A Study on Indian Tyre industry

Under the Guidance of

PROF. SAMIK SHOME

Prepared by:

Finance-D

Group-8

ATISH JAIN (10SBCM0135)

GUNJAN AGGARWAL (10SBCM0267)

JUTHIKA BORA (10SBCM0391)

KAUSTUBH UDGAONKAR (10SBCM0271)

P.V.SARAN KUMAR (10SBCM0526)

A project report submitted in partial fulfilment of the requirements for the award of the degree of MASTER OF BUSINESS ADMINISTRATION

2011

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PREFACE

The successful completion of this project was a unique experience for us and we achieved a better knowledge about Tyre industry. The experience which we got by doing this project was essential to our future. The information in this project being submitted by us contains detailed analysis of the research undertaken by us.

The research provides an opportunity to us to devote our skills, knowledge and competencies during our knowledge gathering sessions of Research Methodology.

The research is on the topic “TYRE INDUSTRY”.

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ACKNOWLEDGEMENT

The success of any project is the result of hard work & endeavor of not one but many people and this project is no different. We take this as a prospect to a vow that it was an achievement to have succeeded in our final project, which would not have been possible without the guidance of PROF. SAMIK SHOME.

We also express our appreciation and gratitude towards all the faculty members at Alliance University for making this project a memorable learning experience.

Finally we are thankful to our entire faculty who has given the full support in collecting the required information and continuous help during the preparation of the project.

Group-8

Finance-D

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DECLARATION

We, group 8 do here by declare that the project work entitled on the “TYRE INDUSTRY” is the original work done by us.

This project report presented as a partial fulfilment requirement for the degree of Master of Business Administration.

GROUP-8

FINANCE “D”

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Table of ContentsEXECUTIVE SUMMARY...................................................................................................................5

1. INTRODUCTION.............................................................................................................................6

1.1 TYRE INDUSTRY IN INDIA....................................................................................................................7

1.2 ROLE OF GOVT. IN TYRE MANUFACTURING...................................................................................8

1.3 INDIA VS. GLOBAL.................................................................................................................................9

1.4 MAJOR PLAYERS OF TYRE INDUSTRY..............................................................................................9

1.4.1 APOLLO TYRES...............................................................................................................10

1.4.2 MRF TYRES......................................................................................................................10

1.4.3 JK TYRES..........................................................................................................................12

1.4.4 CEAT..................................................................................................................................14

1.5 OBJECTIVE OF STUDY..............................................................................................................17

2. LITERATURE SURVEY:...............................................................................................................17

3.INDUSTRY ANALYSIS:................................................................................................................19

3.1 MARKET SHARES AND NATURE OF COMPETITION......................................................................20

3.1.1 MARKET SHARES:..........................................................................................................20

3.1.2 NATURE OF COMPETITION..........................................................................................21

3.2 MARKET SEGMENTATION..................................................................................................................22

3.3 S.W.O.T ANALYSIS................................................................................................................................25

3.4 PEST ANALYSIS.....................................................................................................................................28

3.5 MERGER AND ACQUISITION..............................................................................................................33

3.6 INTERNATIONAL EXPOSURE (EXPORT & IMPORT)......................................................................33

3.7 TYRE TECHNOLOGY............................................................................................................................35

3.8 MARKETING INITIATIVES...................................................................................................................38

3.9 FUTURE OUTLOOK...............................................................................................................................40

3.10 COMPARISON OF TYRE INDUSTRY................................................................................................41

4. CONCLUSION...............................................................................................................................43

5.REFERENCES.................................................................................................................................45

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EXECUTIVE SUMMARY

The robust growth in Indian Tyre industry is due to its inclination towards automobiles. We see a consistent growth in regards to its turnover which is 18 % in the year 2009-10 as compared to 2004-05. Total tyre production in India accounts to around 85% output in the global market. The global tyre market currently is estimated at USD 70 billion while the Indian market is around Rs. 100 million. The global market is dominated by Goodyear-Sumitomo with a share of 22%. On the other hand, the domestic industry is dominated by MRF Ltd. Other domestic companies include Apollo Tyres, JK tyres, CEAT, Goodyear.

We have seen drastic changes in the Indian Tyre Industry in terms of research and development, technological intensity, its diversification, exposure as well as its policies.

Talking about market shares, Apollo Tyres is leading with shares worth Rs. 2842.56 Cr. which is closely followed by MRF tyres with market shares worth Rs. 2743.73 Cr. Following MRF, we have BalkrishInd which holds market share worth Rs. 1188.80 Cr., which is followed by Goodyear, JK tyres, Dunlop, CEAT, Falcon Tyres, TVS Srichkr and Modi rubber.

Tyres can be used for commercial as well as personal purposes and its market may vary from original equipment manufacturers, replacement demand as well as exports. There are two types of tyres: Cross ply tyres and Radial Tyres.

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1. INTRODUCTION

Tyres manufactures involves a complex blend of materials and assembly process to produce thousands of different products used on equipment ranging from bicycle to huge earth movers. Tyre industry in India divided into 3 parts i.e. large, small and medium and cycle manufacturer. It includes different tyre ranges for different products.

1.1 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.

Demand for tyres is derived from demand for automobiles. Therefore it is a derived demand product and its fortunes are very closely linked to those of the auto segment. Within the tyre industry the trucks and buses (T&B) segment accounts for more than 70% of sales. Though scooters and motorcycle tyre demand also plays a vital role, in value terms, CVs gain significance.

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Tyre Industry turnover from 2004-2005 to 2009-2010 has been grown up from Rs.13500 Cr. to Rs.25000 Cr. i.e. 85.18percent growth has been observed. But in 2004-2005, there were 47 tyre factories which got reduced to 36 in 2009-2010.Top seven large companies in India account for 85% of total tyre production around globe1.

1.1.1. Segmentation for tyre industry can be as follows:

1. Replacement Market (Aftermarket)2. Original Equipment manufacturers (OEM) i.e. Vehicle manufacturers3. Export4. State transport undertakings. (STUs) Primarily for bus tyres5. Govt. purchases.

From above segments also there are, three major consumer segments for tyres namely replacement segment, (OEMs) and exports. Though fortunes of the sector are closely tied with the automobile industry, replacement demand continues to remain the key growth driver. Replacement demand accounts for as high as 57% of industry volumes. However, the contribution from OEM and replacement segments varies across sub segments in the auto sector. For instance, for the passenger car segment, demand is balanced from replacement and OEM categories i.e. 50:50.

Another key transition that is taking place in the industry is the entry of multinationals like Good Year, Bridgestone and Michelin in the domestic market. MNC tyre makers have cornered a higher market share in India in the last three years due to their international relationships apart from superior technology. Since Honda, Hyundai and Toyota have an international sourcing agreement with Bridgestone; it is also the preferred supplier in India. Goodyear is believed to be the preferred supplier for Ford India.

