Warburg Pincus re-ups in India's Apollo Tyres

In February, Warburg said it would invest $150.7 million to acquire 108 million shares - a 9.93% stake - in the Indian multinational tire manufacturer. It has now made an offer to purchase an additional 54 million shares, according to a filing. This would give the private equity firm an overall interest of approximately 18%. The deal is expected to close by the end of the first week of October.   

Numerous PE investors have sought to take advantage of falling stock prices in India by upping their exposure to portfolio companies. The Blackstone Group, True North, and ChrysCapital have announced deals in the past month. Blackstone, for example, increased its stake in IT services provider Mphasis - in which it already holds a majority interest - courtesy of a INR51.7 billion investment.

Hillhouse Capital has also been active, but Chinese investors may have to deal with increased compliance hurdles following a recent regulatory update governing foreign direct investments.

Founded in 1972, Apollo makes rubber tires for two-wheelers and four-wheelers. It sells to both original equipment manufacturers and consumers through dealerships. In Europe, it operates under the Apollo and Vredestein brands.

For the 12 months ended March 2019, revenue rose 15.6% year-on-year to INR172.7 billion, while net profit dropped from INR7.2 billion to INR6.2 billion. India-only revenue was INR110 billion, trailing domestic rival MRF Tyres, which generated INR142.7 billion. Apollo, however, earns more overseas. Nearly 30% of its total sales are from exports outside its core markets in Asia Pacific and the Middle East.

The company can likely expect a steep fall in future demand due to a six-week nationwide lockdown that has significantly impacted business and consumer sentiment. The company has only partially resumed operations in the southernmost state of Kerala, according to another filing released on the same day.

Apollo's stock fell from INR148.85 on the day of Warburg’s initial investment to INR91.95 at the end of trading on April 21.

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