyres Ltd

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 DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS.U.S.Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investment decision.01 September 2010Asia Pacific/IndiaEquity ResearchTires & RubberApollo Tyres(APLO.BO / APTY IN) INITIATIONStructurally better■ 

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Initiate with OUTPERFORM:We initiate coverage of Apollo Tyres with anOUTPERFORM rating and target price of Rs108, implying potential upsideof 50% from current levels. ■ Conducive operating environment:We believe that the Indian tyreindustry is in midst of a very favourable supply-demand scenario and expectcapacity utilisation levels to remain close to 100% for the next three years.The resultant pricing power is amply visible in both replacement market and,for the first time, with auto makers (OEMs). The recent margin trends,apparently hurt by record-high input costs, are significantly higher thanprevious episodes of such cost pressures and are likely to recover fasterthan that in previous cycles. The longer-term trends of improving mix, interms of the user segment (increasing sales to passenger cars) and producttype (truck radials) are supportive of sustainably enhanced profitability.Apollo Tyres is well positioned to capture these trends and grow itsconsolidated earnings 31% p.a. in FY11-13E. We also like its ambitiousinternational strategy, supported by its two value-accretive acquisitions.■ Pricing power and monetisation of investments to benefit:We expecttyre manufacturers to increase prices further in the near future to pass onraw material cost inflation. Fall in rubber prices could also lead to bettershare price performance. However, further increase in rubber prices wouldhurt margins, at least temporarily. Apollo Tyres will also benefit fromcommercialisation of its new plant and the resultant operating leverage.■ Rerating justified:We set a target price of Rs108, valuing Apollo Tyres atan EV of 5.5x FY12 EBIDTA (9.4x FY12E EPS), in line with its global peers.We believe that its historical discount to global peers and the Indian marketis not justified anymore, given the structural changes in the tyre industry.Apollo Tyres is one of the best ways to play the Indian economic cycle.Share price performance020406080S e p - 0 8 J a n - 0 9 M a y - 0 9 S e p - 0 9 J a n - 1 0 M a y - 1 0 050100150200P r i c e ( L H S ) R e b a s e d R e l ( R H S )The price relative chart measures performance against the BOMBAY SE 30 SHARE SENSITIVE index which closed at 17971.12 on 31/08/10 On 31/08/10 the spot exchange rate was Rs47.07/US$1Performance Over 1M 3M 12MAbsolute (%) 12.6 0.9 69.1Relative (%) 12.0 -4.9 47.4Financial and valuation metricsYear 3/10A 3/11E 3/12E 3/13ERevenue (Rs mn) 81,207.4 90,725.5 104,464.9 116,992.0EBITDA (Rs mn) 11,748.8 10,258.4 13,781.1 16,041.9EBIT (Rs mn) 9,206.5 7,458.4 10,349.1 12,128.9Net income (Rs mn) 5,659.8 4,106.0 5,821.7 7,061.0EPS (CS adj.) (Rs) 11.23 8.15 11.55 14.01Change from previous EPS (%) n.a.Consensus EPS (Rs) n.a. 8.7 10.6 11.1EPS growth (%) 306.7 -27.5 41.8 21.3P/E (x) 6.4 8.8 6.2 5.1Dividend yield (%) 1.0 1.0 1.4 1.7EV/EBITDA (x) 4.2 5.6 4.1 3.3P/B (x) 1.8 1.6 1.3 1.0ROE 28.8 17.6 20.4 20.2Net debt/equity (%) 69.0 90.6 70.3 49.9Source: Company data, Thomson Reuters, Credit Suisse estimates.RatingOUTPERFORM* [V]Price (31 Aug 10, Rs) 71.95Target price (Rs) 108.00¹Chg to TP (%) 50.1Market cap. (Rs mn)36,264.60 (US$ 770.52)Enterprise value (Rs mn) 57,404Number of shares (mn) 504.03Free float (%) 39.3552-week price range 81.30 - 41.45

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*Stock ratings are relative to the relevant country benchmark.¹Target price is for 12 months.[V] = Stock considered volatile (see Disclosure Appendix).Research AnalystsGovindarajan Chellappa9122 6777 [email protected] K91 22 6777 [email protected]

   01 September 2010 Apollo Tyres(APLO.BO / APTY IN) 2Focus chartsFigure 1:Tyre demand poised for strong growthFigure 2:Capacity utilisation to remain high  0.00.40.81.21.62.01 9 9 6 1 9 9 8 2 0 0 0 2 0 0 2 2 0 0 4 2 0 0 6 2 0 0 8 2 01 0 2 0 1 2 E 3% pa9% pa12% pa 7075808590951002 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 E 2 01 2 E 2 0 1 3 E M H C V C a r s T o t a l(%)  7075808590951002 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 E 2 01 2 E 2 0 1 3 E M H C V C a r s T o t a l(%)Source: ATMA, Credit Suisse estimates Source: ATMA, Company data, Credit Suisse estimates Figure 3:Apollo’s market share has risen sharplyFigure 4:Geographical breakdown of Apollo’s revenue  0510152025301 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 01 0 M H C V C a r s (%)  0510152025301 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 01 0 M H C V C a r s (%) India62%South Africa13%Europe25% Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Figure 5:Analysis of P&L on per kg basisFigure 6:Global comparison  0204060801001201401602 0 0 1 2 0 0 3 2 0 0 5 2 0 0 7 2 0 0 9 20 1 1 E 2 0 1 3 E 05101520253035R a w m a t e r i a l c o s t ( R s / k g , L H S ) O t h e r c o s t s ( R s / k g , L H S ) EBIDTA (Rs/kg, RHS) 

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Apollo TyresBridgestoneSumitomoYokohamaMichelinPirelliContinentalGoodyearCooper TireCheng ShinNexenTireHankookToyo TyreNokianRenkaat0510152025300 2 46 8 1 01 2 1-yr fwd2-yr EBITDA CAGR (%)  Apollo TyresBridgestoneSumitomoYokohamaMichelinPirelliContinentalGoodyearCooper TireCheng ShinNexenTireHankookToyo TyreNokianRenkaat0510152025300 2 46 8 1 01 2 1-yr fwd2-yr EBITDA CAGR (%)Source: Company data, Credit Suisse estimates Source: Bloomberg, Credit Suisse estimates 

