Analysts: Continental Can’t Afford Emerging Market Investment
Within 24 hours of Continental AG confirming it is partnering with Modi Tyres to make bias truck tyres in India, and after a month of local speculation that the company will now buy a stake in the Indian tyre maker, financial analysts are reporting that the company “can’t afford making any acquisitions or expansion projects in emerging markets which are growing fast.”
Rather “all free cash flow generated by the rubber business should be used to reimburse the group’s high net debt of 10 billion,” Deutsche Bank analysts wrote in an investor’s note published today (23 September). Continental’s tyre business reportedly generates 500 million euros of annual free cash flow.
The analysts point out that India’s Modi group are not among the top 50 world tyre makers and the announced deal is based on old bias technology. Their view is that Conti’s overall financial constraints will force the company to limit itself to joint ventures possibly preventing it from participating in “the next round of consolidation of the tyre industry.”