Tyre Industry Analysis

By : Gagan Pareek

Economic growth drivers….

GDP growth as per RBI is 8.5% . Robust industrial growth backed by

improvement in consumption demand Increase in infrastructure spending. Substantial improvement in domestic demand. Increased thrust of the government on

infrastructure projects. All time high sales growth of few major

automobile companies eg: Maruti Suzuki India Limited sold a total of

10,18,365 vehicles in 2009-10.

Indian tyre IndustryIndian tyre

industry

Passenger vehicles

Commercial

vehiclesOthers

MHCV HCV LCVFarm Vehicl

eOTR

Industrial

vehicle

Cars Motor Cycles

scooters

AN OVERVIEW OFINDIAN TYRE INDUSTRY Financial Year 2009-2010 Turnover of Indian Tyre Industry Rs. 25,000Crores Tyre Production (Tonnage) 13.50 lakh M.T. Tyre Production – All Categories (Nos.) 971 Lakh

Tyre Export from India (Value) :Rs. 3000 crores Number of tyre companies: 36 Industry Concentration 10 Large tyre companies

account for over 95% of total tyre production.

Raw Materials of  Tyre Industry - Overview    

Tyre Industry is highly raw-material intensive. Raw materials cost accounts for approx. 63% of tyre industry turnover and 72% of production cost.

62% 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 – 15.50 Lakh M.T.

Total Cost of Raw Materials consumed by tyre industry – Rs.16,000 Crores

Raw Material Availability   No domestic Production of Butyl Rubber 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, Polyester Tyre Cord insufficient to meet domestic demand. Tyre industry imports raw materials on account of the following factors:

Demand Cycle

Indian Auto Industry

Facts• Second Largest two wheeler

manufacturer in the world• Largest tractor and three wheeler

manufacturers in the world• Fourth largest Commercial vehicle

market in the world• Eleventh largest passenger car

market in the world

•Growth Potential•Can become World’s third largest automobile market in 2030.

•By 2016, Automotive sector can DOUBLE its percentage contribution to GDP from current levels of 5% (US$50 billion) to 10% ($180 billion).

Trends• Growth of exports of 22.30 FY 2009-

10.

•The Commercial Vehicles segment grew at 4.07 %.

•Light Commercial Vehicles recorded a growth of 12.29 percent.

The Growth JourneyPre 1983 1983-1993 1993-2007

Era of globalisation andevolution of India as a globalmanufacturing hub

Closed market

• Growth of market limited by supply• Outdated modelsPlayers• Hindustan Motors• Premier• Telco• Ashok Leyland• Mahindra & Mahindra

Japanisation - GOI- Suzuki joint venture to form Maruti Udyog• Joint ventures with companies in commercial vehicles and componentsPlayers• Maruti Udyog• Hindustan Motors• Premier• Telco• Ashok Leyland• Mahindra & Mahindra

Delicensing of sector in 1993• Global major OEMs start assembly in India (Toyota, GM, Ford, Honda, Hyundai)• Imports allowed from April 2001; alignment of duty on components and parts to ASEAN levels• Implementation of VAT

Category wise numbers

Two Wheeler

Passenger Vehicles

Commercial Vehicles

Three Wheeler

Dominated by Motorcycles 80% , Scooters 14% Mopeds 6%

Domestic - 7.25mn units . Hero Honda 42% & Bajaj 27% share CAGR

– 9.5%

Exports 819000 units (07-08) . Bajaj Auto 59% TVS 17% share

CAGR – 41%

Dominated by Cars 78% , MUV/SUV 22%

Domestic – 1.5mn units Maruti-46% Tata-15% Hyundai 14% CAGR -

14.8%

Exports - 217000 units (07-08) Maruti 66% Hyundai 24%

CAGR – 26% Dominated by M&HCV – Goods 48% Passenger 38% , Rest by LCV -14%

Domestic – 487 thousand units , Tata-62% Ashok Leyland -15% CAGR-

22%

Exports – 59 thousand units, Tata 67% Ashok Leyland 12% CAGR

-30.6%

Dominated by Passenger Carriers with 64% share , Goods Carrier -36%

Domestic – 365 thousand units , Bajaj -42% Piaggio-41% CAGR-

10.5%

Export – 141 thousand units , Bajaj -97%

CAGR -44.5%

Automotive Companies in India

Major Multi-national companiesMajor Indian Companies

India : A Developing Hub for Compact Cars

Maruti Suzuki :• New car plant to make 250,000 cars per annum (total 800,000 cars/annum)

• 10 new Component JVs to support new Diesel Engine Plant. Hyundai :

Already a big player in the small car segment • Increase capacity to 600,000 cars per annum over next 1 year. Nissan :

• Micra, UK India

– Four more models in India, involving a total

investment of over Rs 2,000 crore.  Ford :

• Plans to unveil its small car with 1.2 ltr engine by 2010

Honda : Investing US $ 250 million in a new plant in

Rajasthan with capacity of 60,000 car per year (First car to roll out in 2009).

