Indian Tyre Industry

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1 of 19 8/5/2010 8:49 PM
Indian Tyre Industry http://www.scribd.com/doc/6736522/Indian-Tyre-Industry
/ 11
Sector U date
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The Indian Tyre Industry
20th September 2006 Rolling on the Drive
Although the tyre industry faces huge competition, price & cost pressures and high entry barriers, the changing
dynamics, with the growing economy and the escalating auto industry, provide a fillip to the industry. The
zooming auto industry, with sales growing at a CAGR of 15.8% during the 2002-06 period, has driven the growth
in the tyre industry, keeping both the OEM and replacement demand buoyant. The demand and growth for the
industry depends on primary factors like overall GDP growth, agricultural & industrial production and growth in
vehicle-demand and on secondary factors like infrastructure development and prevailing interest rates. The total
number of vehicles on the road is constantly swelling, on the back of an increase in road-transportation, which
would gain more momentum once projects like the Golden Quadrilateral and NSEW or Corrid
project getimplemented.
The Indian tyre industry has witnessed a CAGR of 7.7% over the last decade. Though the replacement market
has driven the industry growth for a long time, the OEM market has seen a robust growth over the last three
years. The truck and bus market is the largest segment of the industry, accounting for approximately 70% of the
industry turnover, in terms of value. Tyre production, in tonnage terms, grew at a healthy rate of 8.7% in 2005-06
against that of 2004-05. The medium and heavy commercial vehicle (MHCV) tyre segment registered a growth of
7.7% while the light commercial vehicle (LCV) and passenger car tyre segments registered a phenomenal
growth of 14.8% and 14.7%, respectively. Exports, on
the other hand, have not grown much, due to the Tyre Production Truck & Passenger
slowdown in MHCV tyre exports and have recorded a ('000) Bus LCV Cars
0.3% growth, in tonnage terms. 2005-2006 11,940 4,528 13,605
A few years back the auto industry was sluggish and

so also was the tyre industry, but there has been a
dramatic shift since the last 2-3 years, as the vehicle
2005-2006 2,408 1,392 1,054
production has considerably gone up. Economic
expansion, investments and road development have all
contributed to this increase in demand for vehicles.
This, in turn, has helped the growth in the tyre industry. Source: ATMA
In this article, we have put forward the present tyre industry scenario, its dynamics, current trends, growth drivers
and its way ahead.
However, although the tyre industry grew in terms of sales volumes, profitability has been adversely affected due
to a substantial increase in raw materials costs, which accounted for 62% of the operating income in 2001-02,
soared to over 70% in 2005-2006. Hence, the growth in sales volumes has not really added to the bottom line.
The Indian tyre industry is two tiered; Tier-I players (top

5 tyre companies), account for over 80% of industry
turnover and have a well diversified product-mix and
presence in all three major segments, i.e., replacement
market, original equipment manufacturers (OEM's) and
exports. Tier-II companies are small in size, mainly
concentrating on production of small tyres (for two/
three-wheelers, etc.), tubes & flaps and the replacement market.
Source: Cris INFAC
WAY2WEALTH Securities Pvt. Ltd., 002,

Raheja Paramount, 138, Residency Road, Bangalore – 560 025. Ph: (080) 22121512
Research Desk - Mumbai contact no.:022-22671924 / 25 email:content@way2wealth.com website:www.way2wealth.com
2 of 19 8/5/2010 8:49 PM
Sector Update
Tyres
The Demand Cycle
Major Sales Segments
Source: ATMA
Demand for tyres can be categorised under four segments - Replacement Market (RM), the Original Equipment
Manufacturers (OEMs), Exports, and the Government. In FY05-06, the replacement market constituted 48.7% of
tyre sales (by volume), followed by OEMs at 42.8%. Exports constituted 8.2% and government sales were at
0.3%. According to the products, the maximum tyre sales are in the Truck & Bus segment, followed by
Passenger cars and Tractor - trailers.
Page 2 of 11
3 of 19 8/5/2010 8:49 PM
Sector Update
Tyres
Page 3 of 11
4 of 19 8/5/2010 8:49 PM
Sector Update
Tyres
Growing OEM demand

