Analysis of Indian

Tyre
Industry

Industry Overview

size and Categorization

Market Segments

Industry Concentration

Category-wise Market shares

Company wise Product Mix

Cost Structures and Profitability

Product Segments

Changing Trends

Replacement and Exports
Exports

Break-up of Exports

Export Destination

Export Trends

Global vs Indian Scenario

Global Market Share

Product Segment Comparison
Radialization
Re-treading
Cost Structure

Break-up of Raw Material Costs

Analysis of Expenses
4

Profitability Analysis

Operating Margins

Realizations

Net Profit Margins

Return on Capital Employed

Gearing

Working Capital

Asset Turnover
5

Demand Review and Outlook (2008-09 to 2012-13)

Overall Growth Projections

Segment-wise Growth Projections

Radialization and Tubeless Tyres

Supply Outlook

Profitability Outlook
Player Profiles

 Industry overview
Product Segments
Exports
Global Scenario
Radialization
Retreading
Cost Structure
Profitability Analysis
Demand Review and Outlook (2008-09 to 2012-13)
Player Profiles
7

Tyre industry is more than Rs. 200 billion in size and more than 3/4th of
the revenues is accounted for by commercial vehicles and tractors.
INDUSTRY OVERVIEW SIZE AND CATEGORIZATION

Size

Turnover Rs. 200 billion

Exports Rs. 30 billion
Installed Capacity 89.2 million nos
Production 81.1 million nos
Production (000 tons) - 1180

Segmentation

About 70% of revenue accounted by

Commercial vehicles and tractors

INDUSTRY OVERVIEW PRODUCT CATEGORIES AND MARKET

SEGMENTS

Overall Industry

Commercial
Vehicles and
Buses (73%)
MHCV - LCV 59%
8%

Passenger
Vehicle Tyres (23%)
Tractos 10%

Cars/
MUVs 11%

2 - Wheelers
12%

Others (4%)

Replacement is the biggest market segment and account for about 54%
of the overall revenues.
INDUSTRY OVERVIEW MARKETS

Markets

10

Trucks /Bus Tyre Segment

Replacement 60%, Exports
19%, OE 21%
Overall
Replacement 54%, Exports 14%,
OE- 32%

Tyre is a highly concentrated industry with top 7 players account for

more than 85% market share.
INDUSTRY OVERVIEW INDUSTRY CONCENTRATION

Players

11

Market Share of top 7 companies

85%
Market Leader Apollo Tyres
MRFs Market Share 23.5%

Apollo Tyres is the market leader with about 23.5% share.

INDUSTRY OVERVIEW MARKET SHARE TRENDS

Company

Market Share (in %)

2001-02

2007-08

Apollo

20.5

23.5

MRF

19.6

22.4

JK Industries

15.1

16.4

Ceat Tyres

18

11.4

Goodyear

7.7

6.2

TVS Srichakra

3.1

3.5

Falcon

2.5

2.5

Others

13.5

14.1

12

Market leadership changes with respect to different segments.

CATEGORY WISE MARKET SHARES
Company
Market Share in %
MHCV

LCVs

Cars

Tractors

2wheelers

Apollo

27

24

18

17

MRF

20

24

23

18

25

JK

18

23

22

CEAT

15

11

10

Goodyear

10

25

TVS Srichakra

28

Falcon

20

13

Product mix of the top companies differ in terms of their exposure to

product categories..
COMPANY WISE PRODUCT MIX
Company
Product Mix in %
MHCV

LCVs

Cars

Tractors

2wheelers

Apollo

72

10

MRF

53

10

JK

72

10

CEAT

65

10

Goodyear

29

21

30

TVS Srichakra

95

Falcon

85

14

Raw material costs constitutes about 70% of the revenues and the
operating margins for the industry is about 10%
INDUSTRY OVERVIEW COST STRUCTURE AND PROFITABILITY
Key Costs (All
costs as % of
Income)

Profitability

15

Raw Material Costs 70%

Employee Costs 6%
Interest and Depreciation 5%

Operating Margin 10%

Net Profit Margin 4.3%

 Industry overview
Product Segments
Exports
Global Scenario
Radialization
Retreading
Cost Structure
Profitability Analysis
Demand Review and Outlook (2008-09 to 2012-13)
Player Profiles
16

Tyre product segment can be broadly classified into CV tyres and

Passenger Vehicle tyres.
PRODUCT SEGMENTS
Tyres can be classified into two main types based on vehicle
categories -commercial vehicle tyres and passenger vehicle tyres.
Commercial vehicle tyres include medium and heavy commercial
vehicles (MHCV), light commercial vehicle and tractor tyres.
Passenger vehicle tyres include car, jeep, motorcycle and scooter
tyres.
Share of these vehicle segments in the total tyre market has changed
significantly over the past 15-20 years, with the share of passenger
vehicles increasing, and that of commercial vehicles tyres declining.

