India: Balkrishna Tyres

Tires that are going places

Yogesh Mahansaria was still an 18-year-old college student in 1993 when he joined Balkrishna Tyres, his family's failing Bombay scooter tire business. India was deregulating and Balkrishna found it couldn't compete locally, so Mahansaria was encouraged by his uncle to travel the world, attending trade shows to look for a niche export trade. He found it in the highly specialized business of making "off-highway" tires -- that is, tires for agricultural and construction use. It took until 2000 for the family to retool the business, but today Balkrishna is among the fastest-growing small businesses in India. Yogesh Mahansaria, at the tender age of 30, is its chief executive.

Now, Balkrishna has a second, larger factory tucked away in the tiny town of Bhiwadi in India's desert state of Rajasthan. There, Balkrishna Tyres (BKT ) has state-of-the-art, high-tech equipment that churns out 3,500 tires a day in 1,500 styles, from a 3-kg, 12-inch diameter, $10 one with a light, zigzag tread for garden mowers to a 7-foot-diameter tire with diagonal treads used in mining operations that costs up to $2,500. The tires are packed and stored in shipping containers in a modern, 13,500-square-meter warehouse, then sent off to 75 destinations around the world. Sales have jumped from $7.5 million in 2000 to $85 million for the year ending Mar. 31, with profits of $13 million.

Balkrishna had the good fortune to get into this business just as global tire makers such as Bridgestone Corp. (BRDCY ) and Michelin were getting out. Although $3.75 billion worth of such tires are sold every year, the business is too fragmented, too low-volume, and too labor-intensive for many tire makers' taste. Mahansaria saw that as a great opportunity: He could use India's combination of engineering skills and low labor and production costs to build market share. "It's not competitive for them, but it's a very nice business for us," he says.

On the labor side, the cost of Balkrishna's 700 workers is just 4% of sales, compared with 33% for Western players. Balkrishna also has easy and cheap access to raw material, since India is the world's third-largest producer of rubber. Mahansaria adds value with his smart financial management. He has an aversion to debt, and takes no credit from his suppliers, asking for better prices in exchange for prompt payments.

FAST ROLLOUT

But the key reason Balkrishna's tires are globally competitive -- 95% are exported -- is its engineering talent. Over the years its 20 engineers have taken on the task of designing and manufacturing better tires more quickly. Balkrishna has the capacity to change 25 molds a day -- five times that of its competitors -- allowing it to make 150 different types of tires. "We need precise and complex planning for this, and it's not easy," explains Gajendra Singh, who runs the Rajasthan factory.

About 65% of Balkrishna's products are sold in Europe, where farms are small and methods scientific, requiring tractors with different tire types for agribusinesses like grapevine cultivation and orchid farming. "Balkrishna's product range has increased rapidly in response to the European market," says Kees Hettema, a director at Netherlands-based Vredestein Banden, which outsources production of 150,000 tires a year to Balkrishna.

Balkrishna spends 4% of its revenue on research and development. The company even developed its own radial tire technology in-house so it wouldn't have to pay other tire makers for the use of theirs. "We don't squander our low-cost advantage by selling cheap," Mahansaria says. "Instead we are innovative."

Now, Balkrishna is expanding fast. Not far from Bhiwadi, Balkrishna is building a second factory for radial agri-tires. That will double radial capacity to 240,000 by 2006. The company also wants to build plants in other Indian states, including Tamil Nadu, to be closer to seaports. In two years, Mahansaria expects revenues to double, to $200 million.

The market likes what it sees. Bal- krishna's share price has risen 700%, from $2.50 to $22.20, just in the last year. "Balkrishna is set to join the league of top global suppliers by leveraging its cost-competitive product-development capabilities," says a September report by Bombay broker SSKI. Mahansaria's ambition: to be the world's biggest maker of off-highway tires by 2010.

By Manjeet Kripalani in Bombay

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