   01 September 2010 Apollo Tyres(APLO.BO / APTY IN) 3Structurally betterApollo Tyres is set for strong growth, benefiting from: 1) strong auto sales growth,2) strong replacement market growth on the back of the recent increase in the number ofvehicles, 3) favourable supply-demand scenario, 4) commercialisation of its new plant and5) successful integration of its recently-acquired subsidiaries. We believe Apollo Tyres isone of the best ways to play the auto boom in India.Conducive operating environmentThe Indian tyre industry is set to benefit from strong growth in demand for tyres, both fromOEMs and replacement market. Our core thesis is premised on an acceleration in vehicleownership, both passenger and commercial, driven by strong underlying economy growth.We expect total tyre demand (in tonnage terms) to grow 11.8% p.a. in FY10-13E, up from7.3% p.a. in FY07-10. Supply expansion, on the other hand, will likely lag significantly, atleast until FY13E, and especially in the crucial truck and bus segment. As a result, weexpect industry utilisation levels to stay at high levels (90%-plus), boosting pricing power.Longer-term trends, in terms of higher proportion of sales to PV consumers andradialisation of truck tyres, are also supportive of better profitability. In the near term, weexpect tyre manufacturers to overcome historically high input costs (rubber price) throughprice hikes and recover margins.Well positioned to capture the trendApollo Tyres is well positioned to participate in the profitable growth trends in the industry.While the company has increased share in all its segments, increase in passenger carradial market share is a clear demonstration of Apollo’s brand and distribution strength.Apollo’s significant investment in the truck radial facility is extremely well timed, in ourview. We also like the company’s international foray and expect both its recently-acquiredsubsidiaries to add significant value in the long term.

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Investments done; benefits to followOver FY10-11E, Apollo Tyres would have made significant investments, both organic (newplant in India leading to 60% increase in domestic capacity) and inorganic (Europe). Weexpect the company to benefit from commercialisation of these investments. We forecaststandalone ROE to recover from the cyclical low of 12.9% in FY11E (previous cyclical lowsof about 5%) and sustain over 15% from FY12E, benefiting from commercialisation of itsnew plant and from improved industry dynamics. Indian operations will also be significantlycash flow positive from FY12E, post capacity expansion. The consolidated entity will likelybenefit from normalisation of key subsidiaries. We forecast consolidated EBIDTA to grow25% p.a. in FY11-13E and consolidated EPS to grow 31% in the same period.Rerating justifiedApollo Tyres (and other Indian tyre stocks) has historically traded at lower-than-marketmultiples and at a large discount to global peers. With a significant improvement inindustry supply-demand scenario, we expect tyre companies’ pricing power to improvesubstantially, helping margins to break out of its commodity dependence. Moreover, weexpect Apollo Tyres to improve its return ratios, benefiting from the commercialisation ofrecent investments. We set a target price of Rs108 per share, valuing Apollo Tyres at atan EV of 5.5x FY12E EBIDTA, in line with its global peers. At our target price, Apollo Tyreswould trade at 9.4x FY12E, at a significant discount to market and auto sector multiples.We believe Apollo Tyres is one of the best ways to play the momentum in vehicle sales, aswell as the Indian economy.Apollo Tyres is set for strongstructural growth backed bygrowing auto sales, and thecompany’s organic andinorganic expansionWe expect total tyredemand (in tonnage terms)to grow 11.8% p.a. in FY10-13E, up from 7.3% p.a. inFY07-10. Supply expansion,on the other had, will likelysignificantly lagApollo Tyres has a strongpresence in its keysegments and is wellpositioned to capture thegrowth trends in the industryWe forecast standaloneROE to recover from cyclicallow of 12.9% in FY11E(previous lows c5%)benefiting fromcommercialisation of its newplant and improved industrydynamicsWe see margins for ApolloTyres breaking out of theircommodity dependence,given the vastly improvingindustry dynamics. We set atarget price of Rs108,valuing Apollo Tyres at anEV of 5.5x FY12E EBIDTA,in line with its global peers

Apollo Tyre-www.apollotyres.comOur CompanyAt a GlanceApollo Tyres Ltd is a high-performance company and the leading Indian tyremanufacturer. Head quartered in Gurgaon, a corporate-hub in the NationalCapital Region of India, Apollo is a young, ambitious and dynamic organisation,which takes pride in its unique identity. Registered as a company in 1976,Apollo is built around the core principles of creating stakeholder value throughreliability in its products and dependability in its relationships.Apollo’s present strength and market dynamism steps from its early years of strife in establishing itself as a tyre manufacturer within the closed Indianeconomy. Over two decades, Apollo worked on a portfolio

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of products, tuned tocustomer needs and an array of innovative marketing initiatives to establish itself as a leader in its home market. Some of these include segmenting customers bytheir load and mileage requirements, running tyre loyalty programmes,establishing customer contact programmes which resulted in better health anddriving habits, introducing India’s first farm radials and India’s first range of high-speed tubeless passenger car tyres.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 Ltdin South Africa (since renamed as Apollo Tyres South Africa Pty Ltd) andZimbabwe, taking on southern Africa as the second domestic market. Thecompany holds brand rights for the Dunlop brand across 30 African countries.In 2009, Apollo acquired Vredestein Banden B V in the Netherlands, andthereby adding Europe as its third crucial market.The company currently produces the entire range of automotive tyres for ultraand high speed passenger cars, truck and bus, farm, Off-The-Road, industrialand specialty applications like mining, retreaded tyres and retreading material.These are produced across Apollo’s eight manufacturing locations in India, Netherlands and Southern Africa. A ninth facility is currently under constructionin southern India, and is expected to commence production towards the end of 2009. The major brands produced across these locations are: Apollo, Dunlop,Kaizen, Maloya, Regal and Vredestein.In the three domestic markets of India, Southern Africa and Europe, Apollooperates through a network of branded, exclusive or multi-product outlets. InSouth Africa the branded outlets are called Dunlop Zones, while in India theyare variously named Apollo Tyre World (for commercial vehicles) and ApolloRadial World (for passenger cars). Exports out of these three key manufacturinglocations reach over 70 destinations across the world, with key comprisingEurope, Africa, the Middle East and South-East Asia.

  For Apollo Tyres, offering the right product to the right customer is essential.Special efforts are made to understand customer needs and segment the marketaccordingly. After which, products are developed for niche applications within alarger category to enable the company to provide efficient, fuel and cost-saving products to each customer segment. Innovation has always been an integral partof the Apollo way of doing business, this applies as much to productdevelopment and marketing as to how the company as a whole is focused onchallenging existing boundaries.An integral part of the Apollo Tyres world is its community involvement andgiving programmes directly related to its business. In India, the focus has always been on finding ways to ensure a direct benefits to customer groups. For thecommercial vehicle community the company runs extensive HIV-AIDSawareness and prevention programmes and has established Health Care Clinicsacross the country to cater to the community’s health needs. For passenger car customers the focus is on cultivating Safe Driving habits. Across itsmanufacturing locations, the key initiatives revolve around health and education programmes. Be BeliveVisionA significant player in the global tyre industry and a brand of choice, providing customer delight andcontinuously enhancing stakeholder value.ValuesGuiding PhilosophyOne of the vital facets of Apollo’s vision is the company’s endeavour to create lasting value for itsstakeholders. True to its vision, Apollo Tyres believes in making investments in people, productivity, processand of course the planet. Its community programmes are all targeted towards benefitting specific customer groups associated with the company’s business. This linkage ensures a targeted intervention which havethe ability to show results over time. A connection with better business practices also makes each of itscommunity programmes sustainable over time.The attempt towards creating a “greener” world is ever-evolving in the processes it adopts in itsmanufacturing units, the raw materials used, who they are sourced from and the tyres that are eventuallysent to customers.The key areas of work relate to health, education, nurturing young sporting talent and road safety andencompass customers, business partners and employees.Board of Directors

