Continental Mulls New Avenues

New Delhi, April 26 | Updated: Apr 27 2004, 05:30am hrs
Germany-based Continental AG and JK Industries are in top-level talks to strengthen their alliance with a variety of options which may include possible investments by the $13.6 billion tyre giant in the Indian market.

Both the companies are engaged in continuous dialogue to explore areas of potential mutual interest and advantage. As the Indian market develops and becomes more open, many possible ways forward present themselves. Our discussions are ongoing at levels up to the most senior in both companies, Continental executive board member (commercial vehicle tyres) Hans-Joachim Nikolin said in an e-mail interview to FE.

Considering that Continental currently has passenger car and truck radial tyre technical ties only with JK Industries, sources say that possible options of expanding the relationship could include investment in a joint venture with JK Industries.

Mr Nikolin said radialisation of the Indian tyre market was accelerating and the technological capabilities of Continental were now applicable to the Indian situation.

Mr Nikolin dismissed a perspective in the Indian tyre industry that Continentals investments elsewhere in the world (including China and Malaysia) preclude their equity interest in India.

JK Industries and Continental have had a long-standing technical relationship. Continental was also supposed to partner Apollo Tyres for a similar venture, though the agreement collapsed after which Apollo formed a 49:51 joint venture with French tyre giant Michelin late last year.

When the Apollo-Continental agreement fell through, Apollo had said that Continentals investments elsewhere in the world had precluded any possibility of long-term commitment to India.

However, Mr Nikolin affirms that Continental has the financial muscle its just a matter of scrutinising the situation.

Mr Nikolin said, If you look at the results of Continental AG in 2003, you will notice a cash flow of 985.9 million euros. The corporation had total sales of 11.534 billion euros, an EBITA (earnings before interest tax amortisation) of 855.2 million euros, and a consolidated net income of 314 million euros. The ratio of debt to shareholder equity is now at 59 per cent. So all in all there is a lot of financial power.