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APOLLO TYRES LTD CHAPTER - 1INTRODUCTION

APOLLO TYRES LTD INTRODUCTION Apo l l o T yr e s i s o n e o f t he l a r gest t yr e m an u fa ct u ri n g com p ani e s i n In di a. The company was incorporated in 1972 and commenced its production in 19 77. It w as t h e fi rs t com pa n y t o r ec ei v e IS O 90 01 a c c re di t at i on i n In di a n t yr e industry.T h e co m pa n y c a n be t r ac e d b ac k t o t he 7 0 s wh en h a rd - nos ed M NC s a nd 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 newm an a ge m e nt t e a m un d er t h e l e ad er s hi p o f Vi ce -C h ai r m an a nd M D, M r. On ka r S Ka n wa r t o ok ov e r t he h el m o f t h e c om pa n y a f f ai r s. O bj e ct i ve s w er e r e de fi ne d an d service aggressive market penetration and expense containment became order of theday.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 t s op e r at i o ns i n In di a , S ou t h Af ri c a a nd Zi m b ab w e wi t h a n et w o rk o f ov er 4 ,00 0d e al e rsh i ps i n In di a al on e. S om e t i m e i n J a nu a r y, t h e c om pa n y al so a nn ou nc e d i t s plans to start its operations in Hungary.M y pr oj ec t at Apo l l o t yr e s l t d . P e r am b r a i n Th ri s su r i s a h um b l e ef f ort t o 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 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 practical side.The objectives include:1.T o und e rs t a nd t h e or ga ni z at i on al st r uc t u r e of A pol l o t yr e s 2. To understand the various key functional areas of the company

APOLLO TYRES LTD 3. 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 STUDY Apollo 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. METHODOLOGY To 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 s o Direct interview with the department heads o

Discussion with the divisional heads o Interaction with workers in the company o Data collected by observing the function of the organization 2.Secondary Sources 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

- 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.

- 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 - 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. - 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) 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 has been appointed as vacancy caused by the Director and Chairman 2003

informed the Exchange that Mr. Raaja R S Kanwar Director, liable to retire by rotation in the retirementof Mr. Raunaq Singh, Non-Executive of the Board.

-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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DISCLOSUREAPPENDIXCONTAINSANALYSTCERTIFICATIONSANDTHESTATUSOFNON-USANALYSTS. 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/India Equity Research Tires & Rubber Apollo Tyres (APLO.BO / APTY IN) INITIATION Structurally better

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 performance 020406080S 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$1 Performance Over 1M 3M 12M Absolute (%) 12.6 0.9 69.1Relative (%) 12.0 -4.9 47.4 Financial and valuation metricsYear 3/10A 3/11E 3/12E 3/13E Revenue (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 49.9 Source: Company data, Thomson Reuters, Credit Suisse estimates. Rating O U T P E R F O R M * [ V ] Price (31 Aug 10, Rs) 71.95Target price (Rs) 108.00Chg to TP (%) 50.1

Market 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 *Stock ratings are relative to the relevant country benchmark.Target price is for 12 months.[V] = Stock considered volatile (see Disclosure Appendix). Research AnalystsGovindarajan Chellappa 9122 6777 3715govindarajan.chellappa@credit-suisse.com Rajasa K 91 22 6777 3932rajasa.k@credit-suisse.com

01 September 2010 Apollo Tyres(APLO.BO / APTY IN) 2 Focus charts Figure 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 0 1 0 2 0 1 2 E 3% pa9% pa12% pa 7075808590951002 0 0 7 2 0 0 8 2 0 0 1 E 2 0 1 2 E 2 0 1 3 E M H T o t a l (%) 9 C 2 V 0 C 1 0 a 2 r 0 s 1

7075808590951002 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 E 2 0 1 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:Apollos market share has risen sharplyFigure 4:Geographical breakdown of Apollos 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 0 1 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 0 1 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 2 0 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) Apollo TyresBridgestoneSumitomoYokohamaMichelinPirelliContinentalGoodyearCooper TireCheng ShinNexenTireHankookToyo TyreNokianRenkaat0510152025300 2

4 1 2

6 8 0 1 1-yr fwd2-yr EBITDA CAGR (%)

Apollo TyresBridgestoneSumitomoYokohamaMichelinPirelliContinentalGoodyearCooper TireCheng ShinNexenTireHankookToyo TyreNokianRenkaat0510152025300 2 4 6 8 1 0 1 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) 3 Structurally better Apollo 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 environment The 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 trend Apollo 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 Apollos brand and distribution strength.Apollos significant investment in the truck radial facility is extremely well timed, in ourview. We also like the companys international foray and expect both its recentlyacquiredsubsidiaries to add significant value in the long term. Investments done; benefits to follow Over 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 justified Apollo 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 thecompanys 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 Company At a Glance Apollo 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.Apollos 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 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 Indias first farm radials and Indias 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, OffThe-Road, industrialand specialty applications like mining, retreaded tyres and retreading material.These are produced across Apollos 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 communitys 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 Belive VisionA 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 Apollos vision is the companys 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 companys 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 Neeraj R S Kanwar** Vice Chairmanand Managing Director Apollo Tyres Ltd T Balakrishnan*

Principal Secretary(Industries)Government of Kerala Michael J Hankinson Former Chief ExecutiveDunlop Tyres International(Pty) Ltd Nimesh N Kampani ChairmanJM Financial Group Dr S Narayan Former Principal Secretaryto the Prime Minister of India U 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

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

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

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

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

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.

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,

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

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

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

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

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

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.

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 truckbus 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

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

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.

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.

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 truckbus radial segment in India. Degrowth in the truck cross ply segment faster than anticipated. Extreme raw material price volatility and cost pressures.

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.

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

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.

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.

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

customers in select European countries including Germany,Italy, the Netherlands and the United Kingdom, at a uniform price point. Apollo alsotiedup 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

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,

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

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-

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

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 newerhighperforming 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

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

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 lowrollingresistant tyres, development work also commenced on newer versions of silica treadcompounds, using best practices as applied

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.

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

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,

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

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

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

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.

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

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 Sl . Particular N s o.

Year Ended

Year Ended

31.03. 2011

31.03. 2010

31.03. 2011

31.03. 2010

Standalone

Consolidated

Gross Sales / Income from Operations Other Income (Including exception items) Total Total Expenditur e (Increase) / Decrease in Work in Process &

60,01 0

54,25 7

93,78 2

85,09 8

267

112

263

1,088

60,27 7

54,36 9

94,04 5

86,18 6

(3,747 )

(227)

(4,737 )

2,181

Finished Goods b) Consumpti on of Raw Materials c) Staff Cost d) Excise Duty e) Other Expenses Total 4 5 6 Operating Profit Interest Depreciatio n 40,69 6 30,45 0 52,94 8 11,55 3 5,105 19,13 3 84,00 2 10,04 3 1,852 2,720 39,34 0 10,88 5 3,891 17,05 3 73,35 0 12,83 6 1,154 2,542

3,068 5,105 9,553 54,67 5 5,602 1,493 1,474

2,895 3,891 9,410 46,41 9 7,950 740 1,228

Profit before Tax Provision for Tax Current - Deferred - MAT Credit Share of Loss in Associates/ Minority Interest Net Profit

2,635

5,982

5,471

9,140

533 436 (316)

1,418 414 -

783 596 (316)

2,183 423 -

1 0

1,982

4,150

4,402

6,534

MATE RIAL DEVELOPMENT IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS 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. 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 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. 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. 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. In India, social responsibility initiatives are geared at spreading awareness andprevention of HIVAIDS 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. 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. 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 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 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.

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