Tata Motors :Tata Nano became a big success gaining worldwide popularity with Tata planning to increase capacity

Toyota :• Toyota Kirloskar motors planning to launch its own small car in India by 2011

General Motors : • New Capacity to manufacture small cars at its

Talegaon, Maharashtra plant with 80% local inputs.Brought in Spark small car in 2007

Nissan-Renault : 50:50 JV, to make 400,000 cars a year with an investment of over US $ 1 billion. Coming up with the $2500 car to compete with Tata Nano in 2011

VW :• Investing 400 million euro in a new plant inPune. Operations are to start in secondhalf of 2009.

Compact cars account for 70% of the total car market. Compact car sales increasing at about 20% each year Excise duty on small cars slashed from 24% to 12% in last three years

Key Growth Drivers

Growth Drivers of Indian Automobile Market

Rising industrial and agricultural output Rising per capita income Favourable demographic distribution with rising

working population and middle classUrbanisation

Increasing disposable incomes in rural agri-sector Availability of a variety of vehicle models meeting

diverse needs and preferences Greater affordability of vehicles Easy finance schemes Favourable government policies Robust production

Socio Cultural Environment Explosion in the number of nuclear families As the joint-family system crumbles and the number of nuclear families explode,

more small families seem to be demanding a two/four wheeler for themselves. This has directly resulted in higher sales of tyres in the past decade.

Higher car density per family The number of upper-class and upper-middle class families with more than one car

per family seems to be increasing exponentially. This is especially true in cities where Brand Strategy Analysis working couples find it difficult to survive without more than one car for transportation. With higher disposable incomes, these families are finally able to afford this need.

Shifting away from Savings, to EMI culture Another notable trend that seems to be fuelling car sales (and therefore tryre sales)

is the shift in the middle-class consumers saving habits. The Indian middle-class family has long been known for its savings frenzy. But with a younger workforce, higher disposable incomes, lower unemployment and the influence of globalization, the average Indian middle-class family is slowly warming up to the idea of EMI and

buying on credit. This has helped in furthering the sales of passenger cars significantly.

Enviorment Analysis

SWOT

MRF Market leader among tyre manufacturers in India, with a 24% share in terms of revenues. Its leadership position, coupled with its strong brand recall and high quality, MRF commands the price-maker

status. MRF has a strong presence in the T&B segment, the largest segment of the tyre industry, and commands around 19% market share in the segment. The Company has a distribution network of 2,500 outlets within India and exports to over 65 countries worldwide.

Apollo Tyres (ATL) Apollo Tyres is the second largest player in the Indian tyre industry, with a market share of 22%, in terms of revenues, and the largest player in the T&B segment, with around 22% market share and 82% of its product mix coming from this segment. It also enjoys a strong brand recall. ATL derives 80% of its revenues from the replacement market, where the

EBITDA margins are higher; hence, at operating levels, Apollo Tyres has better

JK Industries JK Industries has a 17% market share, in terms of revenue, making it the third largest player in the industry. The Company ranks first in the MHCV and Passenger Car tyre segments, with 79% and 7% of its product mix coming from these segments, respectively. Exports account for approximately 17% of its gross sales.CEAT CEAT has a 14% market share, in terms of revenues, and is an average player across categories. 68% of its product mix comes from the MHCV segment. In terms of profitability, CEAT has lower margins compared to its peers, in spite of deriving 60% of its revenues

from the replacement market

Leading Market Players

Analysis : Five Forces

Value Chain

Truck/Bus

Passenger Car / Jeep

LCV

Tractor Front

Tractor Rear

Scooter / Moped

Motor Cycle

0 10 20 30 40 50 60 70 80 90 100Replacement

OEMs

ExportSegment wise

Category wise Tyre Production in India

Truck & Bus Passenger CarJeep Light Commercial

VehicleTractor Front Tractor RearTractor Trailer Animal Drawn Ve-

hicleScooter / Moped Motor CycleIndustrial Off the Road (OTR)

1999-00

2001-02

2003-04

2005-06

2007-08

2008-09

2009-10*

0 1000 2000 3000 4000

Exports

Value (Rs./crores)

Truck & Bus

Passenger Car

Jeep

Light Commercial Vehicle

Tractor Front

Tractor Rear

Tractor Trailer

Motor Cycle

Scooter

0 1000000 2000000 3000000

Tyre Production

2008 - 092007 - 082006 - 072005 - 062004 - 052003 - 04

Current Trends

- Radial Tyre to Replace Cross – Plys- Margins in Radial higher by 25% than Cross

– Plys- 9% margin in Cross –Ply- 25% plus margin in Radial Tyres- Higher capital required to protect margins

Plans

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