  Onkar S Kanwar Chairmanand Managing Director Apollo Tyres Ltd 

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Neeraj R S Kanwar**Vice Chairmanand Managing Director Apollo Tyres LtdT Balakrishnan*Principal Secretary(Industries)Government of Kerala Michael J HankinsonFormer Chief ExecutiveDunlop Tyres International(Pty) LtdNimesh N KampaniChairmanJM Financial Group Dr S NarayanFormer Principal Secretaryto the Prime Minister of IndiaU S Oberoi** Chief, Corporate AffairsApollo Tyres Ltd P Prabakaran*Additional Chief Secretary(Finance) Government of Kerala

internal efficiencies, cost optimisation and

customer satisfaction. Inthe following pages, the

Company reviews its achievements and

challenges in the financialyear ended March 31,

2011.

MARKET OVERVIEW

According to the Centre for Monitoring Indian

Economy, India's real GDP grew by about9% in

FY11, leading to a positive sentiment in the

industry. The Reserve Bank of India,with a view to

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rein inflation and high crude oil prices, resorted to

hikes in interestrates.

Tyre sales are closely related to growth in the

automotive sector, which in turn isdependent on

the National GDP. In the year gone by, sales of

medium and heavy commercialvehicles put

together, in volume terms, grew by nearly 38%;

while the light commercialvehicle category grew by

around 33%, driven in part by smaller 1-ton

vehicles. A keyreason for growth across

categories was a shift to the new generation BS3

vehicleplatforms from the older BS2.

In FY11, the Indian tyre industry clocked an

estimated turnover of Rs 350 billion. Inabsolute

terms, the industry produced 3% more truck-bus

tyres in FY11 over the previousyear, while the

production of light commercial vehicle and tractor

rear tyres grew by 5%and 9% respectively. A

significant production increase of around 30% was

noted in thepassenger vehicle category. The

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overall level of radialisation in the truck-bus

segment,as expected, increased to about 16% in

FY11.

In the coming year, growth is expected to be aided

by a healthy demand from OEMs, butinflationary

pressures may have an adverse impact on this

equation.

Additionally, skyrocketing cost of raw materials will

continue to pose a challenge,forcing

manufacturers to either undertake hikes, lower

production or sell at a sub-optimalprice point. Raw

material costs went up by as much as 40% for the

tyre industry in thelast 12 months. More so

because of price of natural rubber, which

comprises 50% of the rawmaterial, went up by

almost 70% in FY11.

The European economy showed signs of gradual

improvement with GDP growth in the EuroZone

countries at 1.8% compared to negative growth in

the previous year of 4.1%. Theturnaround was led

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by Germany with strong growth numbers at

around 3.6%. However, doubtsaround the financial

capabilities of a few debt-ridden countries,

moderated the growthoutlook. The Euro recovered

from a lower level of exchange rate US$1.20/€

during midFY11, after intervention by other Euro

Zone countries in terms of establishing

theStablisation Fund.

The automobile industry too went through a phase

of slow and gradual recovery in FY11,still

recovering from the slowdown. The year continued

to witness a steady demand fortyres, which began

in the latter half of FY10, further boosted by a

second successiveprolonged and extreme winter

and subsequently, a renewed demand for winter

tyres. Thoughsummer car tyre sales registered

growth as well, overall growth was largely driven

bywinter tyre sales. A few European countries

introduced fresh legislations around the useof

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winter car tyres, which contributed to a

higherdemand.

The second half of FY11 saw a sharp and

continued escalation in raw material prices,mainly

driven by prices of natural rubber, which reached

its peak towards the beginning ofQ4 FY11 with

prices as high as US$ 6 per kg. This necessitated

the need for another priceincrease in the same

year, the first being implemented at the beginning

of the year. Forthe European market it was quite

an unusual situation to have repeated price

increases.However, even this has not allowed

manufacturers to offset the input cost fully.

In South Africa, the GDP growth in FY11 was

2.8%, an improvement compared to a 1.7%decline

in the previous year. Since FY09 interest rates

have been on the decline, aimed atfuelling

consumption, but the price of fuel skyrocketed

during FY11; a development whichhas impacted

domestic consumption. Though inflation officially

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averaged at a relativelystable 3.7% in FY11, many

economists believe it to be closer to 6%. Hurdles

are consistentwith exchange rate fluctuations and

uncertainty in the relationship with local labour

andUnions.

The automotive industry in South Africa saw

rejuvenation in the last fiscal year.Vehicle export

figures in March 2011 were the highest on record.

This performance wasbased on a recovery on the

consumption side of the economy; as interest

rates came down by6.5 points since December

2008, reducing debt burdens of private individuals

andbusinesses. Light commercial vehicle sales

showed improvement based on better

economicactivity, whereas growth in medium and

heavy trucks indicated a willingness to invest inthe

long term. Nonetheless, the economic pressures,

for example on fuel, might dampenthese going

forward.

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The tyre industry in South Africa was challenged

by significantly higher labour costsand a strong

union culture - which even caused a month-long

strike in FY11, leading to asubstantial loss in

production. The frequent hikes in the cost of the

basic utilities likeelectricity further escalated

conversion costs. Recent statistics also indicated

thatacross all product categories, the import

portion of the market had reached almost

50%;though this is again very much currency

driven, but at the same time hints at a lack

ofeffective regulations to curb under declaration of

invoices.

In terms of revenue through sales, the tyre

industry grew by 3% and 5% for thepassenger car

and truck bus tyre categories.

INDUSTRY STRUCTURE AND

DEVELOPMENTS

The Rs 350 billion tyre industry in India, in FY11,

was dominated by 5 major players -Apollo, Birla,

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Ceat, JK Tyres and MRF - accounting for around

85% of the industryturnover. The said players

manufactured tyres across all segments except for

two-wheelerswhere only MRF, Ceat and Birla

cater to the category. International players

LikeBridgestone and Goodyear sold as well, but

were restrained due to presence in Limitedproduct

categories at their manufacturing facilities in India.

Bridgestone initially focussed on only passenger

car tyres; it had begun with a 40%market share,

more than a decade back, and remained the

leader in this category untilFY10. However,

Bridgestone has over the years lost market share

to domestic players. InFY11, it conceded its pole

position to MRF. Goodyear shared a similar fate

and iscurrently seen as a relatively small player in

all segments, except agriculture tyres.

