analysis of the indian tyre industry

Project Report On

“Sector analysis – 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 – 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


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

Sr. No. Topics Page nos.



1 Executive Summary

1.1 Introduction

1.2 Evolution of the Tyre Industry

7

8

2 Overview of the Indian Tyre Industry 11

3 Radialisation 12

4 Tyre Retreading 13

5 Statistics

5.1 Total Tyre Production in India

5.2 Categorywise Tyre Production in India

5.3 Categorywise Exports of Tyres

16

18

19

6 Raw material

6.1 Overview

6.2 Raw material availability

22

23

7 Government Policy 24

8 Regional Trade agreement 25

Table of Contents

Table of Contents




9 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 Porter’s five forces model 38

14 SWOT Analysis 41

15 Key Players

15.1 JK Tyres & Industries Ltd.

15.2 MRF Tyres Ltd.

15.3 Apollo Tyres Ltd.

15.4 Ceat Tyres Ltd.

43

47

48

50

16 Sector Specifics 52

17 Sector Trends 53

18 Outlook 53

Table of Contents




19 Valuation

19.1 Relative Valuation

19.2 FCFF

19.3 FCFE

55

56

62

20 Results 68

21 Conclusion 69

22 Bibliography 70

1. Executive Summary



1.1 Introduction

The Indian Tyre Industry produced 736 lakh units of tyres (11 lakh tonnes) garnering Rs. 19000crores in FY07. MRF Ltd. was the market leader (22% market share) followed closely by ApolloTyres Ltd. (21%). The other major players were JK Tyre & Industries (18%) and Ceat Ltd.(13%).

The Indian tyre industry is characterized by its raw material intensity (raw material costs accountfor 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 isdependent on the new vehicle sales, replacement market demand depends on the total populationof 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 tyresaccounted for 57% of the total tyre tonnage production in FY07 followed by LCV tyres whichaccounted for 9% of the total tyre tonnage production. Approximately 53% of the total tyretonnage offtake was by the replacement market, 31% by OEM and 15% by the export market inFY07.

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 aheadradialisation in truck & bus tyres may increase due to government’s 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

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

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

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 - Current (as a % of total tyre production)

Passenger Car tyres: 95% Light Commercial Vehicles: 12%Heavy Vehicles ( Truck & Bus ): 3%

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

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

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 un-

vulcanized 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:

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

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 1000’s)

CATEGORY 1994 - 95 1995 - 96 1996 - 97 1997 - 98 1998 - 991999 -

20002000 - 01

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

Light Comml. Veh.

(L.C.V.)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 7 0 0 0 0 0

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

Light Comml. Veh.

(L.C.V.)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 0 0 0 0 0 0 0

TOTAL 43514 515585 54690 60082 66032 73545 81103

*wef April 2006 Moped tyre production included in Scooter 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 4

Passenger Car 80.06 88.36 10

Jeep 7.40 7.38 0

Light Commercial

Vehicle

25.17 27.86 11

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 1

Scooter / Moped 55.65 50.95 -8

Motor Cycle 134.11 153.49 14

Industrial 3.31 3.44 4



Off the Road (OTR) 0.69 0.77 12

Total 393.34 423.58 8

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

Light Commercial

Vehicle

803280 924642 15

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 0 -100

Antique 0 0 0

Total 3097493 3041963 -2

Exports

Export Realisation/Value

YearValue

(Rs./crores)% Change CAGR

1993-94 606 22 11%

1994-95 680 12

1995-96 719 6

1996-97 832 16

1998-98 907 9

1998-99 808 (-)11

1999-00 864 7

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 5

Average Annual Compound growth rate in exports during last one

decade is 11%.

Categorywise Tyre Exports -2000-01 to 2007-08

[ Nos.]

CATEGORY2001 -

022002 - 03

2003 -

042004 - 05

2005 -

062006 - 07

2007 -

08

Truck & Bus 1805203 2141438 223155 2503956 2408759 2276049243154

5

Passenger Car 287547 364514 591494 1024561 1052874 966046109171

5

Jeep 40 20 220 391 885 1420 7461

Light Commercial

Vehicle610692 700868 962972 1130908 1390814 1599230

162188

0

Tractor Front 23431 20698 18990 18202 13408 11078 17072

Tractor Rear 51218 72263 89758 84684 98807 56186 66644

Tractor Trailer 444 852 1448 3686 3833 8665 17468



Motor Cycle 33019 34088 47333 62710 84908 151677 322630

ADV 170 20 0 0 0 0 30

Scooter 43391 49966 120725 202656 289984 320536 45338

Implements 15758 9143 6558 2096 2447 4045 5637

Industrial 15570 20716 10702 9885 7303 11543 12777

OTR 21468 29079 21168 23375 33480 43085 45919

Antique 2894 0 0 0 0 0 0

TOTAL 2910845 3443665410292

35067038 5387502 5449560

609411

6

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:

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.