17

Share of passenger cars and 2 wheelers has gone up significantly in the

last 2 decades..
PRODUCT SEGMENTS CHANGING TRENDS
Segment-wise Share (1988-1989)

9%

Trucks and
Buses
Passenger Cars

6%

4%
SUVs/MUVs/Je
ep
LCVs

2%
4%

Segment-wise Share (2007-08)

11%
10%
9%
2%

Tractors
75%

18

2 Wheelers

9%

59%

Replacement segment constitutes the biggest category for all categories

of tyre demand.
PRODUCT SEGMENTS REPLACEMENT,OE AND EXPORTS
Category

Share of Revenues in %
Replacement

OE

Exports

MHCV
Tyres

60%

21%

19%

Passenger
Car Tyres

50%

43%

7%

Overall

54%

32%

14%

19

 Industry overview
 Product Segments
Exports
Global Scenario
Radialization
Retreading
Cost Structure
Profitability Analysis
Demand Review and Outlook (2008-09 to 2012-13)
Player Profiles
20

About 2/3 rd of the exports belong to MHCVs and LCVs.

BREAK-UP OF EXPORTS

13%

3%

MHCV
40%

18%

Passenger Cars

27%

21

LCVs

Motorcycle and
Scooters
Tractors and
Others

Indias export market is well spread out and there is no dependence on

any particular country or region.
EXPORTS DESTINATION

8% 5%
5%
5%
52%

5%
5%
4%
3%
3%
3%

22

UAE
Phiillipines
Iran
Pakistan
Netherlands
Germany
Nigeria
USA
Italy
Kenya
Others

Indias export have grown 2.5 times between 2000-01 to 2006-07.

EXPORTS TREND (IN VALUE)

28500

11900

2000-01
23

2006-07

Exports Value in
Rs. million

 Industry overview
 Product Segments
 Exports
Global Scenario
Radialization
Retreading
Cost Structure
Profitability Analysis
Demand Review and Outlook (2008-09 to 2012-13)
Player Profiles
24

Globally top 4 players account for about 55% of the market share.

GLOBAL MARKET-SHARE

17%

44%
17%

6%

25

16%

Bridgestone
Michelin
Goodyear
Continental
Others

Globally, Cars & SUVs is the biggest product segment whereas in India
it is MHCVs
COMPARISON : PRODUCT SEGMENTS

Segments

International

India

Cars & SUVs

60%

19%

MHCVs

28%

57%

2-Wheelers

2.5%

10%

Tractors and
Earthmovers

6%

10%

Others

2.5%

4%

26

 Industry overview
 Product Segments
 Exports
 Global Scenario
Radialization
Retreading
Cost Structure
Profitability Analysis
Demand Review and Outlook (2008-09 to 2012-13)
Player Profiles
27

Though radialization have long term benefits, its penetration levels are
different for different segments.
RADIALIZATION

Radialisation, an important innovation in tyre technology, was introduced in 1978.

Despite its several advantages like additional mileage, fuel saving and improved
driving, radialisation, did not measure to the expected pace in India.
This could be attributed to several factors: poor condition of Indian roads, older
vehicles produced in India not having suitable geometry for fitment of radial tyres,
misperception that radial tyres are not required for Indian vehicles, unwillingness
etc.
However, the situation has radically changed in recent years, especially for the
passenger car tyre, where radialisation has crossed 97 per cent in 2007- 08 and is
expected to reach 100 per cent level in next few years.
The main reasons restricting growth of radialisation in the commercial vehicle
segment are the fragmented nature of the transport market, which makes it difficult
to educate the transporters on the benefits of radialisation.
Further, radial tyres are priced approximately 40 per cent higher than comparable
cross-ply tyres, reducing the acceptability of the product. Hence, although long term
benefits offset the higher cost, the immediate cash outflow prevents transporters
28 shifting to radial tyres.
from

Penetration of radial tyres is almost 100% in passenger cars but it is very

less in MHCV segment.
RADIALIZATION: PENETRATION LEVELS

Segment

Penetration Levels of Radial

Tyres in %
2001-02
2007-08

Passenger Cars

70%

97%

LCVs

10%

15%

Trucks & Buses

2%

9%

29

 Industry overview
 Product Segments
 Exports
 Global Scenario
 Radialization
Retreading
Cost Structure
Profitability Analysis
Demand Review and Outlook (2008-09 to 2012-13)
Player Profiles
30

Re-treading is highly prevalent in India which can extend the life of the
tyre by about 60% with 25% of the cost of the new tyre.
RETREADING
Retreading is a process in which a new tread is applied on the body of the
worn tyres, called casing (A tread is that portion of a tyre, which comes into
contact with the road surface).
Cost of retreading a tyre is around 20 -25 per cent of the cost of a new tyre.
A retreaded tyre lasts for around 60 per cent of the life of a new tyre.

For example, average cost of an MHCV tyres is about Rs. 10,000 to Rs.
11,000, whereas the cost of retreading is only about Rs. 2000 to Rs. 2500
Average life of a new tyre is 60,000-65,000 kms. Life of a retreaded tyre
depends upon the number ofretreads carried on the tyre. Generally, a
retreaded tyre lasts for 30,000-35,000 kms.
A tyre can be retreaded 2-3 times.
31

Re-treading sector is highly fragmented with more than 10,000 players

and only 3 players supply the retread material.
RETREADING
Retreading sector is highly fragmented, with over 10,000 players in the
unorganised sector and three players in the organised sector.
There are a number of small retreading outlets in the southern region,
where the retreading sector has been given the status of a cottage industry.
Elgitread (India) Ltd., Indag Rubber Ltd. and MRF Ltd are the organised
players.
They manufacture and supply tread material to unorganised players who
retread tyres.