Other players like Michelin, Hankook and

Yokohama operated in the replacement market,to

a limited extent, through imports from China and

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Thailand. In the coming years, theindustry is

expected to see greater competition as

international players set upmanufacturing units in

the country; for instance Michelin and Bridgestone

have announceddedicated truck-bus radial tyre

units while Continental is seeking an entry through

theacquisition of Modi Tyres.

In terms of trends, radialisation in the truck-bus

segment picked up pace and reached16% in

FY11; the same is expected to reach over 30% by

FY14. Considering this, Apollo'sinvestment in its

recently inaugurated all-radial greenfield in

Chennai, Tamil Nadu, doesnot come as a surprise

- the Chennai unit is expected to have a capacity

of 465 metrictonnes (MT) per day by the end of

FY12. Having said that, cross ply tyres still

constitutethe bulk of the market and to meet this

demand light truck cross ply tyre capacity

wasupped by 23 MT per day at the Perambra

facility. Similarly, the capacity for light truckand

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rear tractor cross ply tyres was also increased by

13 MT per day at the Limda plant;while the

passenger car and light truck radial tyre capacity

at Limda increased byapproximately 135 MT per

day and 30 MT per day respectively. The 4 Indian

manufacturingfacilities together clocked a

combined production of around 957 metric tonnes

a day inIndia, in FY11.

Most domestic players are looking to build greater

capacities in this segment. In FY11,nearly 40% of

the truck-bus radial demand was met through

imports, a significant portionof which was

channelled by Michelin.

In FY11, as well as in previous years, the tyre

industry was dominated by commercialvehicle

tyres which accounted for 60% of the turnover.

The balance 40% was almost equallydivided

between passenger car, two-wheeler, farm and

off-highway tyres. The share ofpassenger and

two-wheelers tyres in the industry turnover has

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increased in the last fewyears due to a

significantly higher growth, compared to

commercial vehicle tyres - thistrend is expected to

continue in the future.

In anticipation of continued growth in the

passenger car segment, most manufacturersare

increasing capacity to be able to meet future

demand. In FY11, imports in thepassenger car

category stood at around 15%, bulk of which were

imports by theinternational players.

The biggest influencers in the tyre industry for

FY11 were the upward spiralling pricesof raw

materials - especially natural rubber, which

negatively impacted the bottomline ofall tyre

makers. In this respect, one positive development

for FY11, has been the uppercap on the import

duty of natural rubber at Rs 20 a kg or 20%,

whichever is lower. Withnatural rubber expected to

remain at a level of Rs 220+ per kg or more, going

forward theeffective import duty on rubber would

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be a maximum of 10%, as opposed to the

prevailing20%. This is expected to provide some

relief to the industry

The European tyre market is dominated by 6

major players, namely, Bridgestone,Continental,

Goodyear, Hankook, Michelin and Pirelli, who

account for about 90% of thetotal business.

In FY11, passenger car tyre sales grew by around

8%, as recorded in the data publishedby the

European Rubber Manufacturers' Conference

(ERMC), driven by the demand in wintertyres. The

agriculture tyre segment recovered from a

significant drop in the previousyear, and saw a

growth of about 10% in FY11; however, margins in

the segment erodedtowards the later part of the

year, due to an inability to offset raw material cost

push.

To cater to a growing market, Apollo Vredestein

geared up to undertake capacityexpansion - from

5.5 million tyres per annum to 6.4 million tyres per

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annum - at itsEnschede facility in the Netherlands;

this is expected to be completed by end of FY12.

The anticipated legislation on labelling, covering

factors like noise, rollingresistance and wet grip, is

also scheduled to be implemented in FY12. This is

expected tohave a major impact on product

development in the coming years, as all tyre

makers willhave to focus on achieving the

highestgrade.

As mentioned earlier, recent statistics have

indicated that across all productcategories in

South Africa, the import portion of the market

reached a level of nearly 50%in FY11; while this

strengthened the portfolio of major manufacturers

like Hankook,Michelin and Pirelli, it also led to an

inventory build up of quality imports from the

FarEast. At the retail level, a few of the global

retail outfits are expected to open shop inthe near

future.

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On the product front, Continental launched a new

truck tyre range, backed by anaggressive

marketing strategy. Most tyre categories remained

stable throughout the year;however, due to a

downturn in the construction industry this segment

declined - however,this trend has been reversing.

Additionally, there was a downturn in the cross ply

tyresegment of around 40%.

With an eye on the future, Apollo Tyres South

Africa set in motion a process to furtherbuild

capacities at its 2 units in Ladysmith and Durban.

The Ladysmith facility will seean expansion in its

passenger vehicle range with production

increasing from 80 MT per dayto 104 MT per day.

While the Durban plant is scheduled to up it truck-

bus radialproduction from 60 MT per day to 72 MT

per day. However, these capacity developments

willonly be fully realised by the end of FY12.

FY11 has been a story of escalating raw material

prices and a strong Rand. Whilst theraw material

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phenomenon affected most manufacturers

globally, a strong Rand opened thefloodgates for

cheap and/ or under-invoiced imports in the

country, in the absence ofnon-porous regulations

to check the same.

The tyre industry in South Africa was also

impacted by high labour costs and a strongunion

culture. Additionally, there was a port strike

leading to a 10-day productionstoppage. Frequent

hikes in the cost of the basic utilities like electricity,

furtherescalated conversion costs.

SWOT ANALYSIS

Strengths

• Apollo Tyres' diversified market base across 3

continents has enabled it toreduce its

dependence, and thereby, the inherent risks of

banking on a single market, ascompared to its

Indian competitors.

• The presence of strong and established brands

in the Company's portfolio, ineach of its country

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operations, lends credence to its growth plans.

The key brands are"Apollo" in India, "Dunlop" in

South Africa and "Vredestein"in Europe.

• An extensive distribution network supporting

Apollo Tyres' brands and productsin all its 3 key

operations.

• Continued Leadership position in the commercial

vehicle tyre segment in India,including price

Leadership in the cross ply segment.

• A leading position in the fast-growing passenger

car tyre segment in India,reaching the #1 position

in production and #2 in market share.

• Strong player in the ultra high performance

(UHP) passenger car tyre segment inEurope,

particularly in high margin wintertyres.

• Dynamic and progressive leadership.

Weaknesses

• Absence in the two-wheeler and three-wheeler

tyre segment in India, which islarge and continues

to show good growth.

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• Sub-optimal production facilities in terms of

economic size in South Africa.

• Market dynamics and intense competition in

some key markets do not allow passingon cost

pressures as and when reasonably required.

Opportunities

• Apollo Tyres' enjoys an early mover advantage,

with a large production capacityin the rapidly

growing truck-bus radial segment in India, well

ahead of key competitors.