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

* Asian Pacific Trade Agreement

(formerly known as Bangkok Agreement)

8.60%

* Indo Sri Lanka Free Trade Agreement Nil

* SAPTA ( SAARC Preferential Trading

Agreement)

Nil*

5%**

* India Singapore Comprehensive

Economic Cooperation Agreement (CECA)

2.5%

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 14%

* When import from 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

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 following RTAs concern tyres and raw materials of tyre industry:

a) 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.

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:

Category

Productio

n

(Nos.)

2007-08

Segmentwise Percentage supply

(as % of Total Production)

Replacement

Market

OEMs Export

Truck/Bus 13136592 61* 20 19

Passenger Car /

Jeep

17904812 45* 49 6

LCV 55319922 43 27 30

Tractor Front 1814391 61 38 1

Tractor Rear 1233611 39 56 5

Scooter / Moped 11603930 48 48 4



Motor Cycle 27920746 52 47 1

* 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

The distribution system consists of distributors, followed by large dealers and also small/sub

dealers. Some tyre companies also follow a system of appointing C&F agents, in place of

distributors.

Replacement Market: Tyre companies sell tyres through widespread dealer distribution net-

work ( over 5000 in the country ), either through exclusive dealer of the companies or through

multi-company dealers.

OEM: Direct supply by tyre companies through negotiations.

STU: Direct supply by tyre companies through tender system.



Government: Direct supply by tyre companies through tender system.

Export: Through dealers in the exporting countries.

Import: Some tyre companies also import tyres for the domestic market. Such imports are

generally from the principal company overseas or from technical collaborator or from tyre

companies with which it has an alliance for a particular line of tyres, for example, passenger car

tubeless tyres;

With tyre import freely allowed (except Truck / Bus (Radial Tyres)) import of various categories

of tyres is also taking place.

Tyres are imported by importing agents and then marketed through the dealers who are

marketing Indian tyres also.



10. Tyre Technology



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,

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 :

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

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.



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

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 petro-

based 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

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 Porter’s 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)-it¡¦s main raw material. The prices of these materials are beyond control of

tyre industry.

2) Bargaining power of buyers

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.

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.



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 Automobile Industry Increasing OEM demand

Subsequent rise in replacement accounts for demand

With continued emphasis being placed by the Central Government on development of

infrastructure, particularly roads, agricultural and manufacturing sectors, the Indian economy

and the automobile sector/ tyre industry are poised for an impressive growth. Creation of road

infrastructure has given, and would increasingly give, a tremendous fillip to road transportation,

in the coming years. The Tyre industry would play an important role in this changing road

transportation dynamics

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

Steady increase in radial Tyres for MHCV, LCV

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

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

15.1JK 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.

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

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



15.2MRF TYRES



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

• 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, it’s 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 company’s 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

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 lion’s 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.

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. Ceat’s 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%

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.

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.

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.



19. Valuation

19.1 Relative Valuation

CompanyApoll

oCEAT

Falcon(07-12)

GoodYear(07-12)

JK Tyre(07-09)

MRF

Price (Rs) 130.71 58.60 148.00 114.85 79.60 3106.50

Mkt cap (in crs) 1879.92 200.65 81.21 264.96 326.84 1317.16

Book Value (Rs) 25.09 145.97 53.17 61.25 119.51 2325.83

P/BV 5.21 0.40 2.78 1.88 0.67 1.34

P/E 29.71 1.37 22.91 6.99 3.75 7.73

Growth in EPS-

81.52% 415.32% 7.31% -12.24% 308.67% 116.39%

PEG -36.44 0.33 313.45 -57.15 1.22 6.64

EPS (Rs.) 4.40 42.72 6.46 16.42 21.21 401.75Enterprise Value

(in crs) 2207.01 809.23 220.44 363.84 1274.61 2348.18

EV/EBIDTA 4.58 2.73 15.66 4.47 4.77 5.06

ROE 17.85% 28.95% 3.32% 27.77% 12.50% 17.42%

Debt 460.65 617.35 145.78 0.00 914.95 848.09

Mcap + Debt 2340.57 818.00 226.99 264.96 1241.79 2165.25EBIDTA (Rs. In

Crores) 481.50 296.64 14.08 81.42 267.29 463.61

19.2 FCFF



a. Apollo Tyres Ltd

ROC equals wacc in long term 16.137%terminal roc 16.137%terminal rr 24.788%dec/year 18.91%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018GROWTH 11.2 11.2 11.2 11.2 11.2 11.2 9.81 8.36 6.91 5.45 4.00


