Analysis of the Tyre Industry in India

Project Report On
Sector analysis of the Tyre Industry

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF
DEGREE OF MASTERS OF MANAGEMENT STUDIES (MMS) FROM THE UNIVERSITY OF
MUMBAI
SUBMITTED BY
Mukesh R. Gehani
MMS FINANCE
BATCH: 2007-09
Under the guidance of
PROF. P L ARYA
N.L.DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH

SHRISHTI, SECTOR 1, MIRA ROAD (E), MUMBAI 401104
CERTIFICATE
Analysis of the Tyre Industry
This is to certify that Mr. Mukesh R. Gehani, student of N.L. Dalmia

Institute of Management Studies and Research, has successfully carried
out the project titled SECTOR ANALYSIS OF THE TYRE INDUSTRY,
under my supervision and guidance as partial fulfilment of the requirements
of MMS course, Mumbai University Batch 2007-2009
Prof. P.L. Arya
Prof. P.L. Arya
Project Guide
Director
Date:
Place: MUMBAI
ACKNOWLEDGEMENT
N.L.Dalmia Institute of Management Studies and Research
Page 2
THE SUCCESS OF ANY PROJECT IS THE RESULT OF HARD WORK

& ENDEAVOR OF NOT ONE BUT MANY PEOPLE AND THIS
PROJECT IS NO DIFFERENT.
I TAKE THIS AS A PROSPECT TO AVOW THAT IT WAS AN
ACHIEVEMENT TO HAVE SUCCEEDED IN MY FINAL PROJECT,
WHICH WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE
GUIDANCE OF PROF. P. L. ARYA (DIRECTOR N. L. DALMIA
INSTITUTE OF MANAGEMENT STUDIES & RESEARCH) MY
PROJECT GUIDE AT NLDIMSR.
I ALSO EXPRESS MY APPRECIATION AND GRATITUDE TOWARDS
ALL THE FACULTY MEMBERS AT N.L. DALMIA INSTITUTE OF
MANAGEMENT STUDIES AND RESEARCH FOR MAKING THE
M.M.S. DEGREE AND THIS PROJECT A MEMORABLE LEARNING
EXPERIENCE.
FINALLY I AM THANKFUL TO ALL MY FRIENDS, FACULTY
MEMBERS AND STAFF WHO HAVE GIVEN THEIR FULL SUPPORT
IN
COLLECTING
THE
REQUIRED
INFORMATION
AND
CONTINUOUS HELP DURING THE PREPARATION OF THE
PROJECT.
MUKESH R. GEHANI
MMS FINANCE
Page 3
Sr. No.
1
Topics
Page nos.
Executive Summary
1.1 Introduction
1.2 Evolution of the Tyre Industry
Overview of the Indian Tyre Industry
11
Radialisation
12
Tyre Retreading
13
Statistics
5.1 Total Tyre Production in India
16
5.2 Categorywise Tyre Production in India
18
5.3 Categorywise Exports of Tyres
19
Raw material
6.1 Overview
22
6.2 Raw material availability
23
Government Policy
24
Regional Trade agreement
25
Table of Contents
Table of Contents
Page 4
Sr. No.
Topics
Page nos.
Marketing
27
10
Tyre Technology
30
11
Factors to be considered in selecting tyre for vehicle
36
12
Peculiar Features of the Tyre Industry
37
13
Michael Porters five forces model
38
14
SWOT Analysis
41
15
Key Players
15.1 JK Tyres & Industries Ltd.
43
15.2 MRF Tyres Ltd.
47
15.3 Apollo Tyres Ltd.
48
15.4 Ceat Tyres Ltd.
50
16
Sector Specifics
52
17
Sector Trends
53
18
Outlook
53
Table of Contents
Page 5
Sr. No.
19
1.
Topics
Page nos.
Valuation
19.1 Relative Valuation
55
19.2 FCFF
56
19.3 FCFE
62
20
Results
68
21
Conclusion
69
22
Bibliography
72
Executive Summary
1.1 Introduction
The Indian Tyre Industry produced 736 lakh units of tyres (11 lakh tonnes) garnering Rs. 19000
crores in FY07. MRF Ltd. was the market leader (22% market share) followed closely by Apollo
Tyres Ltd. (21%). The other major players were JK Tyre & Industries (18%) and Ceat Ltd.(13%).
Page 6
The Indian tyre industry is characterized by its raw material intensity (raw material costs account
for approximately 70% of operating income), capital intensity, cyclicality, fierce competition
among the top players, low bargaining power and resulting low margins. The top players are now
focusing on branding their products and strengthening their distribution network so as to increase
their market share.
The industry derives its demand from the automobile Industry. While OEM market offtake is
dependent on the new vehicle sales, replacement market demand depends on the total population
of vehicles on road, road conditions, vehicle scrapping rules, overloading norms for trucks,
average life of tyres and prevalence of tyre retreading.
The main category of tyres produced in the country is that of Truck & Bus tyres. These tyres
accounted for 57% of the total tyre tonnage production in FY07 followed by LCV tyres which
accounted for 9% of the total tyre tonnage production. Approximately 53% of the total tyre
tonnage offtake was by the replacement market, 31% by OEM and 15% by the export market in
FY07.
The industry tonnage production registered a 5 year CAGR of 9.69% between FY 02-07. The
largest category of Truck & Bus tyres recorded a 5 year CAGR of 7.85% (slower than the
industry) while Light Commercial Vehicle (LCV), motorcycle and car tyre categories grew at
15%, 16% and 14% respectively (faster than the industry). Off the road (OTR) tyre category
(customized tyres) which fetch a higher margin compared to other tyre categories, is the fastest
growing category. The OTR tyre category has registered a 5 year CAGR of over 20% in the last
five years. Most of the top players are increasing their capacity for the production of OTR tyres
so as to improve their product mix, this being a high margin product.
The exports from the country clocked a CAGR of 13% in unit terms and 18% in value terms in
the period FY 02-07. Most of these tyres that are exported are of cross ply design. With
radialisation catching up in some of these markets, the Indian manufacturers will need to
graduate to production and export of 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 cost of radial tyres and poor awareness of the 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 governments focus on infrastructure
development.
1.2 Evolution of the Tyre Industry

The achievements of the Indian tyre and rubber industry have been an unheralded success story.
It is perhaps the only industry in India to have achieved an average annual 6.5 percent growth
Page 7
rate for almost 44 years, since 1960.aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa

The country's rubber industry got off to a very modest start in Calcutta in 1936 but India is today
the world's 4th largest rubber consuming country, with rubber consumption of over 1 million
tones (1,065,020 tonnes) including 50 percent of reclaim rubber as pure polymer. China is
currently the world's largest consumer followed by the US and Japan. Despite the high volume of
consumption, India's per capita rubber consumption is still under 1kg, compared to an average of
12 kilos in Europe and the US and nearly 3kg in China. This underscores the tremendous
potential of the rubber industry with the country's increasing prosperity and industrialization.
Another unique factor of the Indian rubber industry is that for the past few years it has been the
world's 4th largest producer of natural rubber after Thailand, Indonesia and Malaysia. However,
in terms of production efficiency, India is far ahead of the other three major rubber producing
countries in terms of yield per acre. This can be attributed to the country's highly skilled research
scientists and the outstanding work done by the Rubber Board of India, under the Ministry of
Commerce.
Till just three years ago, India was consuming all of the natural rubber it produced and in fact,
had to import a quantity of the commodity as well. With an eye on globalization, while expecting
increased output from the Indian rubber plantation industry, the Rubber Board decided to
establish India's position as a regular exporter of natural rubber. It has succeeded beyond
expectations, with the export of nearly 76,000 tonnes in the financial year ending March 2004.
Strong natural rubber exports have also helped to stabilize the domestic prices of natural rubber.
Similar to the case in all industrialized nations, India's automotive tyre sector is the major user, at
53 percent, of natural rubber. The country's automotive tyre sector has also been a remarkable
success. Practically every conceivable type of tyre is manufactured in India today, by almost 40
companies ranging from giants to small-scale enterprises. Today, seven Indian tyre companies
feature in the list of the world's top 75 tyre manufacturers. According to the latest rankings based
on 2003 sales, MRF (with sales of US $537.3 million) is ranked at No. 15 followed by Apollo at
Page 8
No. 17 (sales of $496 million), J. K at No. 18 ($455 million ), Ceat at No. 24 ($318 million ).
They are followed by Birla Tyres at No. 52, Metro Tyres at No. 68 and TVS Srichakra at No. 75.
In the fiscal year ending March 2004, the turnover of India's automotive tyre industry was Rs.
13,500 crore (almost $3 billion), with exports of Rs. 1400 crore ($318 million) to over 70
countries, including the US and Europe. The industry's total output of 54.27 million tyres
signifies capacity utilization of 85 percent of the installed capacity of 60 million.
Since the mid-1980s, Indian tyre companies have made major efforts to established a presence in
overseas markets through their exports. They have thus been able to import duty free raw
materials and remain competitive in the international market, while reducing their dependence on
the domestic local natural rubber market. While some Indian tyre majors export nearly 30
percent of their total tyre productions, about 20 percent of all locally manufactured tyres are
exported
in
total.
Dunlop Tyres of the UK, through its Indian subsidiary, was the country's first major tyre
manufacturer, with a plant in Calcutta. It led the way for Firestone of the US, which established
itself in Bombay and later for Goodyear and Ceat of Italy, which were also Bombay-based. It
was only in the early 1960's that Indian tyre companies (MRF, Incheck and Premier Tyres) broke
the monopoly of the foreign tyre makers. Modi Rubber followed in 1975, after which Apollo
Tyres became a serious player. Meanwhile, the Karnataka state government set up Vikrant Tyres
in Mysore in technical collaboration with the UK-based Avon Tyres. Since then, Premier Tyres
has
been
taken
over
by Apollo
Tyres
and
Vikrant
Tyres
by
J.
K.
Tyres.
With the liberalization of the early 1990's came a short-lived joint venture (South Asia Tyres)
between Ceat and Goodyear, after which the Japanese tyre giant Bridgestone Corporation made
its foray into the Indian market with the Tata Group. Within five years, Goodyear and
Bridgestone took over full control of their joint venture companies, by buying out their local
partners
Ceat
and
the
Tata
Group
respectively.
With enormous strides being made internationally by global tyre majors due to their vast R&D
Page 9
expenditure, it is naturally difficult for Indian tyre companies to manage without technology
input. While J. K. Tyres has a technical collaboration with Continental AG of Germany (the
world's number 4) and Birla Tyres with world No. 5 Pirelli, Apollo decided in November 2003 to
enter into an agreement with French tyre giant Groupe Michelin, the world's number 1, to set up
a joint venture project near Pune. Michelin has also invested in 26 percent equity in Apollo
Tyres. Other Indian tyre companies manage with in-house R & D and by using the expertise of
tyre experts from Europe and the US, who have taken early retirement from their earlier jobs.
With the Indian economy set for a growth rate of around 8 percent commencing 2005/2006, and
with the massive increase in infrastructure developments and the $18 billion boost for highway
and road construction, the Indian tyre industry is set for an average annul growth rate of at least 8
percent. It is mature enough to withstand the threat of cheap imports arising from possible Free
Trade Agreements with countries like Thailand. The other challenge facing the Indian tyre
industry is the high import duties of raw materials, compared to its competitors in the rest of
Asia. But backed by the rising demand of the country's booming automobile sector, which
crossed the 1 million sale mark in 2004, the Indian automotive tyre sector, and indeed the rubber
industry, is set for an even brighter future.
2.
Overview of ITI
Financial Year 2007-2008 (Est.)