32

 Industry overview
 Product Segments
 Exports
 Global Scenario
 Radialization
 Retreading
Cost Structure
Profitability Analysis
Demand Review and Outlook (2008-09 to 2012-13)
Player Profiles
33

Raw material costs is the biggest costs for the tyre industry.

COST STRUCTURE
Parameters (as % of
Sales)

2003-04 2004-05 2005-06 2006-07 2007-08

Raw Material
Expenses

66

69

71

72

69

Power and Fuel

4.5

Salaries and Wages

Selling Expenses

Other Overhead
Expenses

Total Operating
Expenses

92

93

94

93

90

34

Natural Rubber and NTC fabric are the biggest components of the RM
costs and constitutes almost 60% of the overall material costs.
BREAKUP OF RAW MATERIAL COSTS
Natural Rubber
10%

NTC Fabric

5%

Carbon Black

5%
41%

5%

Rubber
Chemicals
Butyl Rubber

10%

PBR

5%

18%

SBR
Others

35

Most Raw materials for tyres are petro-based and hence their prices are
linked to global crude oil prices..
ANALYSIS OF RAW MATERIAL COSTS
The tyre industry is highly raw material intensive. Materials account for
almost 66 per cent of the industry.s total cost of production as in 2007-08.
Natural Rubber (NR), Nylon Tyre Cord (NTC), Carbon black, Styrene
Butadiene Rubber (SBR), Poly Butadiene Rubber (PBR), rubber
hemicals, Butyl rubber and Zinc Oxide are the key raw materials used,
accounting for around 92 per cent of the total raw material costs.
Other raw materials include aromatic oil, bead wire, process oil, stearic
acid, etc., accounting for balance 8 per cent of raw material costs.
Increase in raw material costs result in a corresponding decline in the
industry.s profitability.
As most of the raw materials used to manufacture tyres are petro-based,
their prices are linked with global crude oil prices.
36

Employee costs and S& D costs constitute about 6-8% respectively.

OTHER EXPENSES
Employee expenses
Employee costs of the industry have remained stable at 5-8 per cent of
operating income.
Employee productivity in the industry is lower because of poor
industrial relations. Some of the players in the industry including Apollo
Tyres, Dunlop, and Modi Rubber, have a history of lockouts, resulting in
production losses.
Selling and distribution expenses
Although tyres have very little product differentiation, the industry
incurs selling expenses of around 6 to 8 per cent of the operating income.
Freight and distribution account for around one-third of the total selling
expenses.
The industry also invests in brand building initiatives to compete in the
replacement market. (although brand consciousness is low in the truck
and bus tyres segment, it is higher in car radials).
37

Interest and Depreciation constitutes about 2 to 3% of the overall sales

respectively.
OTHER EXPENSES
Interest expenses and depreciation
The industry spent nearly 2.5 per cent of the operating income towards
interest and finance charges on working as well as fixed capital
borrowings in the last 2 years.
Interest costs have shown a declining trend in line with reducing gearing
of the industry and lower cost of borrowings.
In 1998-99, the gearing stood at 1.27 and interest costs accounted for 6
per cent of operating income.
In 2007-08, with gearing coming down to 1.02, interest costs dipped to
2.0 per cent of operating income.
Depreciation has accounted for nearly 2-3 per cent of the operating
income for the last 5 to 6 years; it stood at 2.48 per cent for 2007-08.
38

 Industry overview
 Product Segments
 Exports
 Global Scenario
 Radialization
 Retreading
 Cost Structure
Profitability Analysis
Demand Review and Outlook (2008-09 to 2012-13)
Player Profiles
39

Operating margins in the tyre industry is greatly influenced by RM

costs and it was about 10% in 2007-08.
OPERATING MARGINS
Operating margins of the Indian tyre industry are directly linked to its raw
material costs, as material costs alone accounted for around 70 per cent of the
operating costs in 2007-08.
It is not possible for manufacturers to pass on the increase in costs fully, to the
end consumers in the form of prices due to the competition and import threat.
During 2007-08, raw material costs as a per cent of operating income registered a
decline of around 300 basis points.
Tyre players, who had been continuously taking a hit on their margins since
2003-04 by keeping tyre prices constant, decided to increase prices, resulting in
increase in margins.
For 2007-08, the industry saw the highest operating profit margin (OPM) of
around 10 per cent over the past 5 years.
40

Price realizations are highest for MHCVs and low for 2 and 3 wheeler
categories.
REALIZATIONS
Price realisations (in Rs per kg) of tyre companies vary, depending on the
product mix . distribution to MHCV, LCV, passenger car, MUV, tractor, and
two-wheeler tyres.
The MHCV tyre category has the highest price realisation (in Rs per kg);
followed by the motorcycle, car and LCV.
This is because, in the MHCV tyre category, the replacement segment
accounts for larger volume [replacement segment has higher price realisations
than the original equipment (OE) segment.
In the OE segment, as the buyers are concentrated, they have more bargaining
power.
Realisations in the two- and three-wheelers tyre categories are lower on
account of high level of competition and large share of the unorganised sector.
41