MARKET PRICE(rs.) 131.1104288 NO. OF SHARES(Cr) 4.885MV OF EQUITY 640.4744449DEBT 460.65EV 1101.1244 WACC 16.137%

Ke RFR 8.50%RM 21.90%BETA 0.961851 Ke 21.39%

ASSUMPTION: GROWTH FOR THE NEXT 5YRS Long term Growth Rate AND THEREAFTER CONTINUES AT THIS GROWTH RATE

11.27% 4% dec/year 1.45%


7% 7% 7% 7% 7% 7% % % % % %

RR*119.36%

119.36%

119.36%

119.36%

119.36%

119.36%

100.45%

81.53%

62.62%

43.70%

24.79%

NOPLAT275.

11306.

11340.

60378.

98421.

69469.

20515.

25558.

33596.

90629.

45654.

63

RREINV328.

37365.

37406.

54452.

35503.

32560.

04517.

55455.

21373.

76275.

08162.

27

FCFF

-53.2

6

-59.2

6

-65.9

4

-73.3

7

-81.6

4

-90.8

4 -2.30103.

12223.

14354.

37492.

36TV

WACC16.137%

16.137%

16.137%

16.137%

16.137%

16.137%

16.137%

16.137%

16.137%

16.137%

16.137%

DF0.86

10520.74141

0.638392

0.549688

0.47331

0.407544

0.350917

0.302157

0.260173

0.224022

PV HG Period

-39.7584

TV4056.657

DISC TV1055.433

TOTAL VALUE1015.675

EXCESS CASH191.

8926

INV302.

71non core operating capital

-411.

09

TOTAL1099.187

DEBT460.

65

NO. OF SHARES4.88

5

EV638.

5372

Value per share130.

71



b. CEAT Tyres Ltd.

WTS. COST61.94% 21.39%38.06% 8.83%

Ke RFR 8.50%RM 21.90%BETA 0.961851 Ke 21.39%

8.55% 4% dec/year 0.91%

ROC equals wacc in long term 16.610%terminal roc 16.610%terminal rr 24.081%


MARKET PRICE(rs.) 226.9655309NO. OF SHARES(Cr) 3.424MV OF EQUITY 777.1299777DEBT 477.6EV 1254.7300 WACC 16.610%

ASSUMPTION: GROWTH FOR THE NEXT 5YRSLong term Growth Rate AND THEREAFTER CONTINUES AT THIS GROWTH RATE


dec/year 10.16%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

GROWTH8.55

%8.55

%8.55

%8.55

%8.55

%8.55

%7.64

%6.73

%5.82

%4.91

%4.00

%

RR*74.8

6%74.8

6%74.8

6%74.8

6%74.8

6%74.8

6%64.7

0%54.5

5%44.3

9%34.2

4%24.0

8%

NOPLAT238.

48258.

88281.

03305.

07331.

16359.

49386.

97413.

02437.

06458.

53476.

87

RREINV178.

52193.

79210.

37228.

36247.

90269.

10250.

37225.

29194.

02156.

98114.

84

FCFF59.9

665.0

970.6

676.7

083.2

790.3

9136.

59187.

73243.

05301.

54362.

03TV

WACC16.610%

16.610%

16.610%

16.610%

16.610%

16.610%

16.610%

16.610%

16.610%

16.610%

16.610%

DF0.85

75560.73

54020.63

06480.54

08160.46378

0.397717

0.341064

0.292482

0.250819

0.215092

PV HG Period508.

1808

TV2870.886

DISC TV720.074

TOTAL VALUE1228.255

EXCESS CASH

-4.96

18INV 9.6



non core operating capital

21.81

TOTAL1254.703

DEBT477.

6

NO. OF SHARES3.42

4

EV777.

1031

Val per share226.

96

c. MRF Tyres Ltd.

WTS. COST35.89% 21.39%64.11% 8.83%

Ke

RFR 8.50%

RM 21.90%

BETA 0.961851

Ke 21.39%


MARKET PRICE(rs.) 3123.26NO. OF SHARES(Cr) 0.424MV OF EQUITY 699.6DEBT 1249.48EV 1949.0800 WACC 13.341%


ASSUMPTION: GROWTH FOR THE NEXT 5YRS 13.71% Long term Growth Rate 4% dec/year 1.94%AND THEREAFTER CONTINUES AT THIS GROWTH RATE

ROC equals wacc in long term 13.341%terminal roc 13.341%terminal rr 29.984%dec/year 30.92%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

GROWTH13.7

1%13.7

1%13.7

1%13.7

1%13.7

1%13.7

1%11.7

7%9.83

%7.88

%5.94

%4.00

%

RR*184.59%

184.59%

184.59%

184.59%

184.59%

184.59%

153.67%

122.75%

91.83%

60.90%

29.98%

NOPLAT210.