Traditionally, the replacement market has been the main growth driver for the tyre industry, as also the major
segment that consumes tyres; however, with the recent escalation in auto sales, OEM demand too, has been on
a substantial increase, thus enlarging its share in the sales pie. Auto sales have been growing at a CAGR of
15.8% during 2002-06, which has driven the growth in the tyre industry, keeping the OEM demand buoyant.
Going forward, the automobile industry is estimated to grow at double digits. This, in turn, is expected to keep
demand, for tyres from OEMs, buoyant.
Looking at the global rail-to-road cargo scenario, in Europe, roadways have an 84% share, while in India,
currently, the ratio is 35:65, which was 62:38, two decades ago. Also, with growth in roadways and with projects
like Golden Quadrilateral and NSEW getting implemented, there would be a further shift in freight movement,
from railroad to roadways. This would lead to an increase in demand for automobiles and hence, the OEM
demand for tyres.
Source: ATMA
Replacement market to see sustainable growth

The Replacement Market is one of the more sought-after markets by Tyre players, since the margins are better,
compared to those of OEMs (who are relatively few in number and have a huge bargaining power). Replacement
demand, which comes from existing automobiles, has been increasing for sometime now and is expected to do
the same, going forward. Replacement of tyres varies across categories, due to different life-spans of tyres,
which depends on reasons like
i. Road conditions
ii. Load carried
iii. Distance travelled
iv. Re-treading
The typical life of truck tyres is 40,000-45,000 kms or, on a general basis, around 12 to 18 months. The
replacement cycle is relatively longer for two-wheelers and cars, ranging anywhere between 24 to 48 months.
However, the demand for radial tyres in cars has further augmented the replacement cycle.
Here, it becomes important to talk about Re-treading, which is a phenomenon of repairing the outer surface of
the tyre in order to increase its life. The cost of re-treading a tyre is around 20-25% of the cost of a new tyre. A
re-treaded tyre lasts for around 60% of the life of a new tyre. Though the quality of tyre deteriorates on re-
treading, since it is highly economical, it is highly resorted to, especially in the passenger car segment. In the
LCV/ HCV (truck) segment, re-treading depends on the type of operator. For instance, for a single truck operator
that operates over shorter distances, mainly on inter-city and intra-state routes, re-treading is high. However, the
organised or large-fleet operators prefer to replace the tyres after an average usage of 40,000-45,000 kms.
These operators do not risk using old or re-treaded tyres on long-distance trips because breakdowns costs are immense.
The substantial growth that the auto and tyre industries have seen in the last few years is bound to keep the
replacement demand high, in the years to come. Similarly, the current growth in the auto industry and mounting
OEM demand would keep replacement demand further buoyant, going ahead.
Page 4 of 11
5 of 19 8/5/2010 8:49 PM
SectorUpdate

Tyres

Exportslikelytogrow
Tyre exports are increasing consistently, with tyres being
exportedtoover65countriesworldwide.Tyreexportsgrew
at a CAGR of 11%, over FY1994 to FY2006. With the
government providing various export incentives and with
good demand overseas, we expect exports to add to the
growthofthetyrecompanies.

In2004-05,exportswitnessedagrowthof26%;however,
theestimatefor2005-06isagrowthof9%,whichisalittle
slowdownfromthelast3years’growthrates.

CostStructures,MarginScenario
Raw material costs account for almost 70% of the tyre
industry’s incomes. Labour cost is another significant
overhead. TheTyreindustryhasa narrowproductrange,
hugeoperatingoverheadsandhighbreak-evenlevels.Raw
material costs for the last three years have been rising
constantly,especiallythoseof rubberandcrudeoil-linked
raw materials. The steep rise in raw material prices has
impacted profit margins of all players. Consistent rise in
majorrawmaterialscosts (thoseof naturalrubber,nylon
tyre cord, carbon black, synthetic rubber), with limited
pricing flexibility, has resulted in pressure on margins of
tyre companies, despite a good topline growth.
Consequently, while the revenues showed a healthy
growth, profitability remained depressed. In fact, some of
the major tyre companies are operating at break-even
situations.