Net profit margins of the industry have moved in line with its operating
margins.
NET PROFIT MARGINS
12.00%
10.00%
8.00%
6.00%

Operating
Margins (%)
Net Margins
(%)

4.00%
2.00%
0.00%
-2.00%
-4.00%
-6.00%
42

20
0304

20
0405

20
0506

20
0607

20
0708

The return on capital employed (RoCE) of the Indian tyre industry touched
the 10-year high for 2007-08 and reached the level of 20.4 per cent.
RETURN ON CAPITAL EMPLOYED (ROCE)

25%
21.00%
20%
15%
10%

14%

13.00%
8%

9%

5%
0%
2003-04 2004-05 2005-06 2006-07 2007-08

43

The industry witnessed a

sharp decline in RoCE between
2003-04 and 2004-05 and came
down to 7.6 per cent from the
previous level of 13.7 per cent.
Declining trend of realisations
had resulted in a falling RoCE
over these 2 years.
However, increase in tyre
prices, during 2006-07 and
further in 2007-08, led to an
improvement in the overall
profitability of the industry;
hence, the RoCE also moved up.

The industry has not witnessed any major capacity expansion in the last 5
years; hence, borrowings were stable-keeping the capital structure of the
industry steady till 2007-08..
GEARING
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2003-04 2004-05 2005-06 2006-07 2007-08
44

The industry operates with overall inventory (RM+FG) of about 50to 60

days.
WORKING CAPITAL
Parameters

2003-04 2004-05 2005-06 2006-07 2007-08

Raw Material
Inventory (Days)

32

40

35

32

36

FG Inventory (Days)

25

18

21

21

25

Debtors period
(Days)

49

46

45

41

36

Creditors period

88

82

72

69

74

The Indian tyre industry enjoys some bargaining power with respect to raw
material such as natural rubber and carbon black as tyre industry accounts for a
major share of their total consumption.
This can be seen in the favourable working capital mix for the industry where
creditor days are higher than debtor days as sales in replacement market (the largest
market)
are mostly done on cash basis.
45

Asset utilization has been steadily increasing for the five year period
between 2003-04 and 2007-08.
ASSET TURNOVER

1.6
1.4
1.2
1

1.1

1.2

1.3

1.4

Asset
Turnover

0.8
0.6
0.4
0.2
0
2003- 2004- 2005- 2006- 200704
05
06
07
08
46

 Industry overview
 Product Segments
 Exports
 Global Scenario
 Radialization
 Retreading
 Cost Structure
 Profitability Analysis
Demand Review and Outlook (2008-09 to 2012-13)
Player Profiles
47

Overall growth of the industry is expected to grow at about 6% between

2008-09 to 2012-13 compared to 7% in the preceding 5 years.
GROWTH PROJECTIONS

9
8

8.1

7.8
7.1
6.5

6.9
6

2002-03 to
2008-09
2008-09 to
2012-13

5
4
3
2
1
0
OEM
48

Total

Tyre industry
is expected to
grow from Rs.
220 bn in 200809 to Rs. 315 bn
in 2013-14

Growth is expected to slowdown in all the product segments.

SEGMENT-WISE GROWTH PROJECTIONS

Segment

CAGR (2003-04 to
2008-09 in %)

CAGR (2008-09 to
2013-14 in %)

MHCV

4.6%

4%

LCV

11.8%

8.8%

Passenger Cars
and UVs

12.1%

7.2%

2 wheelers

13%

11%

Tractors

10%

7-8%

49

Lower offtake from OEMs, weak global demand and increase in

radialiation will slowdown the growth in the coming years.
GROWTH ANALYSIS - MHCVS
The subdued growth over the next 5 years is in line with the fall in 200809 and 2009-10 with continued slower off-take from OEMs.
Growth would also be muted due to lower replacement frequency with
lesser utilisation of fleet over the medium term, in tandem with the
estimated lower industrial production and decline in exports.
Weak global automobile demand has led to lower capacity utilisation for
countries like China.
This will lead to tough price competition over the medium term in the
global markets, impacting exports.
Further, with estimated increase in radialisation in the truck and bus
segment, the replacement cycle is estimated to become longer on account
of the longer life of radial tyres.
50

Though LCV segment will grow faster than the MHCV segment, its growth
between 2008 to 2013 would be slower than the previous 5 years.
GROWTH ANALYSIS - LCVs

LCV tyre offtake is expected to slow down to a single-digit CAGR

growth of 8-9 per cent for 2008-09 to 2013-14 in comparison with a 12
per cent CAGR growth for 2003-04 to 2008-09.
The reason for slower growth is lower offtake from the OEM
segment in line with the expected decline in LCV production.
Going forward, the industry is expected to register single-digit
growth over the next 5 years on account of tough export competition
and slower growth in LCV production.
The LCV segment is expected to reach a size of Rs 22 billion by
2013-14from Rs 18.2 billion in 2008-09.
51