Some technological information regarding tyre manufacturing:There are total 16 different types of tyre technologies producing 16 different types of tyre technologies got upgraded from 19th century till now. Latest technology involves

1. Run flat (Puncture proof)2. Green tyres (Environmental friendly)3. Fuel Economy tyres.

1 ATMA

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1.2 ROLE OF GOVT. IN TYRE MANUFACTURING2

1. Bureau of Indian standards (BIS) has prescribed standards for various categories which are voluntary in nature.

2. Govt. of India come up with safety standards for tyresa. Formulation of AIS(Automotive Industry Standards)b. Mixture of AIS & BIS for BIAS and Radial type tyres

3. BIAS: Cotton, Teflon, and Rayon plies are used as main reinforcing materials.4. RADIAL: help to overcome problem of high heat development and poor life radial

technology came into existence. Plies are made highly flexible by keeping the cords (threads of primary material) at go and inextensible (stiff) belts were place on the top of the carcass under thread.

5. Government of India came to consensus for regional trade agreements which is an outline with reference to tyre industry.3

1.3 INDIA VS. GLOBAL

The global tyre market currently is estimated at USD 70 billion while the Indian market is around Rs. 100 million. The global market is dominated by Goodyear-Sumitomo with a share of 22%. On the other hand, the domestic industry is dominated by MRF Ltd. Several mergers and acquisitions have characterized the global market, in the recent past. This is essentially to acquire technology, gain wider access to markets and be competitive. Indian players are also reengineering their businesses and looking at strategic tie-ups in this segment.

In terms of technology, radial tyre usage has been catching up at a quick pace in the global market. Almost all the automobile segments have shifted to radial tyres and the usage of cross ply is restricted to trucks and buses only. On the other hand, in the domestic market, the radial tyres are being used only in the passenger car segment while the rest of them still stick to the cross ply variety. This is because of the lower price of cross ply and its re-treadability. In addition, the poor quality of roads in India restricts the use of such tyres.

1.4 MAJOR PLAYERS OF TYRE INDUSTRY

2 www.cci.gov.in3

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Indian tyre industry have the following major key players:

1.4.1 APOLLO TYRES

Apollo tyres Ltd. is leading player in Indian tyre industry and also contributes major part in global tyre industry. Apollo tyres Ltd. got established on 1976 in state of Kerala, southern India.

Company Snapshot:

Turnover of the company- US$ 1.74 billion 16000 Employees are working currently They manufacture 9 facilities of tyre in 3 continents Asia, South Africa and Europe,

with 3 headquarters at India, South Africa and the Netherlands.

Brand Portfolio of Apollo tyre can be given as follows:

1. Apollo- Global brand catering to Vehicle across categories.2. Vredestein- Global niche brand for passenger and speciality tyres.3. Dunlop - Brand for 32 African countries across categories.

(Dunlop marks are licensed to Apollo tyres South Africa which is wholly owned subsidiary of Apollo tyres ltd. in 32 countries in Africa).

4. Kaizen Tyres - Global challenger brand for trucks tyres.5. Maloya Tyres- Global challenger brand for passenger car tyres.6. Regal Tyres - Global brand truck- bus and passenger car types.

Product Portfolio of Apollo tyres:

1. Passenger car

2. 4x4

3. Light Truck

4. Truck and Bus

5. Bicycles

6. Agriculture.

7. Off the Road & Earthmover.

8. Speciality tyres.

1.4.2 MRF TYRES

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MRF Limited is one of India's world class manufacturing companies. The company, established in 1946, progressed into manufacturing tread-rubber and entered into the manufacture of tyres in 1961. MRF now enjoys the distinction of being the largest tyre company in the Indian subcontinent and 12th largest in the world. The Far Eastern Economics Review's annual 'Review 200' has consistently rated it amongst India's top 10 companies.

MRF operates six grant tyre manufacturing plants in India. Relevant ISO quality certification has been awarded to its entire tyre manufacturing plants. The company manufactures the largest range of tyres in India-heavy duty truck/bus tyres, light commercial vehicle tyres, passenger car tyres, off-road industrial tyres, two-wheeler tyres, farm service tyres and motor-sport tyres to cater to every segment of the tyre market. MRF is the only Indian company to put its expertise into the manufacturer of F3 tyres for the motor racing circuit. Maintenance of high quality standards and constant innovation has become synonymous with the organization, giving all products the unique status of highest brand preference in India for their superior quality and performance.

In a fitting tribute, MRF has been rated by JD Power Asia Pacific, as #1 in customer satisfaction for tyres in India for the year 2002.The MRF R&D team has made great strides in developing radial tyre technology for Indian roads based on its Cross-Ply technical competence. MRF has laid great emphasis on strong R&D and continuous product up-gradation, which has led to the successful development of the unique tyre technology for Cross-Ply Tyres to suit the tough service conditions of Indian roads.MRF tyres are today acknowledged as premium products in overseas markets where they compete with international tyre majors. With its focus on exports, the company plans to increase market share and start operations in several new countries. The company has recently opened representative offices in Dubai, Vietnam, Bangladesh and the USA to help increase its market share and also intends to make forays into several new markets.

MRF's interests now extend beyond just the manufacture of tyres into Procured Tread Rubber and into the area of material handling with its 'Muscleflex' Industrial Conveyor Belting.The pioneer of motor racing in India, MRF is also the winner of several rallies in Asia. The organization's commitment to motor racing, serves as a reliable test-base, wherein the performances of MRF tires is tested in rigorous competition with international brands. In the Asia Zone Rally Championship, the MRF rally team has won in India, Malaysia, Thailand and China on MRF tires.

To bolster India's capabilities in cricket, MRF introduced a novel concept, the MRF pace Foundation. This institute, under the aegis of the legendary pace maestro Dennis Lillee of Australia, has been grooming youngsters in the art of pace bowling for the past 15 years. Besides, the two premier batsmen in the world cricket, Sachin Tendulkar and Brian Lara are the brand ambassadors of MRF.

MRF Ltd. is the first Indian company to export tyres to the US, the very birthplace of tyre technology. It is the first company in India to manufacture and market Nylon tyres passenger

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tyres commercially. In 2004, the company's turnover crossed INR 30 billion mark. The company was given the title of most ethical company by 'Business World' magazine after a survey conducted in 1999.

Products

MRF is the leading manufacturer of tyres in almost all segments. Being driven by technology and product innovation, every tyre that comes out is of

the highest standards and tested to weather the toughest conditions take on any road. MRF has diverse business interests which also include Pretreads, Paint and Coats and

Toys.

Services

MRF offers a whole host of services to its customers, ranging from helping them pick the tyre of their choice to helping them maintain their vehicle.

Exports

MRF exports tyres and conveyor belts to over 65 countries in America, Europe, Middle East, Japan and the Pacific region.

These markets are serviced by our offices in Dubai, Vietnam and Australia.

1.4.3 JK TYRES

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The company was incorporated as a private limited company in West Bengal in 14th February, 1951. Until 31st March 1970, the company was engaged in the managing agency business.