• Entry into truck-bus radial retreading segment in

India, by further leveragingits leadership position

in the commercial segment - this enables the

Company to provide acomplete solution to its

customers and thus, enhance its brand equity.

• Cultivating a sizable market for brand Apollo in

Europe by capitalising on theexisting European

distribution network. This further improves brand

recognition andenhances profitability.

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• Increased sales of brand Vredestein tyres by

providing competitive costproduction base out of

India and/or sourcing tyres from other players.

• Entry into the off-highway tyre segment in India.

• Introduction of truck-bus and off-highway tyres in

Europe.

• Penetrating newer markets in Africa, including

tapping into the potential of theDunlop brand.

• Entry into high potential markets like South

America, Australia and Eastern Europe.

Threats

• Potential growth slowdown in the Indian

economy due to rising interest rates.

• Increased competition from global players like

Michelin and Bridgestone as theyenter the truck-

bus radial segment in India.

• Degrowth in the truck cross ply segment faster

than anticipated.

• Extreme raw material price volatility and cost

pressures.

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• Exposure to the South African market which

continues to face both a country andcurrency risk.

• Economic downturn in Europe leading to decline

in demand.

SEGMENT WISE PERFORMANCE

Despite the cost push, and the closure of the

Perambra facility for over a quarterwhich resulted

in production and sales losses, Apollo's India

Operations grew by around 9%in FY11. Though

the replacement market continued to provide the

bulk of the revenue, likethe last financial year,

revenue growth through the OE segment was a

welcome sign. Therewas no change in the

revenue contributed by exports. Product wise

revenue segmentationsuggested that while the

truck-bus segment continues to be the major

revenue earner, it isvery slowly yielding space to

passenger vehicle and light truck categories.

For a burgeoning Indian automobile market, Apollo

Tyres introduced a slew of newproducts and sizes.

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The Company emerged to be the leading producer

in the passengervehicle tyre category, with the

simultaneous release of Aspire and Acelere Maxx

ranges,especially for A3+segments in India and

Europe. A new 17 inch size was added to the

Hawkzrange, making it the ideal choice for

premium sports utility vehicles. In the

commercialvehicle segment, the Company further

fortified its dominance by introducing the

Enduracerange of radial tyres, which was

confirmed by the Automotive Research

Association of Indiaas being the most fuel efficient

radial tyres in the category. The agriculture

segment wasboosted with the launch of Krishak

Gold cross ply tyres meant for hard soil

applications.

Simultaneously, with OEM demand growing to 1.2

million tyres per month, the Company'sIndia

Operations, which has always worked in close

collaboration with its OE partners,expanded and

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intensified its OE presence in FY11. Apollo now

dominates the OEM businesswith presence in

more than 34 leading car models like Volkswagen

Polo, Mahindra Scorpioand Xylo, Maruti Suzuki

SX4 and FiatLinea.

Exports out of India Operations to the larger Zone

I continued as well. Apollo retainedits position of

being the largest exporter of passenger vehicle

tyres from India; anddespite a demand slump,

passenger vehicle exports registered marginal

growth. Thetruck-bus cross ply tyres were

challenged by degrowth compared to the previous

fiscal, butexploration of fresh markets continued,

with Bangladesh being the newest entrant in

thelist of long term export destinations.

The retread business of Duratreads grew by 53%

with the release of new low weightpatterns. Plans

are underway to launch a complete radial retread

range in the near future.

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Truck-bus radial sales grew by 135%, albeit from a

low base. This is expected to befurther bolstered

by the presence of Apollo Endurace. The

Company lost cross ply marketshare close to 3%

across replacement and OEM, due to the

prolonged strike at one of itsplants in Kerala. To

reinvigorate position in the market, the Company

announced the 2ndedition of the Apollo CV

Awards, the first-of-its-kind Awards for the

commercial vehicleindustry and its customers, that

seek to recognise and honour the champions and

stalwartsof the industry -vehicles, people and

organisations which established new benchmarks

innot just product performance and service, but

who also created value for the industry as awhole.

Earlier in the year, the Company also participated

in the International Mining andMachinery

Exhibition to connect with its off-highway

customers.

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In order to encourage safe driving and correct tyre

maintenance practices amongst itspassenger

vehicle customers, the Company carried out Safe

Drive workshops across multiplelocations,

including large Corporates, petrol pumps and

parking lots. On the lifestylefront, Apollo Tyres

continued to run the Apollo Highway On My Plate

show on NDTV GoodTimes Channel. A hugely

popular street-food show, which has enabled the

Company to connectwith a growing segment of

customers who enjoy road travel and are open to

new thoughts andexperiences.

However, the most significant product milestone,

for the year under consideration, wasthe launch of

brand Apollo in Europe at Reifen 2010 in Essen,

Germany; arguably theworld's largest tyre

exposition. Apollo branded tyres -Amazer 3G

Maxx, Acelere, Aspire andthe 4x4 range of Hawkz

in summer tyres and, Acelere Winter and Hawkz

Winter in wintertyres - were made available to

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customers in select European countries including

Germany,Italy, the Netherlands and the United

Kingdom, at a uniform price point. Apollo alsotied-

up with retail chain Kwik-Fit to sell the Apollo

brand of tyres through the 180Kwik-Fit car service

centres across The Netherlands. Kwik-Fit, which is

the largestindependent automotive parts, repair

and replacement specialists in Europe and one of

thelargest in the world, will sell the entire summer

and winter range of passenger vehicleand 4x4

tyres from Apollo.

Investments in R&D continued and the Company

further nurtured its collaborationswith premium

technical institutes, testing centres and raw

material suppliers. Variousprojects have been

initiated to tap into the latest technology and

research trend. Theseinclude reduction of cycle

time in all operations, optimisation of components

in thetyres, and standardisation of materials and

processes. New technological approaches

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andcomputing capabilities have also been tried to

improve productivity and quality inmanufacturing

processes like mixing, extrusion, calendaring,

building and curing. Whilesome projects are

underway to understand the possibility of using

more of synthetic rubberand eco-friendly raw

materials for manufacturing.

Two top-rung German magazines of immense

repute -ADAC and Auto Bild - on tyre testing,gave

high billing to Apollo's Amazer 3G Maxx and

Acelere tyres in their recent testsconducted with

brands available in the German market. The high

ranking and superiorperformance on wet, dry and

braking tests came as a testimony to the

technologicalsuperiority of the products on offer.

Apollo Vredestein BVhas registered an impressive

topline growth of 14% over FY10.Apollo

Vredestein continues to be largely a replacement

market brand in Europe with thecategory

contributing as much as 87% of the total revenue,

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whilst original equipmentmanufacturers accounted

for the remaining 13%. Passenger car tyre

segment constituted 90%and agriculture tyres 8%

of total revenue. Even though, the journey to

increase capacityin passenger car tyres from 5.5

to 6.4 million tyres a year began, there were lost

salesopportunities due to production capacity

constraints.