Cars segment is expected to slowdown due to increase use of tubeless tyres

and slower exports.
GROWTH ANALYSIS CARS AND SUVs
CAGR of the car segment off-take is expected to reduce from 12 per cent
in 2003-04 to 2008-09 to 7-8 per cent from 2008-09 to 2013-14.
This slowdown is mainly attributed to slower growth inreplacement,
which is expected to grow at a CAGR of 4.1 per cent between 2008-09 and
2013-14 as compared to a growth of 10.7 per cent between 2003-04 and
2008-09.
With increasing penetration of tubelesstyres, which are more durable,
replacement period is expected to increase, resulting in lower growth in
replacement demand.
The off-take from exports is also expected to witness a slower growth in
line with weak global automobile demand and tough price competition
from other countries like China with large spare capacities.
The cars segment is expected to be valued at Rs 34 billion by 2013-14.
52

2-wheelers and tyres segment are expected to grow at 11% and 7-8%
respectively.
GROWTH ANALYSIS 2 - WHEELERS
The off-take from the motorcycles segment formed around 8-9 per cent of
the total tyre off-take.
With lower growth in the OEM segment, motorcycle offtake is expected to
grow at a CAGR of 11 per cent over the next 5 years as against 13 per cent
over the past 5 years.
Further, motorcycle exports which grew at a CAGR of 56 per cent over the
past 5 years, are expected to see a single-digit growth of 3-5 per cent over the
next 5 years,dragged down by high base and lower competitiveness.
The segment is thus estimated to reach a size of Rs 34 billion by 2013-14.
Tractor tyres are also expected to grow at a CAGR of 7-8 per cent over the
next 5 years in tonnage terms over a 10 per cent growth in the past 5 years.
This is attributable to a 6 per cent CAGR growth in OEM offtake against a
12 per cent growth over the past 5 years until 2008-09.
The
segment is thus estimated to reach a size of Rs 23 billion by 2013-14.
53

Radialisation

54

Level of radialization is very low in MHCV segment in India compared to

other regions.
LEVEL OF RADIALIZATION IN MHCV TYRES
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

100%

65%
56%
48%

9%

Western
Europe

55

96%

US

Asia

South World
America

India

Radialization is quite high in passenger cars but very low in MHCV

segment.
RADIALIZATION PASSENGER CARS AND MHCVs
While passenger car radialisation crossed 97 per cent in 2007-08, it
continues to remain low at 9-10 per cent in the truck and bus segment.
Therefore, while radialisation in the passenger cars segment has reached
levels comparable to other developed countries, the levels of radialisation
in the truck and bus segment are one of the lowest in comparison.
Radialisation levels have been low in the truck and bus segment in India
due to lack of initiative from both, tyre and automobile manufacturers in
promoting them.
With increased player initiatives to augment radial capacities, we
expect radialisation to increase from 9 per cent in 2007-08 to 15 per cent
by 2010-11 in the truck and bus segment
56

Radialization is expected to reach 15% in MHCV and 100% in Passenger

Cars by 2010-11.
RADIALIZATION CHANGING TRENDS
Segment

2004-05

2005-06

2006-07

2007-08

2010-11

MHCV

15

LCV

11

11

12

15

20

Passenger
Cars

87

90

95

97

100

57

Tubeless
Tyres

58

Penetration of tubeless tyres has been increasing in passenger cars and has
reached a level of 20% in 2009.
TUBELESS TYRES PENETRATION : CARS

2008-09

20

2007-08

18

2005-06

15

2004-05

11
10

2003-04
0

59

Tubeless Tyre
Penetration in
Passenger Cars
(%)

10

20

30

Penetration of tubeless is expected to reach 40-42% in passenger cars by

2013-14.
TUBELESS TYRES PROJECTIONS
The demand for tubeless tyres to grow by 15-20 per cent in line with
expected growth in the high-end car segments and higher penetration
in the compact segment.
A number of players are taking initiative to introduce tubeless tyres
across other segments.
For instance, newer models like Hyundai i10 and i20 have launched
their entire range with tubeless tyres.
Penetration of tubeless tyres to increase from 20 per cent in 2008-09 to
40-42 per cent by 2013-14 mainly on account of high penetration in the
small car segment
60

Supply Review and Outlook

61

Capacity utilization has been more than 85% over the last 5 years.

CAPACITY UTILIZATION LEVELS

93
92
91
90
89
88
87
86
85
84
83

92

The industrys capacity utilisation

90

90

cent over the past 5 years, as

capacity additions have been low
86

86

while production growth has

been healthy, backedby healthy
growth in demand.

2003- 2004- 2005- 2006- 200704

05
06
07
08
62

rates have remained above 85 per

Players are expected to go slow on capacity expansion as the growth is

expected to slowdown.
CAPACITY EXPANSION PLANS OF MAJOR PLAYERS

Tyre companies are looking to set up some greenfield plants and

implement brownfield expansion to cater to demand.
The players have announced their plans of setting up some
greenfield units which are expected to materialise only in the next
2-3 years.
The total capex planned by these companies ranges between Rs 35
40 billion, which as per industry sources, would be deferred by 15
20 per cent on account of slower demand.
63