Thereafter the company decided to undertake manufacturing activities and obtained a letter of intent in February 1972 for the manufacture of automobile tyres and tubes. The letter of intent was converted into an industrial license In February 1974 for the manufacture of 4 lakh nos. each Automobile tyre and tubes per annum. The company was converted into a public limited company on 1st April 1974. The manufacturing project was promoted by Straw Products Ltd and J.K. Synthetics Ltd. The company entered into technical collaboration with General Tyre International Co., U.S.A.(a subsidiary of General Tyre Rubber Co., U.S.A.) for technical services for a period of 5 years and sales agreement for the supply of technical know-how, engineering and documentation for operational facilities (for A period of 8 years from 23.8.73). Under the collaboration agreement, the Company has the right to use on its products the wording Made in collaboration with General Tyre International Co., USA.

Mr.Hari Shankar Singhania, the President of J K Organization and Chairman President of JK Organization and Chairman of JK Tyre & Industries Ltd are a renowned business leader in India. He has been bestowed the prestigious national award "Padma Bhushan" by the President of India

He has been the President of International Chamber of Commerce (ICC), Paris, being the 2nd Indian and3rd Asian in the last 80 years and has made significant contributions in national and international business arenas. Recognizing his contribution to Indo-Swedish business relations, the King of Sweden honoured him with "Royal Order of Polar Star" one of Sweden's highest awards. His vision, dynamism and charisma is steering JK Tyre to greater heights.

Dr.RaghupatiSinghania is the Vice Chairman & Managing Director of JK Tyre & Industries Ltd. His vision and entrepreneurial zeal have revolutionized the Indian Tyre Industry - from introducing Radials in India to setting up world-class R & D facilities. He has put India on the Motorsports map of the world by promoting and supporting the sport. Apart from being associated with many Apex Chambers and many government bodies, Dr.Singhania's illustrious career is studded with numerous prestigious recognitions and awards.

J K tyres is economical Jetar mile is one of the best mileage tyres in JK, LCV of JK is also better .Four wheeler tyres of JK is best customer prefer JK tyres than any other tyres in four wheeler segment JK is best in 4w tyres Services 4 wheeler tyres is better than any other branded tyres product of Four wheeler is costly steel customer prefer JK due to their service.

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Other CEAT is ahead in giving consumer scheme and offer CEAT is also ahead in adverting sector. Apollo focus on seminar conduct seminar time to time and occasionally give parties to particular class also Birla - is new in Akola market and their carrying and forwarding agent is also new JK is behind in all the aspect regarding seminar adverting parties. The officer of different companies in tyres industries they are very care less specially the carrying and forwarding agent they all will come in 3-4 months because off that they don’t know taste of consumer they don’t conduct seminar for consumer less schemes for consumer specially JK.

Consumers are also complaining that all the companies adopting careless attitude to settle claim for consumer. They are all suggesting that if company wants to achieve their target policy for particular city then they all have to focus on consumer need speedy claim procedure .If they will hammerize consumer mind by taking their feedback giving schemes time to time and advertising regularly .In Akola market all the commercial terms are important which necessary for selling are and achieving the market leader position but one of the major important terms is giving the credit facility. The market of Akola city mainly runs on credit facility with one month site to pay Cash discount is also there with 6% on MRP.

1.4.4 CEAT

CEAT Limited is a tyre manufacturing company based in Mumbai,India.CEAT standards for Cavi Electric AffiniTorino(Electrical Cables and Allied Products of Turin).The tagline is

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“Take it on”.CEAT is one of largest tyre manufacturers in India and Srilanka with an annual turnover of Rs 2,760 crores and has about 20% of the local truck and light truck tyre market.

CEAT manufactures a wide range of tyres for various customers radials for Indian vehicles and caters to various user segments including

Heavy-duty Trucks and Buses Light commercial vehicles Earthmovers Forklifts Tractors Trailers Cars SUVs Motorcycles and Scooters Auto-rickshaws

It exports to over 110 countries across the world.in April 2007 the de-merger of its investment business to a separate investment and finance company was approved.CEAT is only tyre company to be awarded the ISO/TS 16949:2002 certification.It is also the 1st Indian tyre company to get a TUV certificate.

Market share:

In 2009 CEAT manufacturer has market share 428.86 crores (4.3048%) and in 2010 market share 414.13 crores (4.336%) in 2011 market share 403 crores (4.226%).By observing this,we can say that market share decreases (negligible portion)

Nature of competition:

CEAT company have many features than other companies in market.Interms of tyre trade in world,chia has become the world largest tyre export country in 2004.Tyre industry has more demand this leads to more competitors. This can be given as follows.

Most of the players have their respective areas of strength HHI indicated diversity in player concentration ratio between segments and industry Apollo continued to dominate T&B category Appollo surpassed MRF to become leader in car&jeep category MRF continued to hold leadership position in LCV category MRF dominated two and three wheeler category tyres Goodyear remained market leader in tractor tyres MRF,CEAT and JK are the market leaders in OTR category

Competition exists between various companies as already given like large scale and small scale from 2004 the demand for tyres increases so many companies came with various special features for tyres.CEAT company competing with others as,it manufactures a range of tyres or trucks and buses(T&B),light commercial vehicles(LCVs),passenger

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cars(PCs),tractors and trailors,two and three wheelers,off the road (OTR)vehicles and industrial vehicles. This company also markets tubes and flaps which are outsourced from its partners.

Market Segmentation:

Tyre industry segmentation mainly based on user expectations. This can be given as follows.

Vehicle categories

Commercial usage Personal usage

Markets

Original Equipment manufacturers(OEMs) Replacement Demand Exports

Design

Cross-ply tyres Radial tyres

Consolidation:

To improve the growth companies are merge with others.CEAT mergers are Associated Ceat Holdings Co.(pvt.) Ltd on 4th June Takeover as its deal type, with

same company on July 8th. Ceat ventures Ltd. as merger,Ceat Holdings Ltd.on 24th sep 2005 Meteoric Industrial Finance Co.Ltd. Harrisons Malayalam Ltd. On 19th march 2003 sale of asset as deal type Murphy India Ltd. On 31st march 1980

Above all are various mergers for CEAT and these are used to get good position for company now a days.

International Exposure:

CEAT company exports tyres to nearly 112 countries across America, Europe, Africa, and other Asian countries. Company increased its stake in its Sri Lankan investment arm from 18% to 54.84% by purchasing the entire stake of its Sri Lankan Partner. As a result of this, CEAT investment arm-associated CEAT holdings company (private) Limited has become its subsidiary.

From five world-class plants, three in India and one in Sri Lanka, we manufacture a wide range of tyres for all user segments including trucks, buses and LCVs. We also export farm , industrial, grader, OTR , car, scooter, auto-rickshaw, motor cycle and passenger car radials.

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1.5 OBJECTIVE OF STUDY

The objective of this research is

to conduct an extensive analytical study on the various features of the Tyre Industry

which would enable us to put forth our research views on different aspects such as framework, growth, development, research & development etc.

This would finally empower us to foresee India’s standing in global market.

2. LITERATURE SURVEY:

(Kaur, 2010)4 analysed that The last two years have been the toughest for the Indian tyre industry with continuing slump in the market of commercial vehicles which sustains the domestic tyre industry and the spurt in the prices of Raw materials. As a result, India’s tyre

4 Impact of recession on tyre Industry

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industry is re industry not likely to lift itself out of its recession for some more time as the market shows no signs of any dramatic recovery. The recession seems there to stay for a period of time and to ensure the domestic tyre industry does not succumb under the pressure it is important for the government to take immediate effective steps will the economy is back on the road of recovery.

