How to make a billion

Gopiraj KV's leadership of ZAFCO is entering a critical phrase

Gopiraj KV's leadership of ZAFCO is entering a critical phrase as the tyre company moves from taking stock to a potential stock floatation. PMV learns
Gopiraj KV's leadership of ZAFCO is entering a critical phrase as the tyre company moves from taking stock to a potential stock floatation. PMV learns

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Gopiraj KV’s leadership of ZAFCO is entering a critical phrase as the tyre company moves from taking stock to a potential stock floatation. PMV learns about running one of the GCC’s biggest aftermarket operations and his plans to take the company from being a local player to a global enterprise

Gopiraj has just returned from an excursion in India where he outlined plans to open 84 trucking centres across its northern and western territories.

He also reveals that the company will go public and expand by four times and reach $1 billion in sales by 2013.

A graduate of the FMCG school of understanding the market and the power of branding, ZAFCO is affording Gopiraj the opportunity to put everything he has learned into place.

He wants to lead a global enterprise and to realise his ambition of breaking into the big league of tyre distributors such as the $3 billion industry-leading America Tire Distributors.

“You’ll have to ask the board whether they chose me because of my history in FMCG or not but I was personally very excited to join a company with ambitions of going public within three years and reaching $1 billion in sales.”

He believes that there are quite a few things he can apply from what he has learned but not everything fits neatly into the world of tyres.

Citing the chief of his North American operation, a fellow FMCG graduate, as an example, he believes the company benefits from its policy of looking beyond the autotrade for its talent.

“You know, if you’re a $350 million company buy you want to become a $1 billion operation then you have to do things differently. Sometimes need to be willing to work backwards to work out the ways of getting there,” he comments.

“I think we do things differently because we’ve been able to bring in people from a lots of different backgrounds.

“People often come in and try to modify their experience to make it apply. When they understand our philosophy too, that’s when we can drive sales.”

While it prepares for flotation, ZAFCO has been recording annual growth rates of 30% and, as it expands beyond the environs of Dubai, it is learning the value of keeping a flexible attitude to the many markets it now serves.

“We used to treat Saudi Arabia as an export market; simply selling and invoicing. But we set up an operation there and brought people in,” he explains. “By 2012, we could be a $60-70 million company there but by 2013 we could reach $100 million in turnover – suddenly being a billion dollar company seems nearer.”

Being bigger in Saudi, will not be enough by itself, and he has identified ten major markets for that ZAFCO will focus on in the next few years. The trip to India, where he found himself attracting national newspaper attention, has only served to galvanise his opinion that it deserves to be high up the list.

Pouring money and time into the key territories of Northern and Western India, the company is focusing on its mid-, economy and replacement ranges which, he explains, accounts for 70% of demand (the rest coming from the OEM market).

“There is 24km of road being added everyday in India and the operation is looking to be $40 million by next year,” he says. “Double Coin (ZAFCO’s own value brand) can be re-tread three times, and people will see a difference with the other brands in the market.”

He adds: “North America could also be $60 million by the end of 2012 if we continue our 40% growth there.”

The gap to “one billion” may be narrowing but he says that the step-change in size means that the company is beginning to test the limits of its current set-up.

ZAFCO markets and distributes some of the most famous brands of on- and off-road tyres. Its portfolio of global brands include Pirelli, Roadstone, Nexen, Otani, Nitto, Siam Tyre, but its inventory is sometimes limited by the OEMs’ abilities to keep up with its demand.

The step change in size will need to come from improving supply and producing higher volumes of the company’s growing range of own-brand products – including Double Coin and Zeetex (its premium brand) – whose sales are currently limited by the production capacity of its Asia-based contract suppliers.

“We need to focus on developing our existing brands in our key markets,” he affirms. “We will also need to look at acquisitions for our manufacturing.”

Current plans for its plants would see ZAFCO producing six million passenger car tyres per year which could be subsequently scaled up to 12 million units. The company is currently exploring its options but he says an investment of around $175-200 million could be imminent in Thailand, Malaysia or Indonesia.

Despite calling the Middle East home, the advantages of manufacturing close to the natural resource are obvious.

“You could take a greenfield site in Saudi Arabia and start producing but you have the climate and availability of raw materials,” he explains.

“We are looking at a greenfield project in Malaysia but we may just do a buyout. Once we have that we will be able to ease the pressure on our supply chain.”

The best example of its predicament is in India. “We used to sell 1,000-2,000 tyres per month in India but the potential is for 10,000 tyres. Unfortunately we can only get 6,000 tyres per month from our partners. As we improve our supply and manufacturing situation globally we will expand across the country.”

The final element to ZAFCO’s progress to flotation will be diversifying downstream, using its UAE operation as a testbed for a number of initiatives. “We don’t want to remain in only supply and manufacturing, we want to add to the value chain.”

This process will see him overseeing new ventures and entry into the retail and fleet sectors; beginning with the opening of its first outlet for fleet vehicles in November.
On the consumer side, the company is also starting a car detailing and polishing service for high-end vehicles in January next year where the owners will be able to give their cars the full spa and beauty treatment.

He says that the company is also planning to launch a tie-in with one of the UAE’s fuel retailers in October that will see ZAFCO run fast-track-style service centres on forecourts.

The emphasis, he says, will be on bringing comfort to drivers used to sparse waiting rooms or standing in the open. The company is also planning to introduce an iPhone app that will be the hub of its Service on wheels scheme, where people can book a service from their phone through a call centre.

That ZAFCO is applying a soft touch to soft services like these may be contrary to the expectations of a tyre distributor but it will be crucial its next phase.

“We have rolled out five different models for the retail business,” he says. “We have prioritised other markets and plan launch in Saudi in 2012 and Qatar as well. It is the right time to get into those markets.”

Changes to tyre standards will soon see all tyres classified by their quality into bands, meaning that there will be a level playing field between budget tyres, big global brands such as Goodyear and Bridgestone and branded own brands such as Zeetex.

It also means that where the tyre is manufactured will be less important than how it is manufactured. The transparency, Gopiraj says, could work in his company’s favour as it expands its global presence through its range of OEM and own-brands and heads towards the $1 billion barrier.

“We are present on both bands 2 and 3, and in select case band 1 too. Michelin may produce in China tyres but they are still tier 1. Zeetex is tier 3 but we’re giving it tier 2 branding. Look at Apple. They manufacture in China, no-one questions their ‘brand’,” the former FMCG man says. “It’s the branding that will make the difference.”

KSA leads tyre demand
The Saudi Arabian tyre market is easily the largest in the GCC and the Middle East, with over 13 million tyres and tubes being imported on an annual basis.

Typically perhaps, the Saudi Arabian market is fuelled by its economy riding on high oil prices and high disposable incomes. An unflagging appetite for all things automobile, means that the Kingdom is firmly in the sights of tyre and tube manufacturers worldwide.

The Saudi Arabian import bill for tyres is worth approximately US$800 million, about three and a half times the demand in the GCC’s next highest, the UAE. Rough estimates put the total market value of the tyre market in the UAE at approximately $240 million.

However, the truck tyre market, which is an important segment of the UAE market, is worth US$160 million and the UAE imports 400,000 units every year.

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