Riding on a strong demand from the replacement

market, the Company in addition toopening 3

Vredestein Design stores - multi-brand outlets - in

Belgium and Germany, alsoexpanded its highly

popular Quatrac 3 range of passenger vehicle

tyres by introducing therevolutionary Quatrac Lite.

Amongst the firstfew green all season tyres,

Quatrac Lite,meets all the environmental

regulations due to be implemented across the

European Union in2012 and is focused on fuel

efficiency. At the same time, the new Quatrac Lite

Page 41: Apollo Tyres Ltd

meets thepremium quality and safety standards for

which Apollo Vredestein is acknowledged.

Apollo Vredestein launched its largest ever mega

billboard campaign to coincide withthe opening of

the Geneva Autosalon in March 2011. The

billboards which featured theVredestein Sportrac

3-in an attempt to communicate to customers that

Apollo Vredestein isnot just a winter tyre specialist

but also manufactures world-class summer tyres -

were onview in 37 major European cities,

stationed across prime locations with heavy

traffic.While the participation in tyre and auto

shows allowed Apollo Vredestein to interact withits

key OE partners, suppliers and auto aficionados,

promotional campaigns enabled it tocreate

awareness amongst its customers in a refreshing

and clutter-free fashion.

Keeping up with its innovative marketing practices,

Apollo Vredestein also devised astrategic brand

promotion called Premium Styling By Vredestein-

Page 42: Apollo Tyres Ltd

anew concept focused on theCompany's ultra high

performance tyres. It is designed to attract the

attention of cartuning and styling firms, who

improve the performance and appearance of

exclusive cars.Thus far, the Company has

partnered with Carlsson and Arden Automobilbau

GmbH, bothrecognised luxury carstyling

boutiques.

On the R&D front continuous efforts were made to

enhance product safety andperformance. An

endorsement for the same was Vredestein

Sportrac 3 securing the poleposition in the most

prestigious summer tyre test in Europe, which was

carried out incollaboration between ADAC,

OAMTC and TCS, the German, Austrian and

Swiss automotive clubsrespectively.

A Look at the revenue from various product

segments, of Apollo Tyres South Africa,reveals

that truck-bus and passenger vehicle contributed

to more than 69% of the revenue,even as revenue

Page 43: Apollo Tyres Ltd

from the passenger vehicle category declined

marginally as compared tolast fiscal -primarily due

to a production loss in Q1FY11.

Apollo Tyres South Africa operates in a market

which is increasingly being dominated byimports.

Being a leading player in the market, the

organisation continued releasing newerhigh-

performing products and campaigns which aimed

at ensuring customer delight andenabled it to

retain its market share in a highly competitive

environment.

New products launched included 5 new sizes in

the light truck range -SP 560, Regal RST300 and

MST 300. On the consumer communication front,

Apollo Tyres South Africa tookforward its Driven

By Precision position for brand Dunlop, by

launching a newadvertisement campaign. The

new communication positioned the Dunlop Zones -

exclusiveDunlop branded retail outlets -as the

ultimate destination for a premium tyre

Page 44: Apollo Tyres Ltd

fitmentexperience and outstanding service from

committed professionals and experts.

Apollo Tyres South Africa's products were also

seen out and about at the acclaimedGauteng

Motor Show, which attracts thousands of

automotive fans and focuses onhigh-performing

passenger vehicle, 4x4, truck, motorbike tyres and

accessories. Meanwhile,Apollo Tyres South Africa

illustrated the lifestyle side of brand Dunlop by

continuing itssponsorship of the Surf Ski World

Cup. This international sporting gala is a perfect

fitfor the dynamic performance-centric Dunlop

brand.

The Company's constant endeavours to ensure

that only world-class products and servicesare

made available to its customers, resulted in Brand

Dunlop - sold in 32 Africancountries - emerging as

the #1 brand in the tyre category, in a survey

commissioned byRapport and City Press

newspapers on South Africa's iconic brands in

Page 45: Apollo Tyres Ltd

FY11. This was anindependent survey measuring

the usage of more than 8,000 brands under 19

different theproduct categories by South African

consumers. Additionally, Apollo Tyres South Africa

wasvoted Tyre Manufacturer of the Year by the

Tyre Dealers and Fitters Association. This isan

annual award based on various criteria including,

amongst others, product quality,delivery and price.

A much coveted award as it comes from the tyre

community.

The Company's R&D efforts were targeted

towards expanding its light truck radialtyre range.

Finite Element Analysis was successfully deployed

by Apollo Tyres SouthAfrica's truck-bus radial

development team to derive an optimised footprint

and design forits highway steer products. In view

of EU legislations and OE demand for low-

rollingresistant tyres, development work also

commenced on newer versions of silica

treadcompounds, using best practices as applied

Page 46: Apollo Tyres Ltd

in Apollo Vredestein, and leveraging on thework

done by Apollo's R&D centres in The Netherlands

and India.

OUTLOOK

In India, with raw material prices continuing their

northward trend, a continued costpush on this

front poses the biggest concern for the near future.

Natural rubber isexpected to remain at a level

upward of Rs 220 per kg for the better half of

FY12. The capon the import duty at Rs 20 per kg

or 20%, whichever is lower, which became

effective fromApril 1, 2011, might provide some

relief to the Industry. Simultaneously crude oil

pricesare also expected to move northwards in the

wake of protests and uncertainty in the

MiddleEast.

To combat the impact of increasing raw material

prices, significant price hikes areneeded which

may not be easy to implement due to multiple

factors including a potentialslowdown in demand.

Page 47: Apollo Tyres Ltd

A significant price increase of 20%+ has already

taken place in thelast 15 months, making it difficult

for the market to absorb more.

However, demand in OEM segment, across

categories, is expected to remain strong in thenear

future, with an expected boost in the truck-bus tyre

replacement market afterobserving a

comparatively slow 2nd half of FY11. The

passenger vehicle tyre replacementmarket is

expected to grow at a significantly high rate, much

like it did in FY11. Thetruck-bus radial market is

also predicted to grow in the near future, thus

putting ApolloTyres in an advantageous position

vis-a-vis competition. Though rising interest costs

andinflationary pressures may prove to be a

challenge for the scenarios mentioned above.

Most leading banks and economic forecasts

predict a slow but steady economic recoveryin

Europe. However inflation remains a concern on

the back of high prices of crude oil andother basic

Page 48: Apollo Tyres Ltd

commodities. Though austerity measures

announced by many European countries,including

Pension Reforms, will yield results in the long

term, some early success interms of positive trend

on controlling deficits will boost the confidence of

the financialmarket and supplement an economic

revival.