(S MohanaKumar & TharianGeroge K , 2001)5 come to conclusion that, The emerging trends in production, export and imports of major categories of tyre in the post reforms phase till 1996- 97 . The analysisindicate that there are well defined limitations in sustaining the domestic demand driven export growth to reap the advantages of scale economies. Despite the boom in the exports in the initial phase the exports of truck and bus tyres has a percentage of its production has declined from its pick level of 33.87 % in 1994- 95 to 21.49 % in 1996 - 97.

(ATMA,2004)6 Summed up on accelerating radicalization in commercial Vehicle segment facilitated by reduction in customs duty on steel tyre cord and polyester tyre cord to 10%, from existing level of 20 %. The practice of embossing of MRP on truck and Bus tyres should be allowed to be done. Reduce excise duty on tyres from existing 24% to 16% in the next union budget. They imposes a complete ban on import of used tyres, raw materials of tyres should also be eligible for concessional customs duty under Bangkok Agreement of preferential customs duty under regional trade agreements. Automotive Industry standards (AIS) should be merged with BIS. They ensure that non tariff barriers (NTBs) on Indian tyres are removed and reciprocal agreements for acceptance of national standards are entered into.

(Iyer & Upadhyay 2004)7 Technology generation in the Indian tyre industry has witnessed a fair amount of expertise and versatility to absorb, adapt and modify international technology to suit Indian conditions. This is reflected in the swift technology progression from cotton (reinforcement) carcass to high-performance radial tyres in a span of four decades. R&D in the Indian tyre industry, is basically geared towards applied research, involving the development of new designs in different segments, the changing of tread design, reinforcement material, compound development, cost optimization for quality improvements and orientation towards changing customer requirements. This paper attempts to map the broad contours of technology generation and absorption in the Indian tyre industry, through an emphasis on the socio-economic determinants driving the nature of R&D, thrust areas and the collaborative activities of firms, the nature and extent of automation and its impact on the organization of the production process, the increased quality on consciousness and its repercussions on in-house R&D and the impact of Liberalization and its influence on broad strategic options for the future.

From Effect of tyre overload and inflation pressure on rolling loss (resistance) and fuel consumption of automobiles and trucks/bus tyres (Padmanabha S Pillai (October 2004)) 5 Impact of reforms on tyre Industry6Indian Industry tyre report7 R&D Activites in Indian Tyre Industry

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demonstrated that the direct proportionality between R (rolling resistance) and W (Tyre Load) and the inverse relationship between R and P were quantified as R= C1W and R= C2 1/ p^0.5 respectively Where P= Pressure , C1, C2 = constant.

3.INDUSTRY ANALYSIS:

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3.1 MARKET SHARES AND NATURE OF COMPETITION

Nowadays in INDIA Tyre industry place a major role. Tyre industry mainly involves Raw material intensive and Tyre manufacturing. It produces all categories of Tyres based on demand except snow Tyres and aero tyres . 55% of production is for replacement market followed by 29.8% sold to OEM (Original equipment manufacturers) directly and the remaining is exported. Tyre includes different components using raw materials that must be assembled and processed to achieve right balance between factors like grip, energy,handling,comfort etc..

3.1.1 MARKET SHARES:

Tyre industry involves various companies based on their performance they are divided into large scale companies and medium and small scale companies .Large scale companies are APOLLO Intl , APOLLO Tyres , Balkrishna industries, CEAT , Falkon Tyres, Good Year India, JK Tyres ,MRF, Falson(INDIA) , Falson Industry, TVS etc.. Mesium and small scale are Dewan Tyres , Dunlop, Modi rubber ,Modi stone, Raam Tyres, Surya INDlA. corb, Tyre corp(I)etc. The market share is different for different companies based on their performance.

TABLE 5.1 Market Share of top players in Indian Tyre Industry of 2010 and 2011

Company name 2010 2011 APOLLO TYRES 20% 25%MRF 18% 22%BALKRISHIND 7.9% 6%GOODYEAR (I) 3.8% 2.5% JK TYRE & IN 3.4% 4% DUNLOP (I) 3.2% 3%CEAT 2.6% 2.7%FALCON TYRES 2.4% 3% TVS SRICHAKR 1.4% 1.6%

MODI RUBBER 1.2% 2%

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FIG.5.1: MARKET SHARE OF MAJOR KEY PALYERS OF TYRE INDUSTRY

3.1.2 NATURE OF COMPETITION

Interms of tyre trade in the world,China has become the world largest Tyre export country in 2004. Tyre industry has more demand this leads to more competitors.

Players And Competition

Most of the players have their respective areas of strength HHI indicated diversity in player concentration ratio between segments and industry Apollo continued to dominate T&B category Apollo surpassed MRF to become leader in car & jeep category MRF continued to hold leadership position in LCV category MRF dominated two and three wheeler category tyres Goodyear remained market leader in tractor tyres MRF, CEAT and JK are the market leaders in OTR category

Competition exists between various companies as already given like large scale and small scale.From 2004 the demand for tyre increases so many companies came with various special features for tyres from APOLLO tyres company to MODI rubber company

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3.2 MARKET SEGMENTATION

These are the major segments where the Indian tyre Industry is categorised :

Vehicle Categories

Commercial usage Personal usage

Markets

Original Equipment Manufacturers (OEMs) Replacement Demand Exports

Design

Cross-ply tyres Radial Tyres

Based on present conditions of tyre (demand0 the segments are existed as above given different types.Segmentation by tyre suppliers place a major role in segmentation criteria . This can be given as follows

1. Replacement market

2. Original equipment manufacturers.(Vehicle manufacturers)

3. Expert

4. State transport undertaking(STU) i.eprimarily for bus tyres

5. GOVT purchase.

Upto 2004 the tyre industry don’t have present existence demand but after 2004 demand increases so market share is different for various companies with respect to competition and market segmentation.

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8MAJOR SALES SEGMENT:

Fig.5.2

8 Capitaline database

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SALES SEGMENT Fig.5.3

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3.3 S.W.O.T ANALYSIS

Strengths

Established brand names (key in the replacement market) Extensive distribution networks - For example, Apollo Tyres has 118 district offices, 12 distribution centres and 4,250 dealers Good R&D initiatives by top players

Weaknesses

Cost Pressures - The profitability of the industry has high correlation with the prices of key raw materials such as rubber and crude oil, as they account for more than 70% of the total costs

Pricing Pressures- The huge raw material costs have resulted in pressure on the realisations and hence, the players have been vouching to increase the prices, although,

Due to competitive pressures, they have not been able to pass on the entire increase to the customer

Highly capital intensive - It requires about Rs 4 billion to set up a radial tyre plant with a capacity of 1.5 million tyres and around Rs 1.5-2 billion, for a cross-ply tyre plant of a 1.5 million tyre-manufacturing capacity