Imports account for almost 6% of the tyre consumption in 2008-09 up

from just 1% in 2003-04.
IMPORTS
Imports have always been a potential threat for the domestic tyre industry.
The Indian tyre industry has witnessed a huge increase in imports,
especially in the truck and bus tyre segments in the last 5 years.
Moreover, higher imports put pressure on the pricing flexibility of domestic
companies, thus affecting operating margins.
Tyre imports accounted for 1 per cent of total domestic consumption in
2003-04. Import levels have since increased to account for 5.8 per cent of total
domestic consumption in 2008-09.
Of the total imports, tyre imports for the truck and bus tyre segment in 200809 constitute 76.9 per cent.
Imports have grown at an estimated CAGR of 54.3 per cent from 2003-04 to
2008-09
64

Chinese imports constitute almost 90% of Indias tyre prices and this is
mainly due to their cost advantage.
IMPORTS : CHINESE THREAT
Chinese tyre imports account for more than 90 per cent of the total truck
and bus tyre imports.
Chinese tyre manufacturers have been traditionally able to quote lower
prices for tyres than the MRPs in India.
These low prices have resulted from a combination of cost
competitiveness and government/state subsidies.
While raw material prices and lower employee costs contribute to
marginally favourable cost economics, subsidies on power and fuel cost,
capital cost, interest expenses and tax exemptions have led to the cost
differentials.
A typical Chinese imported tyre of truck and bus radial segment is sold at
a 5-10 per cent lower rate in India as compared to prices quoted by Indian
tyre
manufacturers.
65

Profitability
Review and Outlook

66

Operating margins are expected to decline by 300 to 400 basis points in

the next 3 5 years.
OPERATING MARGINS
Raw material costs, which accounted for 73 per cent of the total cost of production
in 2007-08, continue to maintain an inverse relationship with operating margins.
Limited bargaining power with OEMs has restricted the ability of tyre
manufacturers to pass on the increase in raw material costs both in the replacement
and OEM segments.
The basic raw material price (weighted average) for a typical MHCV tyre is
estimated to increase by 18 per cent in 2008-09, translating into an 11 per cent
increase in raw material costs for a typical tyre manufacturer.
Although,prices are estimated to have increased by 8-10 per cent across auto
segments, a part of this would be offset by deterioration in the product mix with
sharper decline in offtake of MHCV tyres.
All this would translate into a decline of 300-400 bps in operating margins in the
next 3 to 5 years.
67

Increasing threat of imports is expected to depress the profitability for

the tyre industry.
IMPORT THREAT
Import of tyres from destinations like China and Thailand have been
historically cheaper in India, leading to antidumping duties being levied on
cross-ply tyres and radial tyres for specific segments being classified under
restricted list.
Tyre imports now account for 7 per cent of total domestic consumption for
the overall tyre industry.
Imports is expected to reach between 9 to 10% by 2012-13.
The threat of imports is expected to continue with weak capacity
utilisation across majorglobal tyre producing companies due to continued
weak global auto demand.

68

ROCE is expected to go down due to drop in growth and additional

capex.
ROCE
Leading players have announced a capital expenditure of around Rs 35
40 billion during 2008-09 to 2010-11.
However, considering the demand condition, after taking into account
likely deferrals or reduction in outlay, this is expected to be around 25-30
billion.
The estimated capacity utilisation of the six companies that constitute
around 60 per cent of the industry was 88 per cent in 2007-08 and is
expected to drop to around 80 per cent in 2008-09.
Lower growth along with new capex is expected to bring down the ROCE.

69

 Industry overview
 Product Segments
 Exports
 Global Scenario
 Radialization
 Retreading
 Cost Structure
 Profitability Analysis
 Demand Review and Outlook (2008-09 to 2012-13)
Player Profiles
70

MRF

71

SYNOPSIS

MRF is India`s largest tyre manufacturer, having a 22% market share.

The company derives over 95% of its revenues from its core business i.e.
tyres, the rest comes from its presence in toys and paints.
This focus on tyres has enabled it to constantly increase capacities, and
maintain market leadership and profitability in mostsegments.
MRF exports its products to over 75 countries.
The company signed the memorandum of understanding (MoU) with
government of Tamil Nadu for the new MRF plant to be located at
Perambulur, Trichy and also for expansion of its existing plants in Tamil
Nadu.
This will be MRF`s third plant to be established in Tamil Nadu.
MRF will invest Rs 1.25 billion in production facility of the tyres the
product is produced after three years of in house research.
The companys Net sales and PAT are expected to grow at a CAGR of 11%
and 32% over FY08 to FY11E.
72

PEER GROUP ANALYSIS

73

MRF is expected to touch a revenue of about Rs. 7000 crs in 2011 with a
healthy ROCE of close to 20%.
FINANCIALS

Parameters

FY-08

FY-09

FY-10 E

FY-11 E

Sales (Rs. Mn)

50469

56728

62401

68641

Operational Profit 4471

(Rs. Mn)

7167

8391

9230

Net Profit

1445

2530

3017

3319

OPM (%)

13

13

13

13%

NPM (%)

ROCE (%)

19

19

18

18

74

MHCVs constitute about 53% of the overall revenues of MRF.