Source:ATMA
RubberPrices
In2005-06,productionandconsumptionofrubbergrewby
5.5%and6.2%,respectively, whileexportsincreased by
51.2%(forthesameperiod),onaccountoftheimbalance
in the global demand-supply position. The average
domestic price of rubber increased by 20.3%, while the
internationalpricessoaredby31.5%inthesameperiod.
In April-June 2006, Domestic-Rubber prices increased
59%y-o-y,whiletheinternationalpricesincreased76.6%.
Natural-Rubberpriceshavebeencontinuouslyontherise
in the international markets, with weather conditions
playinga majorrolein disruptingsupplies.DuringFY06,
ChinalostrubberplantationsintheHainanprovincedueto
a typhoon in September 2005, followed by floods in
ThailandandMalaysia inDecember,thesameyear.Productionsufferedinmostrubber-producingregionsin
India,duetobadmonsoons,whichinturnledtothesoaringofrubberprices.Withinternationalnatural-rubber
pricesrulinghigh,andIndiabeingapartoftheglobalmarket,exportsofrubberfromthecountryaffectedthe
demandandsupplypositioningin its domesticmarket.Thegrowthin exportsis driving-upaveragedomestic
pricesofrubber.WithrisingdemandfromtheTyresector,thesupplysituationisexpectedtoremainconstrained
in themediumterm.Currently,rubberpriceshavedepletedto aroundRs80-levels,butthereis highlevelof
volatility and hence, their behaviour is difficult to predict. If current levels persist, it would result in better
profitabilityfortyrecompanies.


Page 5 of 11
WAY
2WEALTH Securities, 002,
Pvt. Ltd.
email:
Research Desk - Mumbai contact no.:022-22671924 content@way2wealth.com
/ 25 website:www.way2wealth.com
6 of 19 8/5/2010 8:49 PM
SectorUpdate

Tyres
NylonTyreCord(NTC)Fabric
Nylontyrecordaccountsforaround22%ofthetotalrawmaterialcosts.During2005-06,theproductionofNTC
fabric declined by 12.2%, while its consumption grew by 9%. This imbalance in the production-consumption
patternhasledtoa7.5%increaseindomesticNTCpricesin2005-06.Theinternationalpricesaremuchhigher
than e domestic rates and have shown a 15.2% increase in 2005-06; the price of caprolactam, the main
feedstock for NTC fabric, increased by 6.2% in the same period. However, the average international and
domesticpricesduringApril-June2006werelowerby22%and18%,respectively,duetocarpolactamprices,
whichdeclinedby10.8%.

OtherRawMaterials
Thepricesofotherrawmaterialslikecarbonblack,styrenebutadienerubber(SBR)andpolybutadienerubber
(PBR)arecloselylinkedtoglobalcrudeoilprices.Theaveragedomesticpriceofcarbonblackincreasedby7.7
% in 2005-06 and the average international prices of both SBR and PBR increased by 16.9% and 13.4%,
respectively,during2005-06.DuringApril-June06,theaveragedomesticpriceofcarbonblackincreasedby27.2
%andthismomentumisexpectedtocontinue.TheaverageinternationalpricesofbothSBRandPBRfellby
10%and1.4%,respectively,duringApril-June06.Thepricesareexpectedtobeinlinewithglobaloilprices.

HikeinTyrePrices
Therisingrawmaterialpriceshavebeenthekeyconcernfor thetyreindustry,especiallydueto thelackof
pricing flexibility. Since the tyre industry is highly competitive and price sensitive, players have been very
conservativeaboutincreasingtheprices.However,aftertheconstantriseinrawmaterialcosts,almostevery
playerhas,indifferenttranches,steppeduptheirproductprices.In2005-06,theaveragetyrepriceshavebeen
hikedthriceandthecumulativeincreaseintruck&bustyresis4.6%,incarnylonis1.2%andincarradialtyres
is5.1%,overthesameperiodlastyear.Thepricehikesin2006-07haveresultedinacumulativepricehikeof
20% across all categories, by almost all players, with MRF an exception, which did not increased prices in
July06.Combinedwiththepricehikes,ifthecurrentprice-levelsofrawmaterialspersist,itwouldresultinbetter
profitabilityfor tyrecompanies. Therealsoexistsa possibilityof tyrecompaniesrolling backthepricehikes,
sincethepricesofrubberandoil-relatedrawmaterialshavecomedown.However,itisverydifficulttopredict
rubberandotherrawmaterialprices.

