REPORT ON TYRE INDUSTRY

Report on Indian Tyre Industry
CARE Research expects the tyre industry to grow at 6.81% in FY10 and at a CAGR of 8.21% till FY13

Report on Indian Tyre Industry

CARE Research expects the tyre industry to grow at 6.81% in FY10 and at a CAGR of 8.21% till FY13

Industry was on a smooth ride till FY08. The industry tonnage production registered a 5-year Compounded Annual Growth Rate (CAGR) of 8.02% between FY03-08. The largest category of Truck & Bus (T&B) tyres recorded a 5-year CAGR of 5.90% while Light Commercial Vehicle (LCV), motorcycle and car tyre categories grew at 13.34%, 12.27% and 13.98%, respectively in this period.

However, as the economy in general; and automobile industry in specific slowed down in FY09, the tyre demand too came under pressure. In the first nine months of FY09, the industry managed a tonnage growth of only 2.19% against a growth of 7.38% in the same period last year. The tyre offtake to the Original Equipment Manufacturers (OEMs) declined by 6.17% during this period. The T&B tyre category was the worst affected with the total offtake of these tyres declining by 0.01% in the first nine months. Also in the face of global slowdown and stiff Chinese competition, the export market offtake declined by 9.82% during this period.

On the face of these demand-side pressures, the tyre industry saw production adjustments from all the major players in the last couple of months. The government too tried to provide external stimulus by effecting 6% excise duty cut across industries (the excise duty for tyres was brought down from 14% to 10% w.e.f. December 7, 2008, and then further reduced to 8% w.e.f. February 25, 2009). In all the gloom; one silver lining for the industry has been the easing of the raw material prices from September 2008 onwards. However, the impact of the fall in commodity prices was not visible in the nine months results of the companies, as the companies were laden with high-price inventories. The benefits of the sublime raw material prices will become visible only in the last quarter of FY09 provided; the demand too supports the topline.

The tyre industry faces competition from China in the domestic market. Imports as a percentage of total T&B tyre production stood at 10% in FY08, with more than 90% of these imports coming from China. While the anti-dumping duty is levied on the import of Chinese T&B bias tyres, the industry now wants it to be extended to Chinese T&B radial tyres to alleviate the import threat. In addition, the industry is also keen on customs duty relief on raw materials not produced/manufactured in the country so as to compete with the Chinese tyres.

Radialisation though in its infancy in T&B tyre category; is making inroads. Most manufacturers have capex plans for radial T&B tyres with no new capacity being added for bias tyres. This indicates that the industry foresees radialisation to take further hold in the T&B tyre category. In the passenger car segment, radialisation has reached 97%; up from 95% a year ago. The Industry is also banking on the customised Off The Road (OTR) tyres and adding capacity in this category.

The Indian manufacturers are looking at increasing their global footprints. Apollo is undertaking an expansion plan at its Dunlop plant in South Africa. Similarly, JK Tyres & Industries has acquired a Mexican company Tornel. It has also entered into a manufacturing agreement with Chinese manufacturers to sell JK-branded tyres in the export markets.

CARE Research Growth Estimates

Though in FY09, CARE Research expects the industry to register a tonnage growth of only 4.27%, the growth is expected to be higher in the medium and long run. In FY10, CARE Research expects the industry to post a growth of 6.81% and the industry growth is expected to touch 8.21% on a CAGR basis between FY08-13. The T&B and LCV tyre categories are expected to register a 5-year CAGR of 6.83% and 8.97%, respectively during this period.

The report on ‘Indian Tyre Industry’ is divided into three sections. Section I of the report provides 5-year coverage on the industry from FY03-08, with specific focus on the performance of the industry in FY08 and April-December 2008. In addition, for a new reader, the basics of the industry too have been provided in Section II of the report. Section III of the report gives an analysis of the top five industry players which is followed by extensive data points in the Annexure.

Section I Current Status of the Market

• The category-wise performance of the industry in the domestic and export market in FY08 and first nine months of FY09 have been studied. Growth trends for each of the tyre markets and tyre categories have been tracked for the past five years.

• Category-wise leadership position of the players has been presented.

• Cost Analysis (raw material, power & fuel, employee and selling expense) of the top players with specific focus on raw material costs besides a detailed study of the raw materials used by the industry has also been provided.

• The emerging trends of the industry have been highlighted and a SWOT analysis of the industry is done.

• CARE Research’s long-term (FY08-13) and short-term (FY09 as well as FY10) tonnage offtake projection for T&B, LCV, Cars, Motorcycles and other tyre categories has been provided with detailed explanation of the methodology adopted and its limitations.

Section II Industry Basics

• The evolution of the industry through its different phases in the different market segments has been traced to give a new reader a firm understanding of the industry.

• The characteristics of the industry (raw material intensity, cyclicality, competition, wide distribution network, capital intensity, low bargaining power, branding, technology requirements, margins and duty structure) and its demand drivers (vehicle production & population, regulatory norms, retreading of tyres etc.) have been analysed.

Section III Company Financials

• This section gives the profiles of the top five players, namely, Apollo Tyres Ltd, Ceat Ltd, MRF Ltd, Goodyear India Ltd and JK Tyres & Industries Ltd. The profile includes financials of the company for the last three financial years, product ranges, sales mix, capex plans and global forays. Besides this, the details of corporate actions by other global and local players in India are also provided.

• Category-wise domestic as well as export units sales of the industry as well as of the top five players has been provided for the last five years (FY03-FY08). Though in FY09, CARE Research expects the industry to register a tonnage growth of only 4.27%, the growth is expected to be higher in the medium and long run. In FY10, the industry is expected to post a growth of 6.81% while the industry growth is expected to touch 8.21% on a Compounded Annual Growth Rate (CAGR) basis between FY08-13. The T&B and LCV tyre categories are expected to register a 5-year CAGR of 6.83% and 8.97%, respectively, during this period.