Outlook for Apollo Vredestein BV is largely

positive. Demand from replacement car

tyresegments continue to be strong. Tyre dealers

are already in discussion with manufacturersto

secure supplies of winter tyres for the FY12 winter

season. All tyre manufacturers hadbeen forced to

increase prices towards the end of FY11. Similar

price hikes are not beingruled out in the course of

FY12, if raw material costs continue to remain at,

or above,prevailing levels.

As mentioned earlier, environmental regulations

are expected to be rolled out acrossthe European

Union in 2012. To ensure compliance to the same,

Page 49: Apollo Tyres Ltd

the Company has establisheda Certification Cell

which will take care of all matters related to

homologations,e-marking and environmental

labelling of tyres.

For Apollo Tyres South Africa, capacity

enhancement at both its Ladysmith and

Durban plants are on track. The Company is also

in the process of upgrading its productportfolio, in

conjunction with Apollo's R&D facilities in both the

Netherlands andIndia, to ensure the highest

quality products in its domestic market and the

everincreasing export destinations.

RISKS AND CONCERNS

1. Increasing raw material prices

a. Natural rubber is an agricultural commodity and

subject to price volatility andproduction concerns.

b. Most other raw material are crude-linked and

are affected by the movement in crudeprices.

c. Both natural rubber and crude prices are

controlled by external environment - littlecan be

Page 50: Apollo Tyres Ltd

done to control the raw material price

movementinternally.

d. Commodity hedging has its own risks and

concerns.

2. Ability to pass on increased costs

a. Demand-supply situation has to remain in

favour of the industry to enable it to takeprice

increases.

i. In India however, this is further impacted by

competitive activities and a generalreluctance to

undertake quick and large price corrections.

ii. In South Africa, though the pricing discipline is

better compared to India, importshave a significant

market share across categories, making it difficult

to deploy pricehikes; especially as the imported

brands are gaining a stable customer base in

thecountry.

3. Continued economic growth

a. Demand in the tyre industry is dependent on the

economic growth and/orinfrastructure

Page 51: Apollo Tyres Ltd

development. Any slow down in the economy, will

impact the tyre industry,particularly in India.

b. The South African economy has continued to

remain sluggish and though expected torecover,

may not grow at the expected pace.

c. In Europe, the Company's dependence on

winter tyre sales, which is subject toseasonal

requirements, can be a cause for concern in the

future.

4. Radialisation levels in India

a. Slower increase in radialisation levels in the

truck-bus tyre segment, than what wasexpected,

may impact India Operations -excess capacity

may result in competitive pressuresand decline in

profits.

b. At the same time an unexpected quick high in

the level of radialisation can resultin redundancy of

cross ply capacities and create a critical need for

fresh investments.

5. Manpower retention

Page 52: Apollo Tyres Ltd

a. Retaining skilled personnel may become

increasingly difficult due to entry ofinternational

tyre majors like Michelin in India.

b. In South Africa, there is a shortage of skilled

personnel which may make itdifficult to attract and

retain key management and operational staff.

6. Currency volatility in South Africa will continue

to impact the competitiveness ofthe domestic

industry visa-vis imports.

7. Lower level of profitability due to some of the

above factors impacts the ability toinvest in

growth.

INTERNAL CONTROL & SYSTEMS

During the year, Apollo Tyres made constructive

and practical process changes at itsfacilities

without allowing dilution of internal controls, which

have helped in costreduction and/or improvement

in productivity. Critical best practices have also

beenimplemented across geographies.

Page 53: Apollo Tyres Ltd

Information Technology as a business tool

continues to play a large role. A majorhighlight has

been the automation at Apollo's Chennai facility,

including SAP deploymentfor backend operations

of the unit, bar coded tyres for tracking and

traceability,robotics to support material movement,

integration of shop floor machinery with IT

systemsto avoid manual entries and error

proofing, alongside other effective control and

qualitysystems.

At Apollo Tyres, a robust risk management system

has also been put in place withperiodic reviews to

ensure timely action.

DISCUSSION ON FINANCIAL PERFORMANCE

WITH RESPECT TO OPERATIONAL

PERFORMANCE

The financial statements have been prepared in

accordance with the requirements of

theCompanies Act, 1956, and applicable

accounting standards issued by the Institute

Page 54: Apollo Tyres Ltd

ofChartered Accountants of India. The

management of Apollo Tyres Ltd., accepts the

integrityand objectivity of these financial

statements as well as the various estimates

andjudgements used therein. The estimates and

judgements relating to the financial

statementshave been made on a prudent and

reasonable basis, in order that the financial

statementsare reflected in a true and fair manner,

and also reasonably present the Company's

stateof affairs and profit for the year.

Rs Million

S

l.

N

o

.

Particular

sYear Ended Year Ended

31.03.

2011

31.03.

2010

31.03.

2011

31.03.

2010

Standalone Consolidated

Page 55: Apollo Tyres Ltd

1

Gross

Sales /

Income

from

Operation

s

60,01

0

54,25

7

93,78

2

85,09

8

2

Other

Income

(Including

exception

items)

267 112 263 1,088

Total60,27

7

54,36

9

94,04

5

86,18

6

3

Total

Expenditur

e

(Increase)

/ Decrease

in Work in

(3,74

7)

(227) (4,73

7)

2,181

Page 56: Apollo Tyres Ltd

Process &

Finished

Goods

b)

Consumpti

on of Raw

Materials

40,69

6

30,45

0

52,94

8

39,34

0

c) Staff

Cost3,068 2,895

11,55

3

10,88

5

d) Excise

Duty5,105 3,891 5,105 3,891

e) Other

Expenses9,553 9,410

19,13

3

17,05

3

Total54,67

5

46,41

9

84,00

2

73,35

0

4Operating

Profit5,602 7,950

10,04

3

12,83

6

5 Interest 1,493 740 1,852 1,154

6 Depreciati 1,474 1,228 2,720 2,542

Page 57: Apollo Tyres Ltd

on

7Profit

before Tax2,635 5,982 5,471 9,140

8

Provision

for Tax -

Current

533 1,418 783 2,183

- Deferred 436 414 596 423

- MAT

Credit(316) - (316) -

9

Share of

Loss in

Associates

/Minority

Interest

- - 6 -

1

0Net Profit 1,982 4,150 4,402 6,534

MATE RIAL DEVELOPMENT IN HUMAN

RESOURCES/ INDUSTRIAL RELATIONS

Page 58: Apollo Tyres Ltd

Human Resource at Apollo is guided by its vision

to be a strategic partner to thebusiness and create

value for the organisation by developing human

capital.

Programmes geared to nurture global leaders like

the Enhanced and Advanced

LeadershipDevelopment continued to enrol a

larger number of promising employees, giving

themexposure and learning opportunities in some

of the best institutes in the world. TheEnhanced

Leadership Programme went cross-geography this

year, with participants fromApollo India, Apollo

South Africa and Apollo Vredestein. In the area of

manufacturingexpertise, Apollo India launched its

programme on manufacturing excellence with

NITIE,while Apollo Vredestein concentrated its

programmes on Operator Training - with

eachoperator on the shop floor mandatorily going

through a 3 to 5 year programme.