Radialisation
RadialTyresarebetter,astheyofferbetterfuel efficiency,longerlife
and smooth movement on roads, together with working out to be
cheaperinthelongrun.Thelevelofradialisationinpassengercarsis
ashighas90%,butforcommercialvehiclesitisverylow;inT&B,itis
only2%(globally65%).Thistrendhasnotreallypicked-uppace,mainly
because of poor road infrastructure, overloading, poor vehicle
maintenance,highcostsinvolvedandtherequirementofradialtyresfor
regularmaintenance,intermsofcheckingairpressure,balancingand
realignmentofwheels.Additionally,theindustrybelievesthatvehicles
with radial tyres cannot be overloaded to the same extent, as can
vehicleswithcross-plytyres.Radialtyrescostcloseto20%morethancross-plytyres(Rs2,000moreinthecaseof
MHCVtyres,andRs1,500moreinthecaseofLCVtyres).Hence,theOEMsegmenthasnotpushedradialisation,as
radialtyresmeananelevatedcostofaroundRs10,000forLCVs(5tyres),Rs14,000forsingle-axleMHCVs(7tyres),
Rs22,000fordouble-axleMHCVs(11tyres)andRs30,000fortriple-axleMHCVs.However,goingforward,withthe
improvementinthequalityofhighways,weexpectradialisationtogathersomemomentum;levelsofradialisationin
MHCVispredictedtobe10%infiveyearstime,whileinLCV,around20%.

BanonOverloading
Industryestimates saythatnearly15%of CommercialVehiclesareoverloaded to theextentof 100-150%,which
results in a higher wear and tear of tyres. The recent Supreme Court order, to curb the overloading of trucks, is
expectedtoaffectthedemandforMHCVtyres,inboth,thereplacementandOEMmarkets.Onaccountofthebanon
overloading,thelifeofatyrewouldincreaseandalso,tyresthatarenotoverloadedwouldfurtherenablere-treading,
before being replaced. Hence, the replacement demand may come down.  However, the curb on overloading is
expectedtoleadtoadditionaltrucksales,asalsothedemandformulti-axlevehicleswouldrise.Thiswouldleadto
higherOEMdemand.So,intheshortterm,banonoverloadingcouldbeadampener,butinthelongrun,itisdefinitely
apositivemove.Thebanwouldalsoprovideafilliptoradialisation.

Page 6 of 11
WAY
2WEALTH Securities, 002,
Pvt. Ltd.
email:
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Indian Tyre Industry

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A few years back the auto industry was sluggish and

The Indian tyre industry is two tiered; Tier-I players (top

Source: Cris INFAC

WAY2WEALTH Securities Pvt. Ltd., 002,

The Demand Cycle

Major Sales Segments

Growing OEM demand

Replacement market to see sustainable growth

Indian Tyre Industry

PCR,TBR, OTR, ATV Tyres

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Link / URL: http://www.scribd.com/doc/6736522/Indian-Tyre

Width: (auto) Auto

<a title="View Indian Tyre Industry on Scribd" hre

KRUPA Falcon Tyre Project

Dunlop Tyre Care

Uk Waste Tyre Data

37 - PHC Final Report 30-8-07 for ...

Indian Tyre Industry Analysis

Project on Apollo Tyres Ltd for PC...

Automobile Tyre Ppt 01

36 - Summary of UK Used Tyre Marke...

Rainwater Harvesting and the Relia...

33061318 Additional Mathematics Pr...

Word Fun - Otto de Costa

Inclusion and Autism in Preschool

Open the Present

Altas de Dasicladaceas p 1-50

Russian Work on Hazards of Microwa...

July 312010 Posts

More from this user

World Economy 2006 - Survey de ...

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Ferrous Metals Sector - Aug-06-...

Research and Development on Ind...

Indian Tyre Industry

Life Style - September 05

Sugar Sector Sep 06 EDEL

Banking Sector Apr 06 EDEL

Cement Sector Sep 06 EDEL

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We have updated our Terms of Service

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