Turnover of Indian Tyre Industry
Rs. 20,000 Crores
Tyre Production (Tonnage)
11.35 lakh M.T.
Tyre Production All Categories (Nos.)
811 Lakh
Tyre Export from India (Value) :
Rs. 3000 (est) crores
Number of tyre companies:
43
Industry Concentration
10 Large tyre companies account for over 95% of total

tyre production.
Radialisation
Level
(as a % of total tyre production)
Current
Passenger
Car
tyres:
95%
Light
Commercial
Vehicles:
Heavy Vehicles ( Truck & Bus ): 3%
12%
Page 10
Calendar Year 2007 (Est.)

Turnover of Indian Tyre Industry
US $ 4600 Million
Installed Capacity (Nos.)
85 Million
Capacity Utilitsation
87%
Total Tyre Production (Nos.)
78 Million
Total Tyre Import (In 000 Nos.)
2077
Government Policy
Tyre Industry Delicenced since
1987
Export (of tyres and tubes)
Freely allowed
Import (of new tyres and tubes)
Freely allowed Since 2001 except Truck / Bus (Radial

Tyres), which is in the Restricted List from 24th Nov.
2008 onwards.
Import Policy for Used / Retreaded tyres:
Restricted Since April, 2006
3. Radialisation
'Radialisation' in India - Current Status & Future Trends
"Rate of radialisation is actually an index of the status of road development, vehicle engineering
and the economy in general". Notwithstanding the problem areas, constraints and limitations, the
tyre companies have kept pace with the technological improvements that radialisation signifies
and offer state-of-the-art product (tyres), comparable to the best in the world.
Radialisation can be aptly classified as the most important innovation in tyre technology. Despite
its several advantages (additional mileage; fuel saving; improved driving) radialisation in India
earlier did not catch on at a pace that was expected, since its introduction way back in 1978. This
could be attributed due to several factors, viz. Indian roads generally not being suitable for ideal
plying of radial tyres; (older) vehicles produced in India not having suitable geometry for fitment
Page 11
of radial tyres (and hence the general, and wrong, perception that radial tyres are not required for
Indian vehicle; unwillingness of consumer to pay higher price for radial tyres etc.
However, the situation has radically changed in recent years, especially for the passenger car tyre
segment where radialisation has crossed 97% mark and is expected to reach 100% in two to three
years. In the Medium and Heavy Commercial vehical segment current level of radialisation is
upto 4%, and that in the LCV segment is estimated at 15%.
A few years back a beginning was made in Radialisation of truck and bus and LCV tyres and this
process is gaining momentum.
Future of Radialisation
The future of radialisation will be governed by the following factors:
Cost - Benefit Ratio
Road Development
Overload Control
User Education
Retreading Infrastructure.
4. Tyre Retreading
RETREADING INDUSTRY IN INDIA
Page 12
In the manufacture of a new tyre, approximately 75%-80% of the manufacturing cost is incurred
in tyre body and remaining 20%-25% in the TREAD, the portion of the tyre which meets the
road surface. Hence, by applying a new TREAD over the body of the worn tyre, a fresh lease of
life is given to the tyre, at a cost which is less than 50% of the price of a new tyre. This process
is termed as 'tyre retreading'.
However, the body of the used tyre must have some desirable level of characteristics to enable
retreading. Retreading cannot also be done if the tyre has already been over used to the extent
that the fabric is exposed/damaged.
Retreading could be done more than once.
Types of Retreading
Retreading can be done by the following two processes:
1. Conventional Process (also known as 'mould cure' or 'hot cure' process) - In this process a unvulcanized rubber strip is applied on the buffed casing of the tyre. This strip takes the pattern of
the
mould
during
the
process
of
vulcanization;
2. Precure Process ( also known as 'cold cure')- in this process a tread strip, where the pattern is
already pressed and precure is applied to the casing. It is bonded to the casing by means of a thin
layer of specially compounded uncured rubber (known as cushion or bonding gum) which is
vulcanized by the application of heat, pressure and time.
The present all India pattern, by type of retreading, is as follows:
Page 13
Precured - 50%, Conventional 50%.

Retreading is primarly done in the Truck and Bus trye segment. On an average a Truck/Bus trye
is retreaded 1.5 times.
At present only 3-4 large companies are in the organized sector of tyre retreading .Organized
sector is classified as that comprising of companies which operate through the franchisee route.
International vs. Indian Experience in Tyre Retreading : Similarities & Differences

Similarities
As is the experience in other parts of the world, tyre retreading in India has gained greater
acceptance in the commercial segment, especially truck/bus and light commercial vehicle (LCV)
tyres, due to operational savings.
The share of passenger car tyre retreading is on the decline due to several factors, viz. fitment of
radial tyres as OE fitment giving increased mileage (encouraging owners to go in for new radial
tyres at the time of replacement, strong preference of improved aesthetics of new generation of
passenger cars (and hence new tyres) and above all, a growing concern for safety (due to driving
at increased speeds.
Differences
Page 14
In the developed countries retreading, by and large, is only through precured methods, whereas
the share of hot/conventional retreading in India is high 50%, with the share of hot/conventional
retreading in select segments, like farm tyres, being considerably higher.
Expected Future Trends in Tyre Retreading in India
Tyre retreading in the commercial vehicle segment is poised for growth in the future. This
growth will be aided by the following favourable factors and major developments taking place:
Increased level of Radialization in the commercial vehicle segment (due to reduced incidence of
overloading of commercial vehicles);
Growth in and increased share of multi-axle trucks (with the catching up of the concept of 'hub &
spoke' transportation, long distance movement of road freight will be by multi-axle trucks
whereas distances within and around the cities will be catered by smaller commercial vehicles);
National Highway Projects, especially Golden Quadrilateral Project and Highways connecting
North-South and East -West corridors (coupled with reduction in overloading and improved
condition of road network, higher level retreading will offer added financial benefits).
5. Statistics
Past Trends
TOTAL TYRE PRODUCTION IN INDIA
F.Y. 1994 - 95 T0 2007 - 08 (in 1000s)
1999
CATEGORY
1994 - 95 1995 - 96
1996 - 97
1997 - 98 1998 - 99
Truck & Bus
7309
7696
8095
8095
7913
8969
8612
Passenger Car
3283
3324
3888
4263
4571
6054
6813
Jeep
780
881
1098
1342
1247
1283
1155
2000
2000 - 01
Page 15
Light Comml. Veh.
1133
1177
1833
1903
1917
1980
2108
Tractor Front
933
976
1040
1075
1085
1203
1186
Tractor Rear
562
663
683
785
839
903
852
Tractor Trailer
608
686
360
214
223
295
277
A.D.V.
759
673
581
528
593
589
511
Scooter
8791
9853
9545
9577
10975
10140
9385
Motor Cycle
3410
3788
4457
5582
7277
9275
11196
Moped
771
833
795
400
234
516
119
Industrial
89
95
66
143
137
172
219
O.T.R.
39
36
30
37
37
36
38
Aero
18
TOTAL
28485
30688
32471
33907
37048
41415
42471
CATEGORY
2001 - 02 2002 - 03
2003 - 04
2004 - 05 2005 - 06 2006 - 07 2007 - 08
Truck & Bus
8474
9863
10821
11092
11941
12367
13137
Passenger Car
7481
8544
9959
11862
13605
14264
16437
Jeep
1247
1384
1440
1462
1272
1368
1467
2352
2844
3271
3945
4529
4820
5320
Tractor Front
1150
1125
1148
1311
1383
1754
1814
Tractor Rear
785
825
842
1096
1134
1296
1234
Tractor Trailer
320
470
415
408
596
823
886
A.D.V.
488
456
295
197
325
381
409
Scooter
8547
9875
9274
9992
9519
9643
11604
Motor Cycle
12275
15654
16688
18127
21053
26079
27921
Moped
135
185
168
124
55
0*
0*
Industrial
214
309
295
377
514
635
733
O.T.R.
46
51
74
89
106
115
141
Aero
(L.C.V.)
Light Comml. Veh.

