Pirelli, Astra Otoparts in $90m joint venture

Italian tire company Pirelli & C. SpA has signed a deal with component maker PT Astra Otoparts to construct its first plant in Indonesia.

A joint-venture between the two companies will operate a plant to produce motorcycle tires for local and ASEAN markets, according to a statement from Astra Otoparts on Wednesday.

“The new factory will require a total investment of US$90 million starting in 2012 and spread over three years,” said Astra Otopart director Robby Sani in the statement.

“Production is expected to begin in 2013 and reach full operation in 2016 with an annual production capacity of 7 million motorcycle tires,” he said.

Pirelli will control 60 percent of the shares of the joint venture, while the remaining will be held by Astra Otoparts, a subsidiary of diversified company PT Astra International.

Indonesia’s motorcycle sales have increased significantly in recent months due to the ease of lending requirements imposed by banks and non-bank financing companies for purchasing new vehicle purposes along with a growing middle class and rapid economic growth.

This year, the country’s motorcycle sales — the most in Southeast Asia — are expected to top 8.22 million, representing a 10 percent increase from the year before. Those numbers are expected to continue increasing in the coming years despite global economic threats because Indonesia’s economy is being driven by domestic consumption and low interest rates.

Due to the surging demand of motor vehicles, Astra Otoparts enjoyed hefty revenues.

The company recorded an 18 percent jump in revenue in the first nine months of the year to Rp 5.45 trillion ($605 million) from Rp 4.61 trillion in the same period of last year.

The country’s robust economy, which grew steadily by above 6 percent over the past three years, enticed Pirelli to the local market.

According to Astra Otoparts, Pirelli’s expansion into Indonesia is aimed at reinforcing the company’s position in rapidly developing economies and meeting the growing local demand for motorcycle tires.

Pirelli, Europe’s third-largest tire maker said it was optimistic its operating profit margin would increase to more than 16 percent in 2015 from 8.4 percent in 2010, as reported by Bloomberg on Wednesday.

Pirelli said it would focus on the premium tire segment and would strengthen its presence in rapidly developing economies, including the new project in Indonesia, Bloomberg reported.

The company said revenue would increase 10 percent a year to about ¤7.7 billion ($10.6 billion) in 2014 from less than ¤5.8 billion in 2011.

Pirelli reported nine-month net income of ¤255.3 million, compared with a net loss a year earlier.

The company cut its 2011 sales target to below 5.8 billion euros, while its profitability goal was at
the high end of the spectrum, Bloomberg reported.

The company said it reduced the sales target because of the “negative effect” of exchange rates.