Opportunities

Growing Economy - Growing Automobile Industry Increasing OEM demand - Subsequent rise in replacement demand With continued emphasis being placed by the Central Government on development of infrastructure, particularly roads, agricultural and

manufacturing sectors, the Indian economy and the automobile sector/ tyre industry are poised for an impressive growth. Creation of road infrastructure has given, and would increasingly give, a tremendous fillip to road transportation, in the coming years. The Tyre industry would play an important role in this changing road transportation dynamics

Access to global sources for raw materials at competitive prices, due to economies of scale

Steady increase in radial Tyres for MHCV, LCV

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Threats

Continuous increase in prices of natural rubber, which accounts for nearly one third of total raw material costs

Cheaper imports of Tyres, especially from China, selling at very low prices, have been posing a challenge. The landed price is approximately 25% lower than that of the corresponding Indian Truck/ LCV tyres. Imports from

China now constitute around 5% of market share

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3.4 PEST ANALYSIS

POLITICAL:

At government level, it seems that some ambiguity exists. It also seems that measures to regulate the waste - including post-consumer tires - are the main one being set up as "reflex" reactions, and with an eye toward securing political capital. This means that awareness and ways to tackle a simple waste question will be preferred solutions' low-key, and perhaps more effective. Once in service, plants or processes such as these may well be kept running to a "net deficit of the environment "to avoid political embarrassment - even if this results in the "poaching" of raw materials from the waste conversion options ahead of the hierarchy. The goal now seems to be much on reducing vehicle use, as opposed to the optimal use of scarce resources. Producer responsibility has so far ignored the tire industry, which is treated as a part of automobile manufacturing as a whole. However, it moves to incorporate this fact concept in legislation, safeguards should be established for "blocks" the proportion of discarded casings for retreading - and also how these would be shared between the manufacturer's own tire retreading operations in-house and independent retreading facilities.

ECONOMIC:

The Indian tyre industry accounts for around 5% of the global demand as well as global supply of tyres. Domestic tyre industry has witnessed a remarkable recovery in FY10, after a slowdown in FY09. This growth was driven by strong revival in automobile demand on the back of resurgence in economy, rise in employment levels, and easing of interest rate scenario. Although strong demand growth is an encouraging scenario for the domestic industry, rising imports has become key concern factor off late. On an average, 55% of the production is for replacement market, followed by 29.8% sold to OEMs directly and the remaining is exported.

9TABLE 3.1:INDIAN TYRE INDUSTRY PROFILE

Turnover of Indian Tyre Industry Rs. 25,000 Crores

Tyre Production (Tonnage) 13.50 lakh M.T.

Tyre Production – All Categories (Nos.) 971 Lakh

Tyre Export from India (Value) Rs. 3000 (est.) crores

Number of tyre companies 36

9 ATMA

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TABLE 3.2:CATEGORIES OF TYRES

Tyres for: 2008-09 2009-10 % changeTruck & Bus 128.39 148.11 15Passenger Car 165.7 200.47 21Jeep 14.69 14.02 (-)5Light Commercial Vehicle 52.98 57.39 8Tractor Front 18.42 23.86 30Tractor Rear 13.15 16.34 24Tractor Trailer 7.58 9.03 19Animal Drawn Vehicle 2.81 2.94 5Scooter 108.83 135.57 25Motor Cycle 301.48 356.64 18Industrial 5.68 5.38 (-)5Off the Road(OTR) 1.36 1.61 18Total 821.07 971.36 18

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SOCIAL:

In terms of procurement, corporate fleet and transport managers are very low in organizational hierarchy. There is now a "blame culture" which tends to mitigate against any risks. So in terms of "packaging", supported by the financial benefits adherence to proven safety standards and quality would be required to overcome resistance. Although private consumption is more sensitive to environmental issues than ever only a small minority will actually make purchasing decisions based entirely on these criteria. However, "the image of the environment" could provide a justification for the purchase, if supported by safety and appropriate quality assurance standard. In a twist of others on the same topic, consumers - as residents and special interest groups - are more willing to get involved in environmental issues to a policy level.

TECHNOLOGY:

R&D: Most of the major players do not engage in basic research due to the high costs involved. The source of technology for the domestic firms has been through reverse engineering, joint ventures and collaborations. The emphasis given by Indian tyre companies to applied research and the setting up of well-equipped in-house R&D centers by the companies, which are manned by experts and experienced professionals, have also helped in technology upgradation. Indian tyre technology has exhibited versatility in maintaining inflow of technology through foreign collaborations and tailoring the same to Indian needs. R&D is essentially business or market driven. The emphasis given by Indian tyre companies to applied research, the setting up of well-equipped in house R&D centres by large tyre companies, manned by experts and experienced professionals have also helped in technology upgradation. Indian tyre technology has exhibited versatility in maintaining inflow of technology through foreign collaborations and tailoring the same to Indian needs.

Automation: The production system in the Indian tyre industry has been traditionally very labour intensive. The firms have been resorting to automation in order to tackle problems related to labour unionization and indiscipline in the sector. The rationale provided by the firms for the increasing drive towards automation of the manufacturing facilities has been that high quality and uniformity of the final product usually cannot be guaranteed with a labour intensive process.

New Policy Initiatives

No WTO bound rates for Tyres and Tubes No restrictions on the import of all raw materials required for tyre manufacture except

carbon black, which has been placed in the restricted list Increasing thrust on development of road infrastructure

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Rate of Technological Change:

The Indian Tyre industry is expected to show a healthy growth rate of 9-10% over the next five years, according to a study by Credit Analysis and Research Limited. While the truck and bus tyres are set to register a compounded annual growth rate (CAGR) of 8%, the light commercial vehicles (LCV) segment is expected to show a CAGR of about 14 %. However, we have to also take account of the effect of the global recession on the sector in making these assessments. The growth of the sector is closely linked to the expansion plans of the automobile companies, the government’s thrust on development of road infrastructure and the sourcing of auto parts by the global Original Equipment Manufacturers (OEMs).

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3.5 MERGER AND ACQUISITION

Ceat Industry will open its acquisition in European, African, and Latin American countries.

JK Indus. Recent acquisition in Mexico Ceat Industry of Sri Lanka plans to expand the production to 20 percent. Apollo tyres signs supplementary MOU foe Chennai radial tyres. Apollo tyres has laid the foundation stone of OTR plant at Limda (Gujarat). Ceat plans to setup a 36 lakh radial tyre facility. Apollo, Ceat, MRF, and JK Indus. Plan to expand the capacity to compete

Internationally. MRF reopened its Thiruvottiur facility. JK Indus. Of Mysore truck and bus radial expansion project to commence production

by June 2011. Apollo tyre ties up with RahimaFrooz group to enter Bangladesh market.

3.6 INTERNATIONAL EXPOSURE (EXPORT & IMPORT)

Indian tyres have good acceptance in global markets Compounded Average Growth Rate (CAGR) of tyre exports in the last one decade

has been 8% Exports to over 65 countries worldwide. 17% export to highly quality conscious US market. Other major export markets are -

(countries in) Latin America UAE, Bangladesh, Iran, Philippines, Vietnam, etc. Over 20% of truck and bus tyres (bias) produced domestically are exported. Emphasis

now is on export of radial tyres, including Passenger Car radial tyres. All large tyre companies are exporting as a long term commitment. Truck and bus tyres account for over 65% of tyre industry turnover in India (in terms

of value and tonnage). Hence, demand for truck and bus tyres is a true indicator of the performance of Indian economy in general and also the tyre industry in India.