(L.C.V.)
Page 16
TOTAL
*wef
43514
April
2006
515585
Moped
54690
tyre
60082
production
66032
included
in
73545
Scooter
81103
Category
Current Statistics
Categorywise
Tyre
Production
in
India
Financial Year 2007-08 & 2008-09(April-September)

(In Lakh Nos.)
Tyres for:
2007-08
2008-09
% Change
Truck & Bus
65.57
67.93
Passenger Car
80.06
88.36
10
Jeep
7.40
7.38
27.86
11
Light
Commercial 25.17
Vehicle
Tractor Front
9.17
10.32
13
Tractor Rear
6.30
7.28
16
Tractor Trailer
4.42
4.29
-3
Animal Drawn Vehicle
1.49
1.51
Scooter / Moped
55.65
50.95
-8
Motor Cycle
134.11
153.49
14
Industrial
3.31
3.44
Page 17
Off the Road (OTR)
0.69
0.77
12
Total
393.34
423.58
Categorywise
Export
of
Tyres
Financial Year 2007-08 & 2008-09(April-September)

(in Nos.)
Category
2007-08
2008-09
% Change
Truck & Bus
1280939
1061929
-17
Passenger Car
540745
530372
-2
Jeep
2320
6018
159
924642
15
Light
Commercial 803280
Vehicle
Tractor Front
7810
4307
-45
Tractor Rear
30761
23233
-24
Tractor Trailer
8650
17064
97
Motor Cycle
164105
193466
18
Scooter
226506
250815
11
Implements
2009
3090
54
Industrial
7704
4285
-44
OTR
22634
22742
0.5
ADV
30
-100
Antique
Total
3097493
3041963
-2
Page 18
Exports
Export Realisation/Value
Value
Year
(Rs./crores)
% Change
1993-94
606
22
1994-95
680
12
1995-96
719
1996-97
832
16
1998-98
907
1998-99
808
(-)11
1999-00
864
2000-01
1190
38
2001-02
1100
(-)8
2002-03
1250
14
2003-04
1460
17
2004-05
1834
26
2005-06
2383
29
2006-07
2850
20
2007-08 (Est.)
3000
CAGR
11%
Average Annual Compound growth rate in exports during last one

decade is 11%.
Categorywise Tyre Exports -2000-01 to 2007-08

[ Nos.]
CATEGORY
2001
-2002 - 03 2003
-2004 - 05 2005
-2006 - 07 2007
Page 19
02
Truck & Bus
1805203
Passenger Car
287547
Jeep
40
Light Commercial
610692
Vehicle
Tractor Front
23431
Tractor Rear
51218
Tractor Trailer
444
Motor Cycle
33019
ADV
170
Scooter
43391
Implements
15758
Industrial
15570
OTR
21468
Antique
2894
TOTAL
2910845
04
06
08
2141438 223155 2503956 2408759 2276049 2431545

364514 591494 1024561 1052874 966046 1091715
20
220
391
885
1420
7461
700868
962972 1130908 1390814 1599230 1621880
20698
72263
852
34088
20
49966
9143
20716
29079
0
3443665
18990 18202
89758 84684
1448
3686
47333 62710
0
0
120725 202656
6558
2096
10702 9885
21168 23375
0
0
41029235067038
13408 11078
98807 56186
3833
8665
84908 151677
0
0
289984 320536
2447
4045
7303
11543
33480 43085
0
0
5387502 5449560
17072
66644
17468
322630
30
45338
5637
12777
45919
0
6094116
6. Raw Material
6.1 Raw Materials of Tyre Industry - Overview
(FY 2007-08)
Tyre Industry is highly raw-material intensive. Raw materials cost accounts for approx. 62% of
tyre industry turnover and 70% of production cost
Given below is the composition of raw-materials as a percentage (%) of Total Raw Material Cost:
Page 20
Natural Rubber
41%
Nylon Tyre Cord Fabric
18%
Carbon Black
10%
Rubber Chemicals
5%
Butyl Rubber
5%
PBR
6%
SBR
5%
Others
10%
57% of total Natural Rubber consumption is by the Tyre Sector, balance by rubber based non-tyre
industries.
Total weight of raw-materials consumed by tyre industry 13.39 Lakh M.T.
Total Cost of Raw Materials consumed by tyre industry Rs.12,500 Crores
6.2 Raw Material Availability

No domestic Production of Butyl Rubber, Polyester Tyre Cord and Styrene Butadiene Rubber of
tyre grades, i.e., 1502 and 1712.
Production of Nylon Tyre Cord Fabric, Polybutadiene Rubber, Rubber Chemicals, Steal Tyre
Cord insufficient to meet domestic demand.
Tyre industry imports raw materials on account of the following factors:
duty-free imports permitted against export of tyres; domestic demand not sufficient to meet
complete requirement; technical and commercial considerations; business strategy to have
multiple sources of supply.
Page 21
7. Government Policy
Trade Policy - Tyres & Raw Materials
All categories of tyres can be exported freely
All categories of new tyres can be imported freely except Truck / Bus (Radial Tyres), which is in
the Restricted List from 24th Nov. 2008 onwards.
No WTO Bound Rates for Tyres & Tubes
All raw materials required for the manufacture of tyres can be imported freely (OGL) except
Carbon Black, which is in the Restricted List from 24th Nov. 2008 onwards.
Custom Duties : Tyres
Normal rate of Basic Customs Duty (MFN)
10%
Preferential/ concessional Customs Duty under Trade Agreements

Page 22
Asian
Pacific
Trade
Agreement
8.60%
(formerly known as Bangkok Agreement)

* Indo Sri Lanka Free Trade Agreement
*
SAPTA ( SAARC
Preferential
Nil
Trading
Agreement)
*
India
Nil*
5%**
Singapore
Comprehensive
2.5%
Economic Cooperation Agreement (CECA)

For details please refers to Preferential Tariff Table for Tyres/ Raw-Materials of Tyre Industry
(Ref. Section on RTAs)
Excise Duty: Tyres

All categories of Tyres
*
When
import
from
14%
Bangladesh,
Bhutain,
Maldivies
and
Nepal.
** When import from Pakistan and Sri Lanka.
8. Regional Trade Agreements

REGIONAL TRADE AGREEMENTS (RTAs) AN OUTLINE WITH REFERENCE TO
TYRE INDUSTRY
Trade Agreements are broadly on the following lines:
RTAs (Regional Trade Agreements, can be bi-lateral or plurilateral)
RTAs aim to establish a Preferential Trade Area (PTA) and/or a Free Trade Area (FTA)
Framework Agreement (setting the ground for establishing a Free Trade Area) generally
Page 23
precedes complete FTA.

In case of simultaneous applicability of more than one RTA, trade can take benefit only
under one Agreement
RTAs
are
WTO
compatible.
The following are the important and integral components of any RTA:
Rules of Origin : prescribing minimum value addition in exporting country;
Preferential/Concessional Rate of Import Tariff: specified as extent/percentage of concession on
the MFN rate (i.e. applied/basic rate of normal customs duty);
RTAs have assumed added significance due to slowdown of trade talks at multilateral
platforms
(WTO),
each
industry/sector
trying
to
source/sell
globally,
intense
competition, progressive reduction in import tariffs etc.

Tyre Industry Related (key features and practical dimension)
The
a)
following
RTAs
concern
tyres
and
raw
materials
of
tyre
industry:
Asia Pacific Trade Agreement (Bangkok Agreement) Tyres and inner tubes can be
imported from signatories to the Bangkok Agreement (please see list attached) at concessional
rate of customs duty for signatories to the Agreement and specific details, please refer to the
statement given below).
b)
Indo-Sri Lanka Free Trade Agreement Tyres can be imported at nil customs duty. Natural
Rubber is in the Negative List of India. Several other raw-materials of tyre industry are eligible
for duty concessions of varying magnitude.
c)
SAPTA (SAARC Preferential Trading Agreement) Truck & Bus, LCV and Jeep tyres and
select raw-materials of tyre industry can be imported into India at concessional/Nil rate of duty
from signatory countries, (viz. Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka)
Reference statement given below.
Page 24
d)
India-Singapore Comprehensive Economic Co-operation Agreement: Truck and bus,
passenger car (bias) and other tyres can be imported into India at concessional custom duty rate
of 5%.
e)
India-Nepal Trade Treaty Select raw-materials of tyre industry eligible for concession in
customs duty when imported from Nepal under the Treaty. For details please statement of
customs duty concessions, given below:
9 . Marketing
Categorization
Segmentwise Tyre Supplies (2007 - 08)
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
Estimated supplies of key tyre categories to various segments are given in the following table:
Page 25
Production
Category (Nos.)
2007-08
Segmentwise
Percentage
supply
(as % of Total Production)

Replacement
OEMs
Export
Market
Truck/Bus
13136592
61*
20
19
Passenger Car / 17904812
45*
49
Jeep
LCV
55319922
43
27
30
Tractor Front
1814391
61
38
Tractor Rear
1233611
39
56
Scooter / Moped
11603930
48
48
Motor Cycle
27920746
52
47
* Includes supply of 1.37% of Truck /Bus Tyres and 0.09% Passenger Car tyres to
Governments/STUs
Dealers
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.
Distribution
Page 26
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 network ( 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.
Page 27
10. Tyre Technology
Page 28
Page 29
1. Tyre with Cotton (reinforcement) Carcass :