PRODUCT MIX MATRIX

MHCV
12%
LCV

5%
9%
53%
11%
10%

75

Passenger Cars
and MUVs
Tractors
2/3 wheelers
Others

MRF is expanding its capacities in Tamil Nadu and also entering into
aviation tyre segment.
KEY INITIATIVES

Signing of MOU

The company signed the memorandum of understanding (MoU) with
government of Tamil Nadu for the new MRF plant to be located at
Perambulur, Trichy and also for expansion of its existing plants in Tamil
Nadu.

This will be MRF`s third plant to be established in Tamil Nadu.

The other factories in Tamil Nadu are located at Tiruvottiyur

and Arakonam.

MRF is acquiring nearly 290 acres of land for its new facility in
Perambulur.
MRF to foray into aviation tyres

The company has announced entry in production of aviation tyres.

The company will invest Rs 1.25 billion in production facility of the
tyres the product is produced after three years of in house research. The
production will start at its Medak facility in Andhra Pradesh.
76

MRF is expanding its capacities in Tamil Nadu and also entering into
aviation tyre segment.
KEY INITIATIVES

MRF to foray into aviation tyres

The company has announced its foray into the aviation tyre space
with the unveiling of Aero Muscle, a product born out of in-house
research and perfected over the last threeyears.

The tyres were subjected to ground and flight trials. Upon
completion of these, MRF had been given provisional certificate for
the commercial production of the approved prototype aviation tyre.

This step according to the company will help India by achieving
self-sufficiency in such an import-substitute product is always good
for the country.

77

Apollo Tyres

78

Apollo tyres is planning to expand the capacity by 50% and will

become one of the top 10 global trye manufacturer in the next 5 years.
SYNOPSIS
Apollo Tyres is one of India's leading manufacturers of tyres with presence in
the commercial vehicle OEM segment. It has market leadership in the truck
tyre replacement segment.
The company also supplies to car and tractor OEM majors.
It also exports its products to South America, Pakistan, South East Asia,
Middle East countries and Africa.
The company expects its Chennai facility to start commercial production of
truck, bus and passenger car radial tyres beginning February-March this year.
The company would start exporting tyres to Saudi Arabia and Australia in
Q4FY10.
The company would increase production capacity in the country by over 50%
as it looked to enter the top-10 global tyre maker's club in the next five years.
The company is also looking to almost double its exports in the next year.
The company is planning to invest about Rs 10 billion for setting up an IT park
and a hotel complex in Kerala.
79

Apollo tyres is planning to expand the capacity by 50% and will

become one of the top 10 global trye manufacturer in the next 5 years.
PEER GROUP COMPARISON

80

Apollo tyres is expected to reach about Rs. 5700 crores in FY-11 and its
ROCE is expected to be around 25%
FINANCIALS

Parameters

FY-08

FY-09

FY-10 E

FY-11 E

Sales (Rs. Mn)

36939

40715

51533

57717

Operational Profit 4733

(Rs. Mn)

3360

8162

9141

Net Profit

2193

1081

4051

4578

OPM (%)

12

16

16

NPM (%)

ROCE (%)

15

12

27

25

81

Apollo tyres is mainly into MHCVs with very little presence in 2wheelers and tractors.
PRODUCT MIX

10%
8%
MHCV
LCV
Passenger Cars
Others

10%

72%

82

The company has set up a new plant in Chennai which will produce
radial tryes for domestic and exports.
KEY INITIATIVES

CHENNAI PLANT
The company has expanded its capacity in Chennai for the
production of truck, bus and passenger car radial tyres .
Plans are also afoot to enter the European markets with Apollo
branded tyres in the first quarter of 2010-11.
The commissioning of the Chennai facility is going ahead as per
schedule.
The plant is expected to start commercial production this quarter.
Production is expected to peak to the full capacity of 8,000 car radials a
day (2.4 lakh a month) and 1 lakh truck radials amonth by December
2010 and April 2011 respectively.
A part of the production from the Chennai facility will be marketed
in Europe.
83

The company plans to expand capacities by 50% and double exports n

the next 5 years.
KEY INITIATIVES
Increase Production Capacity by over 50% in the Next Five Years
The company would increase production capacity in the country by
over 50% as it looked to enter the top-10 global tyre maker's club in the
next five years. The company is also looking to almost double its
exports in the next 2-3 years.
The company's production capacity will go up by over 50% to around
1,600 tonnes a day after the Chennai plant reaches terminal capacity by
first quarter of next year's.
The company has started to export the Apollo brand of tyres to
Europe from 2010.

84

The company has recently acquired a Dutch company to gain foothold

in the European market.
KEY INITIATIVES
Apollo Tyres completes acquisition of Dutch Company
The company has successfully concluded the acquisition of 100%
shareholding of Dutch company `Vredestein Banden BV` (VBBV) .
The acquisition will provide Apollo entry into Europe with
manufacturing facility and market and distribution network of VBBV as
well as access to high end technology.
VBBV is a premium Tier-I, tyre manufacturer with a portfolio of high
end, high speed rated passenger car tyres, having its manufacturing plant
near Amsterdam with an annual production capacity of 5.5 million tyres.