The exports from the country clocked a CAGR of 13% in unit terms and 18% in value terms in the period FY 02ª07. Most of these tyres that are exported are of cross ply design. With radialisation catching up in some of these markets, the manufacturers will need to graduate to radial tyres so as to protect their share in the export market. Radialisation of tyres is still minimal in India. Only the car tyre market has moved to radial tyres (95%) but in all other categories cross ply tyres are still preferred. Poor road conditions, overloading in trucks, higher initial cost of radial tyres and poor awareness levels in tyre users are the main reasons for the non transition of the domestic market to radial tyres. However, going ahead, radialisation in truck & bus tyres may increase due to government’s focus on infrastructure development.

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During the first six months of its current financial year, India produced some 28 per cent more tyres than a year earlier. Data from national industry organisation the Automotive Tyre Manufacturers Association (produced using information supplied by its eight member companies, who account for around 90 per cent of the country’s tyre production) states that 9.53 million tyres rolled out of ATMA member factories in India between April 1 and September 30 this year; in the same months of 2009 just 7.44 million tyres were produced. According to ATMA, production increased across all tyre market segments, the largest expansion being seen in the motor scooter segment, where production grew 67 per cent year-on-year. Passenger car tyre production in India increased 41 per cent to 2.09 million, while light commercial vehicle and truck/bus tyre production grew two and five per cent respectively. A total of 1.27 million truck/bus tyres were produced in the April to September period.

Export quantities also rose during the half-year. ATMA figures indicate an 18 per cent year-on-year increase in overall tyre exports between April and September, although exports of light commercial vehicle and truck/bus and tractor tyres were lower than a year earlier, the two segments declining five per cent and 16 per cent respectively. On the other hand, exports of Indian industrial tyres shot up 1,956 per cent, with 9,156 tyres exported in the first half of the financial year, as opposed to merely 445 tyres a year earlier. Two-wheeler/moped tyre exports increased 456 per cent to 3,100, while passenger car tyre exports grew 26 per cent.

Exports likely to grow10

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 2009-10 is a growth of 19%, which is a little slowdown from the last 3 years growth rates.

Imports of tyres

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’s 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% for imports from China and South Korea, along with Sri Lanka and Bangladesh, asagainst the standard rate of 20%. This led to a gush of imported tyres from these countries. The landed price is approximately 25% lower than that of the corresponding Indian Truck/LCV tyres. Imports from China now constitute around 5% of the market share.

10 www.careratings.com/content/ResourceCenter/reports/TOC-Tyre.pdf

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3.7 TYRE TECHNOLOGY

From the end of 19th century to till now there is drastic change in types of tyre. Each type of tyre consists of different type unique features, technology and different type of strength holding capacity.

Types of tyres and technology used for it, is as follows:

1. Tyre with cotton (reinforcement) Carcass:

This is 1st popular type of tyres used worldwide in starting phase of proper bias and cross ply tyres. Cotton plies were used as main reinforcing material. Cotton reinforcing material had inherent problems of low strength and high moisture re gainer. Leading to large number of plies to get the requisite casing strength for the tyre weight of the tyre and poor heat dissipation. This gave adverse impact on tyre weight and buck rendering poor performance.

2. Tyre with Rayon (reinforcement) Carcass:

To overcome with the problem of poor performance of the cotton reinforcement tyres, new type of tyre became more popular in which development of Viscose and Rayon are used which give much better strength to tyres. Since less number of piles were needed to match cotton strength, concept of ply rating developed. It is also possible to have higher ply ratings now.

3. Tyre with Nylon (reinforcement) Carcass:

In this type of tyres reduction of number of piles is done with development and introduction of Polymide i.e. nylon for strength and flexibility. This development substantially improved the heat and impact resistance of the carcass leading to better tyre performance and higher durability. Nylon casing gave a boost to retreadability. Thus effective cost of the tyre in operation became much more economical.

Development of Tyre Technology due to change in Reinforcing material is basically in the case of Cross Ply or Bias Tyres. Bias tyre has cotton, Rayon or Nylon Cords, bound as plies and each ply (i.e. Cords) cross each other at a definite angle anchoring at the bead.

4. Radial (Construction) Tyre- Textile/ Textile Belt (Rayon/Nylon/Polyester)

Bias tyre technology has major disadvantages like tyre with bias technology have inherent problem of high heat development and poor life.

Radial technology came into the existence in 1950’s. In this type, piles were made highly flexible by keeping the cords at 90 degrees and in order to improve tyre life, inextensible (stiff) belts were placed on the top the carcass under thread. This led to stiffer tread portion, leading to higher Tread life (Mileage) and much more

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comfortable ride due to flexible carcass. This was the beginning of 'Revolution' in tyre technology.

Initially these types of tyres were introduced with casing piles as well as belt material of textiles.

5. Radial (Construction) Tyre - Textile/Steel belts:

Once steel tyre got developed it found its immediate application in Belt material, keeping casing plies of Textile, to further improve durability.

6. Radial (Construction) tyres- textile/ grass fibre belts:

Similarly, development of glass fibre which is practically inextensible, led to application in passenger and Light Commercial Vehicle tyres with Textile Casing, providing corrosion free radial Tyre belt material.

7. Low Aspect Ratio (Cross Ply or Bias) Tyre:

A new concept of low aspect ratio (ratio between section height and section width) of the tyre in cross ply construction was introduced for higher speed and better performance.

8. Tubeless Tyre (Cross Ply):

Concept of tubeless tyre in cross ply construction wherein an inner liner compound based on chlorobutyl or Halo Butyl which is impermeable to gases, was introduced eliminating the usage of tubes. This concept could not find sustained application in India due to bad roads and poor handling/maintenance of Rims other than in OTR range. However, Tubeless tyres are produced for Export Market.

Gradually this concept will become fully acceptable with the advent of new generation vehicles and improved service facilities.

9. Radial (Construction) Tyre - Textile/Aramid Belt:

Due to poor roads and inadequate vehicle maintenance, Steel belts had corrosion problem due to cuts and chips in the tread. This led to trials with Aramid belt (Textile material with very high strength and Low extensibility).

However, this could not find any sustained use.

10. Radial (Construction) Tyre - All Steel:

In developed countries, Radial Truck/Bus tyres use steel wires in casing as well as in Belts to achieve the optimum advantage of radial construction. In India also this construction was tried since late 1970s by Indian Companies using tyres of collaborators. This could not succeed.

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Indian companies started experimentally since late 1980s (themselves or with collaborators) which continues and the product has found gradual entry into low load application.

11. Tubeless Tyre - Radial Construction:

As in the case of Bias Tyres, the concept of tubeless tyre was extended to radial construction and introduced in later half of the century in Developed countries. A tubeless tyre not only has tube eliminated but provides for smoother ride and vehicle handling. This is slowly entering into the Indian market with the advent of new generation vehicles.