In the starting phase of proper Bias or Cross ply tyre, cotton plies were used as main
reinforcing material (end of 19th and early 20th Century). Cotton reinforcing material had
inherent problems of low strength and high moisture regainer. Leading to large number of
plies to get the requisite casing strength for the tyre weight of the tyre and poor heat
dissipation. This, in turn, gave an adverse impact on Tyre weight and buck rendering poor
performance.
2. Tyre with Rayon (reinforcement) Carcass :
With the development of viscose and rayon the strength of reinforcing material went up and
found application in tyres in early 20th Century. Due to higher strength of rayon it was
possible to reduce number of plies and weight of the tyre. Since less number of plies were
needed to match cotton strength, concept of ply rating developed. It was also possible to
have higher ply ratings now.
3. Tyre with Nylon (reinforcement) Carcass :
Persuent to development and introduction of Polymide (Nylon) the strength and flexing
behavior of reinforcing materials improved substantially resulting in further reduction of
number of plies, consequently the weight of the tyres. 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) :
Inspite of continuos development in Bias Tyre Technology, inherent problem of high heat
development and poor life remains a continuos challenge.
In early 1950s new concept of Tyre design was developed namely "RADIAL" wherein plies
were made highly flexible by keeping the cords at 90 and in order to improve tyre life,
Page 30
inextensible (stiff) belts were placed on the top of the Carcass under the tread. This led to
stiffer tread portion, leading to higher Tread life (Mileage) and much more comfortable ride
due to flexible carcass. This was the beginning of 'Revolution' in tyre technology.
Initially Radial tyres were introduced with Casing Plies as well as belt material of textiles.
Continuous development in Radial Concept led to further improvements as explained
below.
5. Radial (Construction) Tyre - Textile/Steel belts :
Once Steel Tyre cord got developed it found its immediate application in Belt material,
keeping casing plies of Textile, to further improve durability.
6. Radial (Construction) Tyre - Textile/Glass Fibre Belt :
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 :
Page 31
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.
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 tubless tyre was extended to radial construction
and introduced in later half of the century in Developed countries. A tubless 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
Page 32
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
speed 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 run 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 obtained by Radial
Construction which is gradually findig 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 or
'green tyres'.
This concept is well perceived and will gradually find its application world over, including
India.
Page 33
11. Factors to be considered in selecting tyre for vehicle

1. Vehicle Type and Use
When specifying a tyre, analyze the size and type of the vehicle to determine whether it is
better to use standard original equipment (OE) tyre or whether optional tyre should be
selected. Options in tyre sizes are limited by vehicle clearances and rim widths. Also one has
to consider the proposed type of operation to determine tyre service conditions. For instance
a dump truck tyre may be used to haul gravel over highway from pit to the job or to haul
gravel exclusively in the pit for construction. Since the operating conditions vary widely,
tyres should be selected carefully to assure maximum tyre life and safety of operation.
2. Load
From the safety point of view, the overloading of tyres should be carefully avoided,
otherwise dangerous conditions exists. Misapplication of tyre from the load capacity is
prevented for original equipment on new vehicles, which require manufacture of motor
vehicles and trailers to affix a label that include the gross Axle Weight Rating on the front
and all other axles. The total load per tyre must not exceed the manufacturers specified tyre
load-carrying capacities at corresponding inflation pressures for both the tyre and the rim.
3. Speed and Continuity of Operation
The right tyres used on the vehicle ensure various speeds at which the vehicle runs without
discontinuance of the vehicle run.
4. Tyre/ Rim Combination
Page 34
It is of utmost importance that appropriate Tyre/Rim combinations are met. These

combinations are specified by the tyre manufacturer in their selection manuals and should be
complied to.
12. Peculiar Features of the Tyre Industry
High Capital Cost
This sector is capital intensive. A 1.5 million tyre per annum radial tyre plant costs Rs8
billion, while 1.5 million crossply tyre plant would cost Rs 4-5 billion
Distribution Network-
With typically higher margins in the replacement market, companies need to invest in brand
building and distribution network, which acts as an effective entry barrier. A nation wide
distribution network and strong brand recalls are factors critical to tyre sales. Domestic
companies enjoy the advantage of an existing distribution network and so will however
spend higher on marketing, distribution and advertising to maintain brand visibility among
foreign majors.
Cyclical
Due to high minimum economic size, demand supply mismatches constantly exist. Tyre
industry has a derived demand due to dependence on a cyclical auto industry. Prices of petrobased raw material and natural rubber also tend to be cyclical.
Technology Incentive
Tyre manufacturing involves sophisticated technology and now with the advent of radial
tyres, technology has assumed importance in tyre manufacturing. Global spending on R & D
is growing (more than Rs. 10 billion per annum by each major producer). All foreign cars
introduced in India are launched on redial tyres.
Retreading
Page 35
As only the outer surface of the tyre wears out, tyres are usually retreated and used again.
Truck tyres are usually retreated twice, while other tyres are retreated around 4 times.
13. Michael Porters five forces model

1) Bargaining power of supplier
Bargaining power of suppliers can be segregated in two parts according to the demand of
industry.
Rubber
There are two reasons behind this being low first one is most of the tyre firms get150 days credit
for buying the rubber from international market which is not the case if they buy it from
domestic rubber growers. And the second reason is, this credit is being offered at LIBOR, which
is the London Inter-bank Offered Rate. It is the rate of interest at which banks borrow funds from
other banks.
Other Petro chemical based material (Carbon black, Nylon tyre cord etc.)
The power of suppliers is high in this category as India is limping back in case of Petro based
raw materials like carbon black and chemicals which account low in quantity terms but are high
cost generators. Also the price of NTC fluctuates in line with the prices of Caprolactam (a
petroleum derivative)-its main raw material. The prices of these materials are beyond control of
tyre industry.
2) Bargaining power of buyers
Page 36
This can be seggeregated into two parts as follows.
OEM's
The OEMs are always in strong position when the bargaining power of buyers is concerned. The
reason behind this is most of them are having contract with their relative tyre manufacturer under
which the prices of tyre remains stable for this OEM irrespective of market price. The benefits
are given to them as they are buying in bulk and the relation gives the tyre firms some thing
called brand association.
Replacement
The scene in replacement segment is quite reverse as the bargaining power for the replacement
segment is moderate due to the fact that the buyers are not that strong as compared to OEMs. The
demand in buses and truck segment is always high because of Indian poor road conditions apart
from this the purchase is made in small units.
3) Threat of substitute
It is moderate or as the industry is facing opposition from retreading sector all over the globe.
This cheaper option, around 20-25% of the original tyre cost, is present in developed countries
since some decade back. And this is heading to wards strong position here in India too.
4) Threat of new entrants
The threat of new entrant is moderate or can be described as low because the industry is highly
capital intensive and the level of technological expertise required is also highly specific.
Page 37
But if we see from domestic (Indian) industry's point of view, this better can be defined as high.
The reason being, global tyre industry is already seeing mergers and acquisitions in order to
restructure. And as of now India and China going to be the hub of activities as far as tyre industry
is concerned due to low production cost as well as other relevant benefits. So for any of the
global big shot Indian company will be a good option to go for.
5) Industry rivalry
High, because gradually the overseas players are expanding their wings over Indian tyre industry
and also a limited and every player is moving towards automated technology, like ERP and
SCM.
Apart from the aforementioned reason, the industry is seeing high competitive scenario at present
because of various reasons like rising input costs, low realizations from growing OEM segment
where the vehicle manufacturers are not ready to share the burden of tyre firms, the portion of
replacement pie continuously taken away by the retreading sector which is slowly but firmly
rising its head and that to in high realization segment of Bus-Truck tyres and last but not the least
the unorganized sector is always there to give head ache to these established players like CEAT,
JK, Apollo and MRF etc.
Page 38
14. SWOT Analysis

Strengths
Established brand names (key in the replacement market)
Extensive distribution networks - For example Apollo Tyres has 118 distinct offices, 12
distribution centres and 4250 dealers.
Good R&D initiatives by top players
Weakness
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
Subsequent rise in replacement
Automobile
Industry
Increasing OEM demand
accounts for demand
With continued emphasis being placed by the Central Government on development of

Page 39
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
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
With crude prices scaling upwards, added pressure on raw material prices is expected
Ban on Overloading, leading to lesser wear and tear of tyres and subsequent slowdown in
demand. However, this would only be a short-term negative
Cyclical nature of automobile industry
Page 40
15. Key Players