85

CEAT

86

CEAT is expected to reach about Rs. 5700 crores in FY-11 and its ROCE
is expected to be around 12-13%.
FINANCIALS

Parameters

FY-08

FY-09

FY-10 E

FY-11 E

Sales (Rs. Mn)

23,300

25137

27728

32552

Operational Profit 1843

(Rs. Mn)

461

2783

2840

Net Profit

1486

-161

1542

1461

OPM (%)

7.9

1.8

10

8.7

NPM (%)

-1

ROCE

12

13

12

87

About 75% CEAT tyres Product Mix is mainly composed of MHCVs

and LCVs.
PRODUCT MIX

11%
3%
7%
3%
10%
66%

88

MHCV
LCV
Passenger Cars
Tractors
2-3 wheelers
Others

CEAT is planning for capacity expansion for both radial and crossply
tyres..
KEY INITIATIVES

Capacity expansion to aid volume growth:

CEAT is ramping up its production facilities to benefit from the
uptrend in the automobile industry.
The company has a current capacity of 400 tonnes per day (TPD) in the
Bias tyres. Bhandup plant has a capacity of 240 TPD, whereas Nashik
plant has a capacity of 160 TPD.
The company is looking at expanding its Nashik capacity by 35 TPD .
At the same time, CEAT is looking at a new Radial tyre capacity at
Baroda of 145 TPD.
The capex slated for the Radial capacity is Rs500 crores spread over the
next two years.
89

CEAT is planning to increase the proportion of Replacement segment

which is of high margin compared to OE segment.
KEY INITIATIVES

Better revenue mix augurs well for margin profile:

Growth in the tyre industry always mirrors growth in the road
transport sector which is expected to grow at a pace of 8-9% for the next
3-5 years.
CEAT, with a market share of 12%, is a major tyre maker in India and
offers wide range of tyres to all the user segments, including the heavy
duty truck and bus (T&B), LCV, tractor, trailers, PCs, motorcycles and 3wheelers.
The company currently manufactures over 7m tyres every year and has
a strong presence in the replacement market.
The current revenue mix stands at 79:08:13 as of Q1FY10 in favour of
Replacement: OE: Exports segment compared to 70:10:20 in FY09.
With a shift in the product mix towards the replacement market which
is a better margin product, the margin profile is expected to be better
than the average 6-7% in the last 4-5 years.
90

CEAT is trying to reduce the interest cost through deploying its

surplus cash in steady income financial instruments.
KEY INITIATIVES

Low interest cost to aid profitability growth

CEAT has a total debt of Rs645 crores as of FY09 and surplus cash
(cash & cash equivalents) of Rs240 crores as of FY09.
The company has deployed Rs95 crores in fixed deposits at 12% p.a.
This is likely to reduce the net interest cost for the company.

91

JK Tyre

92

JK Tyres is expected to reach about Rs. 3800 crores in FY-11 and its
ROCE is expected to be around 18-20%.
FINANCIALS

Parameters

FY-08

FY-09

FY-10 E

FY-11 E

Sales (Rs. Mn)

28140

49221

34861

38348

Operational Profit 2650

(Rs. Mn)

3130

4422

4864

Net Profit (Rs.

Mn)

665

190

1743

1940

OPM (%)

13

13

NPM (%)

ROCE

12

13

19

18

93

MHCVs constitute about 71% of the overall revenues of JK Tyres..

PRODUCT MIX MATRIX

9%
MHCV

10%

LCV
10%

71%

94

Passenger Cars
and MUVs
Others

JK tyres is setting up a huge facility in Tamil Nadu with an investment

of about Rs.1600 crores.
KEY INITIATIVES

JK Tyre to set up a new production facility in Tamil Nadu

JK Tyres proposal for setting up a new production facility in
Tamil Nadu has been cleared by state government.
The new facility would attract around Rs 1,600crore of
investments and is expected to generate around Rs 2,000crore of
revenue during the financial year 2013-14.

95

The company is also setting up facilities in karnataka and is also

looking for inorganic growth by acquiring a Mexican company.
KEY INITIATIVES

JK Tyre announces Rs 1,200crore expansion plan

The company is planning to invest Rs 1,200crore over the next threefour years for capacity expansion, which includes setting up a new plant
in Karnataka with an investment of Rs 800crore to fulfill the demand for
quality tyres.
Recently, the company completed a Rs 315-crore expansion project to
increase truck and bus radial tyre capacity from 4 lakh to 8 lakh tyres per
annum.
The company's new investment in Karnataka is for the manufacture of
truck, bus and car radials to cater to both domestic and international
markets as part of its long-term growth strategy.
Earlier, the company was planning to take the inorganic route for
expansion in the global markets.
Last year, JK Tyre had expanded its presence in the Mexican market by
acquiring Tornel for Rs 270crore.
96

The company is planning to increase its share of OEM business which

is only 5% of their total business till recently.
KEY INITIATIVES

JK Tyre & Industries is planning to triple direct supply of truck and bus
radial tyres to OEMs
The company is planning to triple direct supply of truck and bus radial
tyres to major companies like Tata Motors and Ashok Leyland in the coming
two years.
The companys sales to original equipment manufacturers (OEMs) are only
around 5% of its annual total production, while the rest goes to the after
sales market.
The company intends to increase this to 15% within the next 24 months.
The company aims to take the opportunity to tap the market offered by
OEMs with companies like Tata Motors and Ashok Leyland increasing the
use of radials.
97