Page 59: Apollo Tyres Ltd

Apollo Vredestein has been also chosen as the

Best Business Education Employer in theTwente

region of the Netherlands. The award was in

recognition of the integrated educationpolicy of the

Company. Apollo

South Africa continued with its Care and Growth

Leadership Development process, bywhich

practical skills around people management for

day-to-day requirements are taught.

Apollo's Six Sigma journey launched in the year

2005 in India was extended to ApolloVredestein

over the course of FY11. A batch of Black, Green

and Orange Belt were trained.

Recognition programmes like Roll of Honour were

held in India and South Africa. LongService

Employees were also recognised and rewarded by

South Africa.

The Performance And Career Enhancement

(PACE) module and online software has

beenredeveloped to suit the organisation's global

Page 60: Apollo Tyres Ltd

growth needs, and operations have been movedto

SAP to enable a uniform approach to performance

management.

This year both India and South Africa hired a fresh

batch of Graduate EngineerTrainees(GET) from

various leading engineering colleges. As is the

norm, the GETs will undergo ayear-long training

programme to expose them to the various facets

of tyre development,post which they are assigned

to their department of choice.

Chennai, Apollo's newest plant produced its

millionth passenger vehicle tyre and iswell on its

way to becoming a leading top-notch facility. With

the leanest structure offour levels, the plant is

setting a benchmark trend in aspects of culture,

transparency,empowerment, quicker decision

making and of course automation. The Chennai

plant ushers ina new era in manufacturing at

Apollo Tyres.

Page 61: Apollo Tyres Ltd

The Perambra plant was in a lock-out for part of

the 1st & 2nd quarters of FY11.However, after

successful settlements with the Union, the plant

has resumed smooth anduninterrupted operations.

The Kalamassery plant was also successful in

signing a proactivesettlement with the Unions. The

total unionised strength of both plants is around

3000.This year, Apollo South Africa also

concluded its 2010 wage negotiations early in

theyear, but unfortunately not without a lengthy

strike. The agreement reached, is valid for3 years

and during this time, the Company will engage

with the Unions on variousproductivity

improvement initiatives. Apollo Tyres South Africa

has also activelyconcentrated on improving its

previous year's score on the BBBEE Score Card

(Broad BasedBlack Economic Empowerment Act).

Apollo Tyres South Africa has now moved up to a

Level 6status in the Codes of Good Practice.

Page 62: Apollo Tyres Ltd

Apollo Vredestein has 3 employee Unions,

management holds 2 meetings every year

withUnion representatives to brief them about the

operational performance of the Company

andfuture plans. Wage negotiations take place

once a year. The Company has a Works

Council,which is involved in the operations and

plans. There are meetings between Management

andWorks Council on different business topics.

The relationships between Management,

Unionsand Works Council have been constructive

and cordial.

Apollo Tyres continued to take forward its initiative

related to social responsibilitythrough the Apollo

Tyres Foundation. Apollo's corporate social

responsibility strategyfocuses on combining

corporate goals with development goals - to

enable inclusive growthby building on key

partnerships and linkages to optimise the existing

resources inreaching out to more people.

Page 63: Apollo Tyres Ltd

In India, social responsibility initiatives are geared

at spreading awareness andprevention of HIV-

AIDS amongst customers, employees and

business partners. To this end theCompany is

running 16 Health Care Centres for its key

customers - the commercial vehiclecommunity - in

some of the country's largest transhipment hubs.

The Centres are manned bya doctor, requisite

paramedic staff and also have a large network of

peer educators. Apartfrom addressing the issue of

HIV-AIDS, the Centres also treat sexually

transmittedinfections. For its employees, apart

from instituting a HIV-AIDS policy, the Company

holdsregular sensitisation sessions, which are

typically conducted by Master Trainers -

employees who have received formal training -

across various locations. The Master

Trainers also conduct similar sessions for the

Company's business partners as well.

Page 64: Apollo Tyres Ltd

For the communities in the vicinity of Apollo's

manufacturing locations, regular healthcamps are

organised for the local population. These camps

address basic health conditionslike blood

pressure, tuberculosis, eye infections. Awareness

generation and providingperiodic updates on

seasonal infections like influenza and other viral

illnesses likechikungunya, H1N1 flu and dengue,

also formed a part of it.

Apollo Tyres in India, under its umbrella

environment programme HabitAt Apollo, apartfrom

undertaking a paper recycling initiative, is also

exploring possibilities of energyand water

conservation which compliment the work already

underway at the manufacturinglocations.

Across all geographies, there has been a

conscious drive to shift towards eco-friendlyraw

materials and minimise wastage, and encourage

recycling of materials.

Page 65: Apollo Tyres Ltd

In South Africa, the Company has partnered with

schools in the vicinity of itsmanufacturing facilities

in KwaZulu-Natal; these partnerships aim to

improve the qualityof education for children and

thus, impact society at large. The initiatives

includeinstallation of computer centres and

libraries at schools which focus on

academicexcellence and overall development of

the pupil. Under the Apollo Empowerment

Programme,financial assistance is provided to

meritorious disenfranchised students, along

withvocational opportunities. The Company, in

partnership with the Mayor's Office, is also akey

sponsor of a pre-school in Ladysmith. Apollo Tyres

South Africa's association with theInkanyezi

School for the Disabled - where the Company

assists the upgradation ofinfrastructure and helps

find employment for its pupil - has gained further

momentum, withthe School now being contracted

Page 66: Apollo Tyres Ltd

to help with repair of various manufacturing

materials.

Apollo Vredestein BV, supports on a structural

basis 10 jobs, requiring workexperience, for

individuals with relatively less employability. This

initiative providesindividuals, from the

neighbourhood around the manufacturing unit, an

opportunity to gainwork experience for one year,

which significantly improves their future

employmentprospects. Apollo Vredestein has also

successfully passed the re-certification for

theEnvironmental Assurance System ISO 14001.

NOTE

This report contains forward-looking statements

that describe our objectives, plans andgoals. All

statements that express expectations and

projections about the future,including but not

limited to, statements about the Company's

strategy for growth, productdevelopment, market

position, expenditure and financial results, are

Page 67: Apollo Tyres Ltd

forward lookingstatements. These are subject to,

certain risks and uncertainties, including but

notlimited to, governmental action, local economic

or political development, technologicalrisks, risks

inherent in the Company's growth strategy,

dependence on certain customers,technical

personnel and other factors that could cause

actual results to differ materiallyfrom those

contemplated by the relevant forward-looking

statements. Investors should bearthis in mind

when considering the above statements.

Onkar S Kanwar, Chairman of Apollo

Pashmina-Water Front Model,

Page 72: Apollo Tyres Ltd

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