Background Tyre Industry In India The origin of the Indian Tyre Industry dates back to 1926 when Dunlop Rubber Limited set up the first tyre company in West Bengal. MRF followed suit in 1946. Since then, the Indian tyre industry has grown rapidly. In the pre-Independence period, the tyre manufacturers were mainly foreign companies. Raw material in the form of natural rubber was easily available and labour was cheap. Sometime in 1956, based on the recommendations of the Tariff Commission, the Government encouraged domestic companies to set up their manufacturing facilities.
A number of companies set up their plants in India, usually with technical support from foreign companies. Over a period of time the tyre industry was dominated by Indian players. After the onset of liberalization a few foreign companies entered India. However, they were not able to make a dent in the market share of Indian companies. Some foreign companies like Michelin, Continental Tyres and Pirelli are planning to enter India in the near future. Over the last few years, import of tyres into India from countries like China, South Korea and Thailand has been on the rise.
The tyre manufacturers feel that due to the inverted duty structure foreign tyre manufacturers have an unfair advantage. The Indian tyre industry has grown over the last ten years. The reasons for growth are the robust growth of the economy and the automobile industry. Besides domestic growth, there has been a smart growth in the export of tyres also. The future is likely to see more growth in exports as the supply of natural rubber goes down. It is expected that the Indian tyre industry will have a very bright future. Transportation industry and tyre industry go hand in hand as the two are interdependent.
Transportation industry has experienced 10% growth rate year after year with an absolute level of 870 billion ton freight. With an extensive road network of 3. 2 million km, road accounts for over 85% of all freight movement in India. The demand and growth for the tyre industry depends on primary factors like overall GDP growth, agricultural as well as industrial production and growth in vehicle-demand. It also depends on the on secondary factors like infrastructure development and prevailing interest rates. In India the primary factors have sustained in the last three years helping the sector to emerge as a winner.
Even the secondary factors have helped a lot; the only concerns are rising interest rates on the automobile segment and increased rubber prices. The performance of the tyre industry is linked to the automobile and infrastructure sectors, the growth of which is dependent on the performance of the economy. The current estimated economic growth is over 8 per cent. The continuous thrust being placed by the Government on the development of infrastructure, particularly roads, agriculture and manufacturing sectors, would lead to an impressive acceleration in the automobile, ultimately generating more demand for tyres.
However, tyre companies face immense competition together with price and cost pressures. Pricing pressures, from OEMs because of their high bargaining power and in the replacement market due to huge competition, are existent dampeners. Companies are now giving emphasis to innovation in product and process technology and operational efficiencies. The tyre companies would definitely show improvement in the margins sequentially, and if prices remain at these levels, profitability would improve.
But then, it would be highly dependent on prices of major raw materials like Rubber, Carbon Black, and NTC Fabric which are highly volatile. The continuously rising trend witnessed in the prices of raw materials remains an area of concern. The trend is very volatile and the future pundits expect the prices to go upwards from the current levels. Imports of tyres and its Impact on the Industry Cheaper imports of tyres, especially from China, South Korea, Japan, Thailand and Indonesia, which sell at very low prices, have been posing a challenge to the industry.
India signing of the Bangkok agreement with ASEAN countries, in October 2003, intensified the import threat, as this agreement provided for preferential customs duty of 15 per cent for imports from China and South Korea, along with Sri Lanka and Bangladesh, as against the standard rate of 20 per cent. This led to a gush of imported tyres from these countries. The landed price is approximately 25 per cent lower than that of the corresponding Indian Truck/LCV tyres. Imports from China now constitute around 5 per cent of the market share. Tyres by Type
The Indian tyre industry produces the complete range of tyres required by the Indian automotive industry, except for aero tyres and some specialised tyres. Domestic manufacturers produce tyres for trucks, buses, passenger cars, jeeps, light trucks, tractors (front, rear and trailer), animal drawn vehicles, scooters, motorcycles, mopeds, bicycles and off-the-road vehicles and special defence vehicles. The scenario in India stands in sharp contrast to that in the world tyre market, where car tyres (including light trucks) have the major share (88%) by volume followed by truck tyres (12%).
In India, however, passenger car tyres have a mere 17% share of the overall tyre market. Exports In the light of the prevailing domestic market situation, most of the tyre manufacturers have taken to exports to reduce inventory build-ups. In FY2003, Indian tyre exports stood at Rs. 10. 8 billion (10% of the total industry) in value terms and 3. 1 million in unit terms (6. 5% of total production). Indian companies have currently entered into sourcing agreements (for tyres) with neighbouring countries.
For instance, Ceat and J K Tyres have sourcing agreements with tyre producers in Sri Lanka and China. This is likely to have a positive impact on tyre exports from India. Market Players Some of the major players in the Indian tyre industry are MRF, Ceat, JK Industries, Apollo Tyres, Bridgestone India, Goodyear India, Falcon Tyres and TVS Srichakra. The tyre industry in India is fairly concentrated, with the sample of eight companies (as in the text) accounting for 82% of production in FY2002. Besides, not all companies have a diversified product portfolio.