While the tyre industry is mainly dominated by the organised sector, the unorganised sector holds
sway in bicycle tyres. The major players in the organised tyre segment consist of MRF, Apollo
Tyres, Ceat and JK Industries, which account for 63 per cent of the organised tyre market. The
other key players include Modi Rubber, Kesoram Industries and Goodyear India, with 11 per
cent, 7 per cent and 6 per sent share respectively. Dunlop, Falcon, Tyre Corporation of India
Limited (TCIL), TVS-Srichakra, Metro Tyres and Balkrishna Tyres are some of the other players
in the industry. MRF, the largest tyre manufacturer in the country, has strong brand equity. While
it rules supreme in the industry, other players have created niche markets of their own
15.1 JK Tyres
"Excellence
comes
not
from
mere
words
or
procedures. It comes from an urge to strive and deliver

the best. A mindset that says, when it is good enough,
improve it. It is a way of thinking that comes only
from a power within." - H.S.Singhania
JK tyre, a Division of JK Industries is the flagship company under the umbrella of JK
Organization. The advent of JK Organization on the industrial landscape of India almost
synchronizes with the beginning of an era of industrial awareness - an endeavor for self reliance
and the setting up of a dynamic Indian industry. This was way back in the middle of the 19th
century. And the rest that followed is history.
JK Organization has been a forerunner in the economic and social advancement of India. It
always aimed at creating job opportunities for a multitude of countrymen and to provide high
quality products. It has striven to make India self reliant by pioneering the production of a
number of industrial and consumer products, by adopting the latest technology as well as
developing its own know-how. It has also undertaken industrial ventures in several other
countries.
Page 41
J.K. Tyre has been at the forefront of the radial revolution in India. Since inception, we have
been regularly releasing high quality, high technology products, which have withstood the
test of time and are forerunners in the industry today. Our leadership position in the industry can
be attributed to the mantra of offering high technology products and services to the customer. In
J.K. Tyre, it is our philosophy to continuously anticipate and understand the customer
requirements, convert them into performance standards for our products and services, and
meet these standards every time.
This has resulted in development of many innovative products from the most modern,
technologically advanced production facilities, some of which are listed below:
First manufacturer to launch "T" rated tyres in 1994-Ultima.
First manufacturer to launch "H" rated tyres in 1996-97-Ultima 210 H.
First manufacturer to launch Dual Contact High Traction Steel radials- Aqua sonic
First manufacturer to introduce India's first range of eco-friendly coloured tyres.
J K Industries Ltd. (JKI), the leader in the Indian Tyre Industry and manufacturers of well-known
J K TYRE. J K Tyre along with its subsidiary Vikrant currently holds the No.1 position in the 4
Wheeler tyre segment with a market share of 20.8 %. J K Tyre and Vikrant continue to be the
leaders in the commercial tyre segment which constitute 70% of the Tyre Market with the highest
market share in the Indian Tyre Industry. J K Tyre maintains its dominant position in the
Passenger Car Radials. J K Tyre is a preferred supplier with most of the OEMs. J K Tyre has
launched several new products including recently launched Tractor Radial Tyre. J K Tyre is in
the process of further expanding its Passenger Radial capacity to strengthen its position further.
A greater thrust on exports is yielding good results. J K Tyre along with Vikrant holds its No.1
position being the highest exporter of Tyres in the country with exports to over 60 countries
across 6 continents. J K Tyre has tied up with a leading tyre manufacturer in China & is
outsourcing tyres for its international markets. These initiatives shall be further intensified in the
coming months. J K Sugar achieved growth of 31 % in the cane crushed for the season. J K
Sugar is also implementing expansion. The 1st phase of capacity expansion up to 4300 TCD is
Page 42
already complete. J K Agri Genetics, the makers of "J K SEEDS" has continued to perform well
and maintain its leadership in the Hybrid Seed Industry. The expected revival in the Indian
economy, particularly the transport and automobile sector should lead to further strengthening
the company's operations in the coming months. Today, JK Tyre's products compete with the best
international players in the premium international bias market in more than 55 countries in 6
continents. JK Tyre had obtained international accreditation for its products in the US, Europe,
South America and the Middle East.
JK Tyre, a division of the Hari Shankar Singhania group's flagship JK Industries, has increased
its share in the commercial tyre market to 24.5 per cent from April to September 2001. The
company's market share was 22.4 per cent during 2000-01, as per the data available with the
Automotive Tyre Manufacturers Association (Atma).
JK Tyre is the largest player in the
commercial segment of the domestic tyre market. The commercial vehicles segment accounts for
almost 70 per cent of the Rs 10,000 crores tyre market in India.
JK Tyres Plants, Head offices and regional Offices
Page 43
15.2 MRF TYRES
Page 44
MRF TYRES, India's No. 1 tyre manufacturing company manufactures an

extensive range of superior quality tyres in six production facilities in India.
MRF exports its products to over 75 countries worldwide - a standing
testimony to MRF's outstanding leadership JK Tyre is a leading exporter of
tyres from India and roughly accounts for about 26% of the total tyre exports
from India (along with its associate Vikrant Tyres Limited). The company caters to a host of
impressive clients. It has signed on to be the sole supplier for auto giants like General Motors,
Fiat and Ford in India.
HISTORY
In 1946, a young entrepreneur, K. M. Mammen Mappillai, opened a small toy balloon
manufacturing unit in a shed at Tiruvottiyur, Madras (now Chennai).In 1952, MRF ventured into
the manufacture of tread rubber. And with that, the first machine, a rubber mill, was installed at
the factory. This step into tread-rubber manufacture was later to catapult MRF into a league that
few had imagined possible. With the success achieved in tread rubber, MRF entered into the
manufacture of tyres. MRF established a technical collaboration with the Mansfield Tire &
Rubber Company of USA. In 1967, MRF became the first Indian company to export tyres to
USA - the very birthplace of tyre technology. In 1973, MRF scored a major breakthrough by
being among the very first in India to manufacture and market Nylon tyres. Then MRF entered
into a technical collaboration with the B.F. Goodrich Tyre Company of USA.MRF tyres were the
first tyres selected for fitment onto the Maruti Suzuki 800 - India's first small, modern car. MRF
was the clear market leader in every tyre segment.
In addition, by readers of the A & M magazine, MRF was considered as one of India's most
admired Marketing Companies. Then MRF was chosen for fitment on the Daewoo Cielo, Ford
Escort, Opel Astra and Fiat Uno, showing its world-class quality and appeal. A special factory
dedicated entirely to the manufacture of radials was started at Pondicherry.
Brands
Steel Belted Radial
Page 45
MRF Radial ZVTS
MRF Radial GP
MRF Radial GT
MRF Radial VT
MRF Radial CC
Bias Ply
Legend
Estate
SW99 (ULT)
Twin Tread
15.3 Apollo Tyres Ltd

Apollo Tyres Ltd (ATL) is one of the leading tyre manufacturing companies in India. ATL
manufactures automobile tyres, tubes & flaps and is well entrenched in the T&B (truck and bus)
tyre replacement segment, which comprises the bulk of the market. However, its presence in the
fast growing passenger car and two-wheeler segments are low. One other point of concern is the
less than cordial state of industrial relations in the company. After coming out of a prolonged
agitation in FY99, the companys workers in Baroda went on a strike recently. In FY2000, thanks
to the upturn in the automotive segment, ATL has posted a sales growth of 17%yoy in the first
nine months of the year. However, rising cost of material inputs and increased competition has
put pressure on operating margins. The company has, however, succeeded in holding on to its
market share by affecting a change in product mix with production of more car radials.
ATL has grown rapidly in the last decade, and from being a marginal player, it has raced ahead to
become the third largest player in the tyre industry. ATL management has been quick to spot
opportunities and has displayed remarkable market savvy. In FY2000, ATL has tied up with
Castrol Ltd and Kotak Mahindra Finance Ltd to provide multiple product opportunities to its
exclusive dealers. The management has not been found wanting when it comes to introducing
new products to tap growing segments in the auto industry.
Amazing performance
Page 46
A marginal player in the tyre industry a decade ago, Apollo Tyres leads the replacement market
in the heavy vehicle and car radials segments. "The focus is to increase our market share to 25
per cent from 15-18 per cent in all the market segments."
Bus and truck tyres account for a lions share of the industry's revenues. Since the OE market is
margin-sensitive, all the action is focused on the lucrative replacement market, especially in the
heavy vehicles segment. According to Satish Sharma, product manager at Apollo Tyres, "The
size of the truck tyre replacement market is 4 lakh tyres per month, and our share in that is 25per
cent." Though the volume will be small, talks have been initiated with Volvo India.
Apollo Tyres is also giving MRF Ltd, the leader in the car tyres market, a run for its money. Its
Apollo Excel tyres, rolled out from its Baroda plant, have received an excellent response in the
marketplace, according to the company. In the OE segment MRF has been losing its hold to
Bridgestone. And in the replacement market, Apollo Tyres has become a major threat. Apollo
Tyres is now negotiating with Hyundai Motors and Hindustan Motors for OE sales. In the two
wheeler market, Apollo is focusing on the motorcycle tyres market.
To boost sales, Apollo Tyres has tied up with Castrol India and Kotak Mahindra Finance. Apollo
Tyres dealers will stock Castrol lubes and improve their earnings. The tie-up with Kotak
Mahindra will facilitate sales by providing finance for tyre purchases, for the first time in India.
Apollo Tyres has increased its ad budget to Rs 35 crores from Rs 25 crores earlier, in order to
push sales. According to the Apollo management, the company sells 1.1 lakh of the 5 lakh car
radials sold per month in India today.
At present, the company's tyres are fitted as OE in Hindustan Motors Ambassador and
Contessa models, in tractors from Tafe, Punjab Tractors and Mahindra & Mahindra, and
trucks made by Ashok Leyland and Telco.
15.4 CEAT TYRES LTD.
Page 47
Ceat Ltd, a part of the RPG Goenka group, is the second largest tyre
manufacturer in the country after MRF. Ceat manufactures truck &
bus, passenger car, scooter and LCV tyres. The company is a
dominant player in the truck & bus and passenger car tyre segments
with a market share of 14% and 17% respectively. In FY2000, Ceat
did well to posting a 21%yoy sales growth in the replacement market for truck & bus tyres. It is
presently focusing on catering to the fast growing passenger car and two-wheeler industry.
Towards this, it is commissioning a new radial tyre factory in June 2000.
Being the second largest selling brand in India with a market share of 14.6 per cent, Ceat caters
primarily to the replacement market. Due to the strong growth in the OEM sector, the share of
the replacement market in the total revenue of the company has fallen. Ceat is part of the RPG
group, which is diversified, with presence in major sectors like power, fertilizers,
pharmaceuticals, tyres, computer, telecom, financial services etc. The group stumbled trying to
grow via diverse platforms and has many companies that have turned sick. But lately the strategy
seems to be one of restructuring and consolidation. The group is divided into 4 broad areas rubber & allied products, power, electronics & telecom and chemicals. Ceats investments in its
subsidiaries have also come down this fiscal which is a sign of prudence on the management.
Since inception in 1958, CEAT has been at the forefront of Indian Tyre industry. It has
established itself as one of the Top Manufacturers of Superior quality tyres. Their endeavor to
continually improve business processes & ensure conformance to the established quality
standards has earned a high reputation with their esteemed customers. CEAT is committed to the
Customers by delivery of outstanding products & services at the most affordable prices.
Amidst the rapidly changing business scenario, they have now established an additional
communication platform to interact with each other. In this seamless world, they recognize the
importance of linking themselves with the cyber age.
Ceat, a part of the RPG Enterprise, is planning to set up a production facility to manufacture
truck radial tyres at an investment of around Rs 200-250 crore. The tyre manufacturing company
is also investing around Rs 75-80 crore to expand its capacity for passenger car radial tyres.
Though the life (number of months in use) of radial tyres for trucks is expected to last 35-40%
Page 48
longer, company officials said the tyres would cost 15-20% more. Development in the road
infrastructure is cited as a major reason for possible shift to truck radial tyres. Almost the entire
truck demand is now cross ply or bias ply tyres. On the passenger car radial tyres, Mr. Paul said,
We plan to invest Rs 75-80 crore to ramp up the passenger car radial capacity to one lakh units.
At present, the company enjoys only 6% market share in the passenger car radial market. In the
two and three wheeler market, Ceat had increased its capacity to five lakh units per month during
the last year (from 60,000 units) by roping in three dedicated third party manufacturers who
now contribute 80% of this capacity. He said the company had drawn up plans to increase its
market share in the motorcycle segment by 9% to 20% in 03-04 and consolidate its presence in
the scooters segment (25% market share). We have achieved a major breakthrough by signing
an OE contract with a major south-based two wheeler manufacturer. Such contracts will give
boost to the two and three wheeler market.
However, the production growth in the automobile sector over the past few years should provide
a boost to the replacement market in the coming years and Ceat could be a major beneficiary
thereof. With the advent of multinationals like Goodyear, Michelin, Bridgestone and Continental,
a major shakeout in the industry is imminent and the same could result in Ceat, which is already
operating on thin margins, being hived off as a joint venture with Goodyear,
16. Sector specifics

