Pirelli and Bridgestone are targeting the company’s 30% share of Russia’s premium replacement-tire market.
“Competition is set to intensify,” said Mika Leskinen, a fund manager at Pohjola Asset Management in Helsinki. The firm, which oversees the equivalent of $43 billion, sold Nokian Renkaat from April until mid-July, he said.
The stock’s 37% climb this year through May and political and economic woes in Russia were an incentive to flee, Leskinen said. “Analysts may have been too optimistic in raising their earnings estimates.”
In a survey of 15 banks, only London-based Merrill Lynch analysts Harald Hendrikse and Thomas Besson recommend selling. Eleven recommend buying, including three who upgraded the stock to “buy” on Aug. 7. Three said “hold.”
Nokian Renkaat’s profit and shares more than doubled in the two years after it opened a plant near St. Petersburg in 2005. It has declined, however, 13% since the conflict in Georgia erupted Aug. 7.
“Recent news from Russia has increased caution toward companies that have significant operations there,” Leskinen said. Oil’s 28% decline this quarter may hurt the economy and consumer confidence in Russia, he said.
Bridgestone, the world’s largest tiremaker, and Goodyear Tire & Rubber, the biggest U.S. producer, are among those considering building factories or supplying tires to foreign automakers in Russia. Pirelli and Russian Technologies have already formed a joint venture and said Aug. 6 that they would invest 250 million euros ($350 million) in a plant.
Michelin opened a plant near Moscow in 2004, and Continental, which started a joint-venture factory in Omsk last year, plans to expand in the country, Auto Motor & Sport magazine reported in June.
“It takes about three years from the decision to build a plant to producing any meaningful volumes,” Nokian Renkaat chief executive Kim Gran said. “So we are ahead.”
Tires made in Russia avoid a 20% duty.
Nokian Renkaat, a former unit of mobile phone company Nokia, is investing 195 million euros to expand its Russian factory and more than double annual capacity to 10 million tires.
“It’s business as usual in Russia,” said Gran, who presided over a sevenfold rise in the shares since becoming CEO eight years ago. “Economic growth will continue.”
Replacement tires are a 1.3 billion euro market in Russia, which the company predicts will grow to 2.9 billion euros by 2013.
The premium segment accounted for almost 60% of total volume last year. Bridgestone has 14% of that business and Michelin, Continental and Goodyear each have 13%.
“The Russian market is set to mature in three to five years, and it’s vital that we take our share of the market during the growth phase,” Gran said. “We have a long-term commitment.” (Tire Review/Akron)