12. Low Aspect Ratio - Radial (Construction) Tyres:

The concept of low aspect ratio tyre, after gaining the experience from cross ply construction, was introduced in Radial construction also. The present trend of tyre development for high speed tyre is being pursued in this direction. Tyres with aspect ratio upto 0.65 are being manufactured today enabling Indian Industry to adopt high speed rating e.g. 190 kmph, 210 kmph etc.

13. High Performance Passenger Car Radial Tyre:

High Performance Passenger Car radial tyres not only have very low aspect ratio (0.65 - 0.35) but also have substantial changes in construction. Very low aspect ratio enables use of large diameter wheels which, in turn, allows better stability at high speeds. The tyre contour is based on the cross section of a fully loaded tyre and this reduces the energy losses within the tyre and reduced dynamic fatigue. High performance Passenger tyres are made with speedy rating upto ZR indicating speed capability in excess of 240 kmph. In India, this concept has not yet been found popular though customers are demanding tyres upto 220 kmph (V Rating).

14. Run Flat (Puncture Proof) Tyre - New Concept:

A new concept of running flat tyre (puncture proof) was introduced by Continental in early 1980s wherein the basic construction of the rim and bead was changed by which on loosing air the tyre tread sits on the rim thus enabling one to drive at a reasonable speed for a long distance till the flat tyre could be attended to.

This revolutionises the OE need for a new vehicle as the Stepney tyre can also be dispensed off. However, there is very slow progress of this concept. This has not been tried in India so far.

15. Fuel economy/low rolling resistance tyre - special compound:

Tremendous work is being carried out towards the development of tyres with modified special compounds, besides tyre construction aspect, to reduce rolling resistance thus gaining in fuel consumption. However, the ultimate advantage is

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obtained by Radial Construction which is gradually finding its well-deserved place in Indian Industry.

16. Green Tyre (Environment Friendly):

This is the latest development in Passenger Radial tyres. These tyres have a rolling resistance appreciably lower than normal tyres. These tyres have high proportion of non petroleum based material used in their construction and are called environment friendly 'green tyres'.

This concept is well perceived and will gradually find its application world over, including India.

3.8 MARKETING INITIATIVES

All key players in tyre industry do their marketing with respect of the categorization they have done for Indian market.

Tyre supplies are broadly to the following segments:

Replacement Market (aftermarket) Original Equipment Manufacturers (OEMs), i.e. vehicle manufacturers Export State Transport Undertakings (STUs) (primarily for Bus tyres) Government Purchases

They also very much concerned about their advertising with respect to their product line and production ability. For example, MRF company is major in tyre industry advertise their whole product line giving the stress on mostly the passenger car segment from where they earn maximum. For whole Tyre Industry the dealers network is also active in India. Dealers are again categorized as:

Dealers: Multi Brand (different companies); Single Brand; Company owned exclusive showrooms.

Dealers of commercial vehicle tyres and passenger segment tyres are different, though some overlap does exist.

Dealers of commercial vehicle tyres also financing purchase of tyres for commercial vehicles and agricultural tyres.

Dealers are also an important link between the tyre companies and the end consumers and replacement / warranty schemes are implemented by the companies through the dealers.

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Distribution Channels used in tyre Industry...

The distribution system consists of distributors, followed by large dealers and also small/sub dealers. Some tyre companies also follow a system of appointing C&F agents, in place of distributors.

Replacement Market: Tyre companies sell tyres through widespread dealer distribution net-work ( over 5000 in the country ), either through exclusive dealer of the companies or through multi-company dealers.

OEM: Direct supply by tyre companies through negotiations.

STU: Direct supply by tyre companies through tender system.

Government:Direct supply by tyre companies through tender system.

Export:Through dealers in the exporting countries.

Import:Some tyre companies also import tyres for the domestic market. Such imports are generally from the principal company overseas or from technical collaborator or from tyre companies with which it has an alliance for a particular line of tyres, for example, passenger car tubeless tyres. With tyre import freely allowed (except Truck / Bus (Radial Tyres)) import of various categories of tyres is also taking place.Tyres are imported by importing agents and then marketed through the dealers who are marketing Indian tyres also.

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3.9 FUTURE OUTLOOK

On the positive side, it is estimated that there would be a volume growth of 12-14% in 2009-10. 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%. 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/ tyre sector, 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. However, the continuously rising trend witnessed in the prices of raw materials remains an area of concern. Though rubber prices have come down from their peaks of Rs 115, to Rs 82; currently, the trend is very volatile. 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, NTC Fabric, SBR and PBR, which are highly volatile.

Tyre Industry Forecast 2014

Tyre industry production grew dramatically during FY10 as compared to previous fiscals due to improving demand and expanding production capacity. The industry saw marginal growth of just 1% during FY09 due to the impact of economic recession and decline of OEM production. The industry produced close to 97 Million tyres across various segments during FY10 as compared to 82 Million tyres during FY09. The replacement segment, which constitutes more than 60% of the industry and is a key focus area for tyre manufacturers, due to the higher margins it offers, is expected to continue its rapid growth, due, in part, to the high growth in vehicle sales over the last few years. (According to Research, the Indian tyre industry will continue its growth trajectory and is expected to witness a turnover growth of more than 10% CAGR during the period between FY11 and FY14. The increasing level of investments to increase production capacity should drive the Indian tyre industry in the coming years. The industry is expected to witness the increasing penetration of radial tyres in production and as well as in the end market. Research expects that the commercial vehicle segment will have an improved degree of radialization in coming years.

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The Indian Tyre Industry Forecast 2014 discusses the following issues related to Indian tyre industry:

Tyre industry production by segment Industry sales by value & volume Production & Raw material Cost Ongoing market trends Competitive Landscape

The Indian Tyre Industry Forecast 2014 gives a detailed and unbiased overview on the tyre market in India. This report helps readers to identify ongoing trends in the industry and expected growth in the coming years, as a consequence of changing industry dynamics in the coming years.

Global Market Review of Automotive Tyres - Forecasts to 2017

The increasing segmentation of the car market has led directly to a more complex tyre market. Over the last 20 years, the popularity of sport utility vehicles, minivans and crossover vehicles has steadily increased, prompting manufacturers to redesign their tyres. In response, manufacturers have focused on ways in which to improve tyre dimensions, weight, rolling resistance, noise and fuel efficiency.

Tomorrow’s tyre market is expected to be led by ultra high-performance (UHP) tyres which offer enhanced driving control, run-flat tyres which ensure safe driving even in the event of a flat tyre, and ultra fuel-efficient tyres. In particular, with the rapid growth of the hybrid vehicle market, the tyre industry has recently been concentrating on developing fuel-efficient products.

3.10 COMPARISON OF TYRE INDUSTRY

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Global and China Automotive Tire Industry Report, 2009-2010 (Chinese Version)

In 2008, the tire industry was in depression, companies suffered big drop or even loss of profit due to the natural rubber price inflation, and both the OE market and the RT replacement market plummeted due to the worldwide economy downturn in the second half of 2008. The situation was improved in 2009. The natural rubber prices continued to drop while there was just a slight, or even no fall in tire prices. As a result, companies doubled their profits, but still witnessed decline in revenue since the demand had not been recovered to the peak level in 2008.