The tyre industry is a major consumer of the domestic rubber production. Natural rubber
constitutes 80 per cent of the material content in Indian tyres. Synthetic rubber constitutes only
20 per cent of the rubber content of a tyre in India. World wide, the ratio of natural rubber to
synthetic rubber is 30:70. Apart from natural and synthetic rubber, rubber chemicals are also
widely used in tyres.
Page 49
Most of the RSS-4 grade natural rubber required by the Indian tyre industry is domestically
sourced, with only a marginal amount being imported. This is an advantage for the industry,
since natural rubber constitutes 25 per cent of the total raw material cost of the tyres.
The two types of synthetic rubber used in tyres are Poly Butadiene Rubber (PBR) and Styrene
Butadiene Rubber (SBR). The former is used in most of the tyres, while the latter is mainly used
in the radials for passenger cars. Synthetic rubber accounts for 14 per cent of the raw material
cost. Unlike in the case of natural rubber, India imports 60 per cent of its synthetic rubber
requirements.
Apart from rubber, major raw materials are nylon tyre cord and carbon black. The former is used
to make the tyres strong and impart tenacity to it. The latter is responsible for the colour of the
tyre and also enhances the life span of the tyre. Nylon tyre cord comprises 34 per cent, while
carbon black accounts for another 13 per cent of the raw material cost. In India, the carbon black
used is of the N660, N220 and N330 variety.
To sum up, the tyre industry is highly raw-material intensive, with raw material costs accounting
for 70 per cent of the cost of production. Fortunately for the industry, the rubber and carbon
black prices have taken a beating recently, which means lower costs for the tyre industry. The
export-import policy allows free import of all types of new tyres and tubes. However, import of
retreaded tyres, either for use or for reclamation of rubber is restricted. This has led to used tyres
being smuggled into the country under the label of new tyres. Though tyre import and all raw
materials for tyres except natural rubber are under open general license (OGL), only import of
natural rubber from Sri Lanka is eligible under OGL.
17. Sector trends

Crossply tyres have been used in India for several decades. In these tyres, the ply cords run
across each other or diagonally to the outer surface of the tyre. Rayon and nylon tyre cords are
used as the reinforcing medium. These tyres can be retreaded twice during their lifetime and are
hence preferred by Indian transport operators who normally overload their trucks. A vehicle with
the normal carrying capacity of around 12 tonnes is usually loaded with double the capacity.
Page 50
Moreover, one also has to contend with the bad suspensions and bad road conditions. No wonder,
95 per cent of the tyres used in India are crossplies.
Radial tyres have their cords running radially from bead at 90 degrees angle to the rim or along
the outer surface of the tyre. The reinforcing mediums used in these tyres are polyester, nylon,
fibreglass and steel. Hence, these tyres are 20 per cent more expensive than the crossplies. But
they have a longer life and provide lower fuel consumption. The unhealthy condition of the
Indian roads has resulted in radial tyres accounting for only 5 per cent of the tyre industry as
against a global trend of 60 per cent. With two-thirds of the capacity of all major tyre
manufacturers being reserved for radials, this is a real cause for concern.
18. Outlook
Globally, the OEM segment constitutes only 30 per cent of the tyre market, exports 10 per cent
and the balance from the replacement market. In India, the scenario is quite different. Nearly 85
per cent of the total tyre demand in the country is for replacement. This anomaly has placed the
retreaders in a better position than the tyre manufacturers. Retreading is looming over the tyre
industry as a colossal threat. The Coimbatore based Elgi Tyres and Tread Ltd., the largest
retreader in India, is giving the tyre barons sleepless nights.
Simply put, rethreading is replacing the worn-out tread of the old tyre with a new one. The
popularity of rethreading stems from the fact that it costs only 20 per cent of a new tyre but
increases its life by 70 per cent to 80 per cent. Most of the transporters in India retread their tyres
twice during its lifetime, while a few fleet owners even retread thrice. In their zealousness to
economise costs, they overlook the reality that retreading reduces the quality of the tyre. It is
highly popular in the South unlike in the North where the transporters overload their trucks and
have to ply their vehicles in a rough terrain an environment in which buying a new tyre is the
best option. Though retreading has penetrated 25 per cent of the tyre market, it has not made
much of a dent in the rapidly growing two-wheeler and passenger car segments.
Page 51
19. Valuation
19.1 Relative Valuation
Company
Price (Rs)
Mkt cap (in crs)
Book Value (Rs)
P/BV
P/E
Growth in EPS
Apoll
CEAT
o
130.7
1
58.60
1879.
92 200.65
Falcon(0
7-12)
GoodYear(0
7-12)
JK Tyre(0709)
148.00
114.85
79.60
81.21
264.96
326.84
25.09 145.97
53.17
61.25
119.51
3106.5
0
1317.1
6
2325.8
3
0.40
2.78
1.88
0.67
1.34
29.71
1.37
- 415.32
81.52
%
22.91
7.31%
6.99
-12.24%
3.75
308.67%
7.73
116.39
%
5.21
MRF
Page 52
%
PEG
EPS (Rs.)
Enterprise Value
(in crs)
EV/EBIDTA
ROE
Debt
Mcap + Debt
EBIDTA (Rs. In
Crores)
-36.44
0.33
313.45
-57.15
1.22
6.64
4.40
42.72
2207.
01 809.23
6.46
16.42
21.21
220.44
15.66
363.84
4.47
1274.61
4.77
401.75
2348.1
8
4.58
2.73
17.85
28.95
%
%
460.6
5 617.35
2340.
57 818.00
481.5
0 296.64
Ke
3.32%
RFR
145.78
RM
226.99
BETA
14.08
Ke
27.77%
12.50%
8.50%
0.0021.90%914.95
0.9618
264.96
1241.79
51
81.42
267.29
21.39%
5.06
17.42
%
848.09
2165.2
5
463.61
19.2 FCFF
a. Apollo Tyres Ltd
MARKET PRICE(rs.)
NO. OF SHARES(Cr)
MV OF EQUITY
DEBT
EV
131.11042
88
4.885
640.47444
49
460.65
1101.1244
WACC
16.137%
Page 53
ASSUMPTION: GROWTH FOR THE NEXT 5YRS

Long term Growth Rate
AND THEREAFTER CONTINUES AT THIS
GROWTH RATE
ROC equals wacc in long
term
terminal roc
terminal rr
dec/year
GROWTH
RR*
NOPLAT
RREINV
FCFF
TV
WACC
DF
PV HG
200
8
11.
27
%
119
.36
%
275
.11
328
.37
53.
26
16.
137
%
200
9
11.2
7%
119.
36%
306.
11
365.
37
59.2
6
16.1
37%
0.86
105
2
-
11.27
%
dec/ye
4% ar
1.45%
16.137%
16.137%
24.788%
18.91%
201
0
11.
27
%
119
.36
%
340
.60
406
.54
65.
94
16.1
37%
0.7
414
1
201
1
201
2
11.2
7%
11.2
7%
119.
36%
378.
98
452.
35
73.3
7
119.
36%
421.
69
503.
32
81.6
4
201
3
11.
27
%
119
.36
%
469
.20
560
.04
90.
84
16.13
7%
16.13
7%
16.1
37%
0.63
839
2
0.54
968
8
0.4
733
1
201
4
201
5
201
6
201
7
201
8
9.81
%
8.36
%
6.91
%
5.45
%
4.00
%
100.
45%
515.
25
517.
55
81.5
3%
558.
33
455.
21
62.6
2%
596.
90
373.
76
43.7
0%
629.
45
275.
08
24.7
9%
654.
63
162.
27
2.30
103.
12
223.
14
354.
37
492.
36
16.13
7%
16.13
7%
16.13
7%
16.13
7%
16.13
7%
0.40
754
4
0.35
091
7
0.30
215
7
0.26
017
3
0.22
402
2
Page 54
INV
non core
operating
capital
39.
758
4
405
6.65
7
105
5.43
3
101
5.6
75
191.
892
6
302.
71
411.
09
TOTAL
109
9.18
7
Period
TV
DISC TV
TOTAL
VALUE
EXCESS
CASH
DEBT
NO. OF
SHARES
EV
Value per
share
460.
65
4.88
5
638.
537
2
130.
71
b. CEAT Tyres Ltd.

