German tyre giant Continental AG has decided to outsource its entire requirement of four-wheeler tubes to the Delhi-based Metro Tyres.

Metro Tyres managing director Rummy Chhabra told Business Standard that as per its agreement with Continental AG, Metro Tyres would export 50 per cent of its annual production of four-wheeler tubes to Germany under the Continental brand and sell the rest in India and its adjoining countries under the Metro-Continental brand.

Metro Tyres will initially invest Rs 30 crore (Rs 300 million) to set up a new facility near Delhi to produce 3,000 tonnes of tubes a year. The facility would employ around 150 workers and would be funded through internal accruals as well as loans from financial institutions, Chhabra said.

The company's foray into the four-wheeler tube market will add around Rs 40 crore (Rs 400 million) to its present turnover of about Rs 300 crore (Rs 3,000 million) in the next financial year.

"We are in talks with overseas suppliers for procuring plant and machinery. A final decision on this issue and the location of the plant will be taken in the next three weeks. Commercial production will start from December 2004," Chhabra said.

Continental head (automobile tubes) Thomas Peter said the decision to source four-wheeler tubes from India followed snapping of a similar deal with a company in former Yugoslavia.

"Even after including freight and other costs from India to Europe, it works out to be 15-20 per cent cheaper than the cost of producing the tubes in Europe," he said.

The outsourcing of four-wheeler tubes will follow the launch of two-wheeler tyres under the Metro-Continental brand in October 2004. The tyres are produced at a plant in Ludhiana using Continental's technology. Metro also exports over 4 million bicycle tyres and tubes a year to Continental.

Chhabra said Metro currently sold about 16,000 two-wheeler tyres in four states in north India. These would soon be introduced nationwide after the production capacity was increased to 100,000 units with minimal investment, he said.

"We are only supplying to the replacement market. Talks are on with leading two-wheeler companies for supplying tyres to them as original equipment," he added.