In the second half of 2009, the price of natural rubber, as well as carbon black, kept rising. By April 2010, it had more than doubled the level of early 2009. Tire companies had raised prices to address the price hike in raw materials. In 2010, the natural rubber supply and demand were nearly in balance, and the price was relatively stabilized at a high level. Although there is still no clear sign of economic recovery, the prices of bulk commodities will not suffer sharp decline as in 2008.

Tire companies will see revenue growth, but profit fall in 2010.

In 2009, Bridgestone still held the first place in the world, and widened the gap with Michelin, the runner-up. In addition, Bridgestone’s joint ventures in North Europe, Russia, India and Turkey had delivered excellent performance in 2009. Although Michelin didn’t invest enough in these emerging markets, its operating profit margin was two times higher than Bridgestone’s. Although Michelin didn’t perform well in the OE market, it delivered an increasingly better performance in China’s after-sale replacement market, and got high profit for its outstanding reputation.

Stranded in the North American market, Goodyear suffered decline in both revenue and operating profit margin since the operating expense increased. Furthermore, it achieved little growth in China’s market, but still stayed far ahead of the fourth place.

Continental, dominating the high-end market all along, delivered roughly the same performance as in 2008. Its OE ratio was 25%, a little higher than in 2008. Being a key tire supplier for Benz, Audi and BMW, Continental was among the few manufacturers with revenue growth benefiting from the huge demand for luxurious cars in China’s market. Moreover, it has put its Hefei base into production, and is expected to grab a larger market share in the future.

Pirelli, an Italian company, is a key tire supplier for well-known luxurious cars including Bentley, Ferrari, Porsche, Lamborghini, Bugatti, Land Rover, Volvo, Jaguar, and Maybach, all of which have robust demand from China’s market, with small quantities but high prices. In the meantime, being the most important tire supplier in South America market, Pirelli has dominated the market there for years with stable sales.

Sumitomo, i.e. the Dunlop acquired by Sumitomo Rubber Industries, is a key tire supplier for SUVs, especially luxury SUVs, as well as Japan’s high-end vehicles like Crown, Lexus,

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Teana and Acura. Benefiting from strong demand in China’s market, Sumitomo had achieved the rapidest growth in revenue and high growth in after-sales market. Meanwhile, it also has increased investment in China’s market.

Also profiting from China’s market, Yokohama achieved growth in revenue. It even got a Chinese name to show its recognition of China’s market and carried out a series of advertising and promotional campaigns. In the meantime, it is the main tire supplier for high-end vehicles such as Mitsubishi, Honda, Toyota, Nissan, Mazda, Subaru, Porsche, Mercedes-Benz C-class and G-class, Acura, Aston Martin in OE market.

Japanese manufacturers, being known as conservative, have increased their efforts in China’s market, and substantially expanded the output capacity of their Chinese bases in late 2009 and the first half of 2010. Even Toyo Tires, the smallest one of them, established a plant in China. Apart from the OE market, Japanese manufacturers have also expanded the replacement market. For example, Dunlop planned to surpass Michelin by expanding its lineup of retail stores to 4,000. It can be said that Japanese manufacturers have benefited the most from China’s tire market, and they all have accelerated the expansion.

Supported by Beijing Hyundai, FAW Volkswagen and Shanghai Volkswagen, the main force in China’s auto market, Hankook witnessed great growth in profit despite a decline in revenue. Kumho, relying on the strategy of low price, suffered sales drop in 2009. Although it ranks the first place in China’s OE market, it fails to succeed in the replacement market. Low price, low profit and high debt have made its operation difficult, and it has begun division reorganization and debt restructuring in 2010.

Totally immune from the Special Protectionist Tariff on Tire case, the majority of Chinese manufacturers had achieved revenue growth, and maintained significant export, only with a slight drop in the export to the United States. Now, Chinese tire manufacturers' dependence on foreign trade is still above 40%, which certainly will lead to trade disputes. Although they have been trying to develop the OE market, they can only enter the microbus market, and little progress has been made in the car market, since even Chery and BYD prefer tires of Kumho, Giti and Cheng Shin. However, Chinese tire manufacturers have monopolized heavy-duty truck, bus, commercial vehicle, and off-the-road (OTR) tire markets. In 2009, the massive infrastructure investment and the campaign of ?bringing autos to the countryside? had boosted up van sales. Cheng Shin ranked among the world’s top ten in terms of revenue, and Hangzhou Zhongce Rubber announced that its sales were up to RMB16.8 billion, ranking the 11th place in the world.

4. CONCLUSION

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Amongst the Indian Tyre Manufacturers, Apollo tyres and Ceat Tyres Ltd. are undervalued whereas MRF Tyres Ltd. is overvalued. The biggest threat, however, is yet to fully materialise. It will be from global majors like Bridgestone and Michelin, which control 36 per cent of the global tyre market. These players have set up their bases in Southeast Asia and the slump of the markets in this region, coupled with the vast growth potential of the Indian market, is beckoning them towards India.Two years ago, the industry estimated the growth in the passenger car radial demand at 20per cent per annum. However, the auto recession has hit them badly.Another threat to the industry is the price of its raw materials, most of which are petroleum byproducts. Carbon, synthetic rubber and nylon tyre cord are offshoots of petrochemicals. Thus, the future of the industry will swing with the supply of crude oil.

The industry is definitely set to grow, with an estimated volume growth of 12-14% in 2009-10. Both, OEM and Replacement demand would drive growth, with exports also adding-in. The growing economy and the infrastructure sectors provide the much-needed impetus. However, tyre companies face immense competition, together with price and cost pressures. Pricing pressure, from OEMs because of their high bargaining power and in the replacement market due to huge competition, is a substantial dampener. Companies are now giving emphasis to innovation in product and process technology and to operational efficiencies. However, the continuously rising trend witnessed in the prices of raw materials remains an area of concern.

If we view the financial performance of various tyre-manufacturing companies, most of them are operating at wafer-thin margins and any substantial increase in costs would hurt the business adversely. Also, reviewing the balance sheet, the ROCE and RONW are at very low levels. The industry leader, MRF, has an ROCE of 6.7% and an RONW of 5.5%. Apollo is a little better off, with ROCE and RONW at 12.8% and 14.8%, respectively. Hence, we do not find tyre stocks attractive, from an investment perspective.

The industry is definitely set to grow, but the huge competition, huge buyer power, pricing inflexibility and cost pressures prove as detriments. Tyre companies are operating at very thin margins and their return ratios are also not attractive. One can look at tyre stocks but only from a trading perspective.

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5.REFERENCES

ATMA Tyre Manual

www.atmaindia.org

www.way2wealth.com

www.timesofindia.com

www.ceattyres.com

www.mrftyres.com

www.jktyres.com

www.apollotyres.com

www.business-beacon.com

Economic and Political Weekly

Business Line

www.capitaline.com

www.marketresearch.com/product/display.

www.rapra.net/download-files/pdf/sr-tyre-testing.pdf

http://www.tyrepress.com/index.php?news=17500

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