MARKET PRICE(rs.)
NO. OF SHARES(Cr)
MV OF EQUITY
DEBT
EV
WACC
226.9655309
3.424
777.12997
77
477.6
1254.7300
16.610%
Page 55
WTS.
COST
61.94%
38.06%
Ke
RFR
RM
21.39%
8.83%
BETA
8.50%
21.90%
0.9618
51
Ke
21.39%
ASSUMPTION: GROWTH FOR THE NEXT

5YRS
GROWTH RATE
8.55%
dec/ye
4% ar
0.91%

term
terminal roc
terminal rr
dec/year
16.610%
16.610%
24.081%
10.16%
Page 56
GROWTH
RR*
NOPLAT
RREINV
FCFF
TV
WACC
DF
PV HG
Period
TV
DISC TV
TOTAL
VALUE
EXCESS
CASH
INV
non core
operating
capital
200
8
8.5
5%
74.
86
%
238
.48
178
.52
59.
96
16.
610
%
200
9
8.55
%
201
0
8.55
%
201
1
8.55
%
201
2
8.55
%
201
4
7.64
%
201
5
6.73
%
201
6
5.82
%
201
7
4.91
%
201
8
4.00
%
74.8
6%
331.
16
247.
90
83.2
7
201
3
8.5
5%
74.
86
%
359
.49
269
.10
90.
39
74.8
6%
258.
88
193.
79
65.0
9
74.8
6%
281.
03
210.
37
70.6
6
74.8
6%
305.
07
228.
36
76.7
0
64.7
0%
386.
97
250.
37
136.
59
54.5
5%
413.
02
225.
29
187.
73
44.3
9%
437.
06
194.
02
243.
05
34.2
4%
458.
53
156.
98
301.
54
24.0
8%
476.
87
114.
84
362.
03
16.6
10%
0.85
755
6
16.61
0%
16.61
0%
16.61
0%
16.6
10%
16.61
0%
16.61
0%
16.61
0%
16.61
0%
16.61
0%
0.73
540
2
0.63
064
8
0.54
081
6
0.4
637
8
0.39
771
7
0.34
106
4
0.29
248
2
0.25
081
9
0.21
509
2
508
.18
08
287
0.88
6
720.
074
122
8.2
55
4.96
18
9.6
TOTAL
21.8
1
125
4.70
3
DEBT
477.
Page 57
NO. OF
SHARES
6
3.42
4
EV
Val per
share
777.
103
1
226.
96
c. MRF Tyres Ltd.

MARKET PRICE(rs.)
NO. OF SHARES(Cr)
MV OF EQUITY
DEBT
EV
WACC
3123.26
0.424
699.6
1249.48
1949.0800
13.341%
WTS.
COST
35.89%
64.11%
21.39%
8.83%
Ke
RFR
RM
8.50%
BETA
21.90%
0.9618
51
Ke
21.39%

5YRS
GROWTH RATE
13.71
%
dec/ye
4% ar
1.94%
Page 58

term
terminal roc
terminal rr
dec/year
30.92%
200
9
201
0
13.7
1%
13.7
1%
184.
59%
239.
60
442.
28
202.
68
184.
59%
272.
45
502.
91
230.
46
201
1
13.
71
%
184
.59
%
309
.80
571
.85
262
.06
13.34
1%
DF
13.3
41%
0.88
229
6
0.77
844
7
PV HG
Period
972
.72
1
GROWTH
RR*
NOPLAT
RREINV
FCFF
TV
WACC
200
8
13.
71
%
184
.59
%
210
.71
388
.95
178
.24
13.341%
13.341%
29.984%
13.
341
%
201
2
201
3
201
4
201
5
201
6
201
7
201
8
13.7
1%
13.7
1%
11.7
7%
9.83
%
5.94
%
4.00
%
184.
59%
352.
27
650.
24
297.
98
184.
59%
400.
56
739.
39
338.
83
153.
67%
447.
69
687.
96
240.
27
122.
75%
491.
68
603.
52
111.
84
7.8
8%
91.
83
%
530
.44
487
.08
60.9
0%
561.
96
342.
26
29.9
8%
584.
44
175.
23
43.
36
219.
70
409.
20
13.3
41%
13.34
1%
13.34
1%
13.34
1%
13.34
1%
13.3
41%
13.34
1%
13.34
1%
0.6
868
2
0.60
597
9
0.53
465
3
0.47
172
2
0.41
619
9
0.3
672
1
0.32
398
8
0.28
585
4
Page 59
EV
438
0.86
8
141
9.35
446
.62
93
1.45
6
68.5
6
212.
11
304.
535
3
124
9.48
0.42
4
944.
945
Val per
share
312
3.26
TV
DISC TV
TOTAL
VALUE
EXCESS
CASH
INV
non core
operating
capital
TOTAL
DEBT
NO. OF
SHARES
19.3 FCFE
a. Apollo Tyres Ltd.
MARKET PRICE
NO. OF SHARES(Cr)
MV OF EQUITY
911.7758
KE
Ke
RFR
RP
186.64806 Rs per
75 share
4.885 cr
21.390%
8.50%
21.90%
Page 60
BETA
Ke
0.9618
51
21.39%

5YRS
GROWTH RATE
10.87
%
dec/ye
5% ar
1.17%
ROC equals KE in long

term
terminal roc
terminal rr
dec/year
21.390%
21.390%
23.376%
10.29%
Page 61
GROWTH
RR
NOPLAT
RREINV
FCFE
TV
WACC
DF
PV HG
Period
TV
DISC TV
TOTAL
VALUE
EXCESS
CASH
INV
non core
operating
capital
TOTAL
200
8
10.
87
%
126
.31
%
275
.11
347
.49
72.
38
21.
390
%
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
10.8
7%
10.8
7%
10.8
7%
10.8
7%
10.8
7%
8.52
%
5.00
%
105.
72%
338.
19
357.
54
19.3
5
95.4
3%
374.
96
357.
82
85.1
4%
415.
73
353.
94
74.8
4%
460.
94
344.
98
54.2
6%
548.
74
297.
72
7.3
5%
43.
96
%
589
.07
258
.97
6.17
%
116.
02%
305.
02
353.
87
48.8
5
9.7
0%
64.
55
%
505
.64
326
.39
33.6
7%
625.
44
210.
58
23.3
8%
656.
71
153.
51
17.1
4
61.8
0
115.
96
179
.25
251.
02
330
.10
414.
86
503.
20
21.3
90%
0.82
379
2
21.39
0%
21.39
0%
21.39
0%
21.39
0%
21.3
90%
21.39
0%
21.3
90%
21.39
0%
21.39
0%
0.67
863
4
0.55
905
3
0.46
054
4
0.37
939
2
0.3
125
4
0.25
746
8
0.2
121
0.17
472
7
0.14
393
8
291
.81
43
307
0.21
8
536.
448
9
828.
263
2
191.
892
6
302.
71
411.
09
911.
775
8
Page 62
NO. OF
SHARES
4.88
5
EV
911.
775
8
Val per
share
186.
65
b. CEAT TYRES LTD.

Rs per
MARKET PRICE
NO. OF SHARES(Cr)
MV OF EQUITY
3.424 cr
1075.1510
KE
Ke
RFR
RP
314.0043878 share
21.390%
BETA
8.50%
21.90%
0.9618
51
Ke
21.39%

5YRS
GROWTH RATE

term
terminal roc
2.58%
dec/ye
5% ar
0.48%
21.390%
21.390%
Page 63
terminal rr
dec/year
GROWTH
RR
NOPLAT
RREINV
FCFE
TV
WACC
DF
PV HG
Period
TV
23.376%
0.05%
200
8
2.5
8%
23.
86
%
238
.48
56.
91
181
.57
21.
390
%
200
9
2.58
%
201
0
2.58
%
201
1
2.58
%
201
2
2.58
%
201
3
2.58
%
23.8
1%
244.
64
58.2
6
186.
38
23.7
7%
250.
96
59.6
4
191.
32
23.7
2%
257.
45
61.0
6
196.
39
23.6
7%
264.
10
62.5
1
201.
59
21.3
90%
0.82
379
2
21.39
0%
21.39
0%
21.39
0%
0.67
863
4
0.55
905
3
0.46
054
4
201
5
3.55
%
23.6
2%
270.
92
63.9
9
206.
93
201
4
3.0
7%
23.
57
%
279
.23
65.
82
213
.41
21.39
0%
21.3
90%
0.37
939
2
0.3
125
4
201
7
4.52
%
201
8
5.00
%
23.5
2%
289.
15
68.0
1
221.
13
201
6
4.0
3%
23.
47
%
300
.81
70.
61
230
.20
23.4
2%
314.
40
73.6
5
240.
75
23.3
8%
330.
12
77.1
7
252.
95
21.39
0%
21.3
90%
21.39
0%
21.39
0%
0.25
746
8
0.2
121
0.17
472
7
0.14
393
8
779
.04
23
154
3.32
8
Page 64
269.
660
5
DISC TV
104
8.70
3
4.96
18
9.6
TOTAL
VALUE
EXCESS
CASH
INV
non core
operating
capital
21.8
1
107
5.15
1
TOTAL
NO. OF
SHARES
EV
3.42
4
107
5.15
1
Val per
share
314.
00
c. MRF Tyres Ltd.
MARKET PRICE
NO. OF SHARES(Cr)
MV OF EQUITY
537.4402
KE
Ke
RFR
RP
BETA
Rs per
3415.55 share
0.424 cr
21.390%
8.50%
21.90%
0.9618
51
Page 65
Ke
21.39%
41.92
%

