Incidentally, this development follows the French tyre manufacturer’s announcement to cut 2,900 jobs in France as part of a business reorganisation to focus on higher-margin tyres.
For Michelin, this project comes after a joint venture with Delhi-based Apollo Tyres failed to take off. Apollo Tyres has already given a no- objection certificate (NOC) to Michelin to start its own operations in the country even as the French tyre major continues to own around 8% in it.
A person directly involved in the transaction said the French tyre giant has sought government approval to acquire 100% stake in a new company Michelin India Tamil Nadu Tyres formed in April 2009. This company will set up the proposed greenfield unit, which would absorb investment worth Rs 4,000 crore in the first phase running into 2016.
“The company may ramp up investments by another Rs 3,000 crore after the first phase,” said the person who did not wish to be identified. Michelin has been negotiating with the Tamil Nadu government for procuring land for the project. It wants to set up a plant on 290 acres in an industrial park developed by State Industries Promotion Corporation of Tamil Nadu.
The first phase of the proposed project in Tamil Nadu will provide jobs to around 1,500 people, which may go up to 2,000 after further investment of Rs 3,000 crore is made. Over time, half of the tyres and tubes produced at the plant will be exported.
The slack demand of tyres has impacted all major markets across the globe, especially in the US and Europe where sales have fallen by a third in the past few months.
Tyre sales in India, however, had kept the industry buoyant riding on the back of rising passenger car and two-wheeler sales. Strong demand from the replacement market after a high single-digit growth in FY09 for the 10 crore vehicles plying in India has also helped the tyre market.
In the past, many multinationals companies have announced multi-billion dollar projects for India, but many of them have delayed investment either because of the slowdown or because of regulatory constraints on foreign direct investment (FDI) in the country.
Most recently, Swedish furnishings retailer Ikea decided to postpone its foray into India in the wake of continuing restrictions on FDI in retail sector. There are no such restrictions on FDI in the tyre sector. (Tire Review/Akron)