5YRS
dec/yea
5% r

GROWTH RATE

term
terminal roc
terminal rr
dec/year
GROWTH
200
8
41.9
200
9
41.9
9.38
%
21.390%
21.390%
23.376%
-33.44%
201
0
41.9
201
1
41.9
201
2
41.9
201
3
41.9
201
4
32.5
201
5
23.1
201
6
13.
201
7
4.38
201
8
5.00
%
Page 66
RR
NOPLAT
RREINV
FCFE
TV
WACC
DF
PV HG
Period
TV
DISC TV
2%
2%
2%
2%
2%
2%
4%
5%
311.
07%
210.
71
655.
47
866.
18
277.
63%
122.
38
339.
76
462.
13
244.
18%
71.0
8
173.
55
244.
63
210.
74%
41.2
8
86.9
9
128.
27
177.
29%
23.9
7
42.5
0
66.4
8
143.
85%
13.9
2
20.0
3
33.9
5
110.
40%
76.9
6%
9.39
10.3
7
19.7
6
7.22
5.56
12.7
7
77
%
43.
51
%
6.2
2
2.7
1
8.9
3
21.3
90%
21.3
90%
0.82
379
2
21.39
0%
21.39
0%
21.39
0%
21.39
0%
21.39
0%
21.39
0%
21.3
90%
TOTAL
NO. OF
SHARES
0.42
4
EV
537.
INV
non core
operating
capital
0.55
905
3
0.46
054
4
0.37
939
2
0.31
254
0.25
746
8
0.2
121
10.0
7%
23.3
8%
5.95
6.25
0.60
1.46
6.55
4.79
21.39
0%
21.39
0%
0.17
472
7
0.14
393
8
674
.42
94
29.2
162
8
5.10
486
3
679.
534
2
1.45
6
68.5
6
212.
11
537.
440
2
TOTAL
VALUE
EXCESS
CASH
0.67
863
4
Page 67
Val per
share
440
2
341
5.55
20. Results
Company
Actual
Price
Share Valuation Method

(as
Comment
on
31/03/08)
Apollo Tyres Ltd.
Ceat Tyres Ltd.
MRF Tyres Ltd.
Rs. 41.30
Rs. 109.25
Rs. 3989.05
FCFF
130.71
Undervalued
FCFE
186.65
Undervalued
FCFF
226.96
Undervalued
FCFE
314.00
Undervalued
FCFF
3123.26
Overvalued
FCFE
3415.55
Overvalued
Page 68
21. Conclusion
The industry, already bogged by over capacity, is facing a severe threat of dumping of cheap
tyres by South Korea. Under the Bangkok agreement, signed between India and South Korea in
1976, import of tyres from the latter into India would attract a concessional duty of 33 per cent as
against the normal tariff of 40 per cent.
Two years ago, the industry estimated the growth in the passenger car radial demand at 20 per
cent per annum. However, the auto recession has hit them badly. But South Korea made a killing
by dumping cheap car radial tyres and walked away with 11 per cent of the tyre market.
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 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.
Bridgestone has tied up with ACC for a 100 per cent radial tyre unit and Michelin is also
marketing its products through retail outlets. The industry is driven more by volumes than by
margins and each of the big five in the global tyre industry Continental, Michelin, Goodyear,
Pirelli and Bridgestone generate an annual tyre production equivalent to the total demand of the
Indian market. These MNCs have deep pockets and can easily withstand losses for 2-3 years.
Their financial muscles also permit them to invest in R&D, which is beyond the reach of the
average Indian tyre manufacturer.
Page 69
Several different methods were used to determine the fair value of the Apollo tyres, MRF Ltd
and the Ceat Tyre Stocks. Each method pointed to the same conclusion, the Apollo Tyre and the
Ceat Tyre Ltd stock is undervalued whereas the MRF Ltd. Stock is a bit overvalued.
The aggregates of 11 tyre companies have reported depleted results for the quarter ended
December 08. With the financial melt down and production cuts of many Auto companies,
resulted in weaker demand and curtailment of capacities of tyre industry which together
restricted the growth in top line of the industry to 8% at Rs 4282 crore. Coupled with the
slowdown in demand and the use of high cost inventories built up in the previous quarters, piling
up of inventory etc, the operating margins of the sector tumbled down by whooping 810 bps to
3.2% in the quarter ended December 2008 from robust 11.3% in the corresponding previous
quarter. Thus operating profit margins have slipped down by 70% to Rs 136 crore. With the dip
in other income by 22% to Rs 25 crore and increase in interest cost by 43% to Rs 113 crore and
depreciation by 25% to Rs 125 crore turned PBT to a loss of Rs 77 crore. However, the tax
income of Rs 10 crore as against out go of Rs 105 crore, left Bottom line of the company at a
loss of Rs 67 crore as against profit of Rs 198 crore.
MRF the largest tyre producer in India with a wide product profile catering to almost all the
segments of the automobile industry has reported Net loss of Rs 38.30 crore despite healthy
growth in its top line by 17% to Rs 1351.97 crore. However, spike in the raw materials cost and
other income has dipped PBIDT by 83% to 21.14 crore. Spike in interest and depreciation cost
by 67% and 54% respectively has turned PBT to red at Rs 55.33 crore. The tax income of Rs
17.03 crore couldn't help the erosion of profit for the quarter ended December 08.
CEAT, the flagship company of RPG group and leading producer of tyre industry has also
reported Net loss of Rs 21.64 crore, on the back of 4% rise in Net sales to Rs 584.15 crore for
quarter ended December 08. With the spike in the raw material costs particularly natural rubber,
synthetic rubber and carbon black; OPM crashed to a negative of 1.4% and led losses from the
operating level. The dip in the other income and spike in the interest cost has made the losses
further slippery.
Page 70
Apollo Tyres has reported dip in the top line by 7% to Rs 903.26 crore for the quarter ended
December 08.
22. Bibliography
ATMA Tyre manual
www.atmaindia.org
www.way2wealth.com
www.nseindia.com
www.indiainfoline.com
www.timesofindia.com
www.economictimes.com
www.ceattyres.com
www.mrftyres.com
www.jktyre.com
www.apollotyres.com
www.domain-b.com
www.buzzle.com
Page 71

Analysis of the Tyre Industry in India

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Analysis of the Tyre Industry in India

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Project Report On

Sector analysis of the Tyre Industry

Under the guidance of

N.L.DALMIA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH

Analysis of the Tyre Industry

This is to certify that Mr. Mukesh R. Gehani, student of N.L. Dalmia

Prof. P.L. Arya

Prof. P.L. Arya

N.L.Dalmia Institute of Management Studies and Research

Analysis of the Tyre Industry

THE SUCCESS OF ANY PROJECT IS THE RESULT OF HARD WORK

Analysis of the Tyre Industry

1.2 Evolution of the Tyre Industry

Overview of the Indian Tyre Industry

5.1 Total Tyre Production in India

5.2 Categorywise Tyre Production in India

5.3 Categorywise Exports of Tyres

6.2 Raw material availability

Regional Trade agreement

N.L.Dalmia Institute of Management Studies and Research

Analysis of the Tyre Industry

Factors to be considered in selecting tyre for vehicle

Peculiar Features of the Tyre Industry

Michael Porters five forces model

15.2 MRF Tyres Ltd.

15.3 Apollo Tyres Ltd.

15.4 Ceat Tyres Ltd.

N.L.Dalmia Institute of Management Studies and Research

Analysis of the Tyre Industry

Analysis of the Tyre Industry

1.2 Evolution of the Tyre Industry

Analysis of the Tyre Industry

rate for almost 44 years, since 1960.aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa

Analysis of the Tyre Industry

Analysis of the Tyre Industry

Financial Year 2007-2008 (Est.)

Rs. 20,000 Crores

Tyre Production (Tonnage)

11.35 lakh M.T.

Tyre Production All Categories (Nos.)

Tyre Export from India (Value) :

Rs. 3000 (est) crores

Number of tyre companies:

10 Large tyre companies account for over 95% of total

N.L.Dalmia Institute of Management Studies and Research

Analysis of the Tyre Industry

Calendar Year 2007 (Est.)

Installed Capacity (Nos.)

Total Tyre Production (Nos.)

Total Tyre Import (In 000 Nos.)

Export (of tyres and tubes)

Import (of new tyres and tubes)

Freely allowed Since 2001 except Truck / Bus (Radial

Import Policy for Used / Retreaded tyres:

Restricted Since April, 2006

N.L.Dalmia Institute of Management Studies and Research

Analysis of the Tyre Industry

Cost - Benefit Ratio

Analysis of the Tyre Industry

Retreading could be done more than once.

Analysis of the Tyre Industry

Precured - 50%, Conventional 50%.