71239.

60272.

45309.

80352.

27400.

56447.

69491.

68530.

44561.

96584.

44

RREINV388.

95442.

28502.

91571.

85650.

24739.

39687.

96603.

52487.

08342.

26175.

23

FCFF

-178.

24

-202.

68

-230.

46

-262.

06

-297.

98

-338.

83

-240.

27

-111.

8443.3

6219.

70409.

20TV

WACC13.341%

13.341%

13.341%

13.341%

13.341%

13.341%

13.341%

13.341%

13.341%

13.341%

13.341%

DF 0.88 0.77 0.68 0.60 0.53 0.47 0.41 0.36 0.32 0.28



2296 8447 682 5979 4653 1722 6199 721 3988 5854

PV HG Period

-972.721

TV4380.868

DISC TV1419

.35

TOTAL VALUE446.

6293

EXCESS CASH1.45

6

INV68.5


-212.

11

TOTAL304.

5353

DEBT1249

.48

NO. OF SHARES0.42

4

EV

-944.945

Val per share3123

.26

19.3 FCFE

a. Apollo Tyres Ltd.



Ke RFR 8.50%RP 21.90%BETA 0.961851 Ke 21.39%

10.87% 5% dec/year 1.17%

ROC equals KE in long term 21.390%terminal roc 21.390%terminal rr 23.376%dec/year 10.29%


MARKET PRICE 186.6480675Rs per share

NO. OF SHARES(Cr) 4.885 cr MV OF EQUITY 911.7758 KE 21.390%

ASSUMPTION: GROWTH FOR THE NEXT 5YRSLong term Growth Rate AND THEREAFTER CONTINUES AT THIS GROWTH RATE


2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

GROWTH10.8

7%10.8

7%10.8

7%10.8

7%10.8

7%10.8

7%9.70

%8.52

%7.35

%6.17

%5.00

%

RR126.31%

116.02%

105.72%

95.43%

85.14%

74.84%

64.55%

54.26%

43.96%

33.67%

23.38%

NOPLAT275.

11305.

02338.

19374.

96415.

73460.

94505.

64548.

74589.

07625.

44656.

71

RREINV347.

49353.

87357.

54357.

82353.

94344.

98326.

39297.

72258.

97210.

58153.

51

FCFE

-72.3

8

-48.8

5

-19.3

517.1

461.8

0115.

96179.

25251.

02330.

10414.

86503.

20TV

WACC21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

DF0.82

37920.67

86340.55

90530.46

05440.37

93920.31254

0.257468

0.2121

0.174727

0.143938

PV HG Period291.

8143

TV3070.218

DISC TV536.

4489

TOTAL VALUE828.

2632

EXCESS CASH191.

8926

INV302.

71non core -



operating capital

411.09

TOTAL911.

7758

NO. OF SHARES4.88

5

EV911.

7758

Val per share186.

65

b. Ceat tyres ltd.

Ke RFR 8.50%RP 21.90%BETA 0.961851 Ke 21.39%

ASSUMPTION: GROWTH FOR THE NEXT 5YRS 2.58% Long term Growth Rate 5% dec/year -0.48%AND THEREAFTER CONTINUES AT THIS GROWTH RATE





ROC equals KE in long term 21.390%terminal roc 21.390%terminal rr 23.376%dec/year 0.05%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

GROWTH2.58

%2.58

%2.58

%2.58

%2.58

%2.58

%3.07

%3.55

%4.03

%4.52

%5.00

%

RR23.8

6%23.8

1%23.7

7%23.7

2%23.6

7%23.6

2%23.5

7%23.5

2%23.4

7%23.4

2%23.3

8%

NOPLAT238.

48244.

64250.

96257.

45264.

10270.

92279.

23289.

15300.

81314.

40330.

12

RREINV56.9

158.2

659.6

461.0

662.5

163.9

965.8

268.0

170.6

173.6

577.1

7

FCFE181.

57186.

38191.

32196.

39201.

59206.

93213.

41221.

13230.

20240.

75252.

95TV

WACC21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

DF0.82

37920.67

86340.55

90530.46

05440.37

93920.31254

0.257468

0.2121

0.174727

0.143938

PV HG Period779.

0423

TV1543.328



DISC TV269.

6605

TOTAL VALUE1048.703

EXCESS CASH

-4.96

18INV 9.6non core operating capital

21.81

TOTAL1075.151

NO. OF SHARES3.42

4

EV1075.151

Val per share314.

00

c. MRF Tyres Ltd.

Ke RFR 8.50%RP 21.90%BETA 0.961851 Ke 21.39%





ASSUMPTION: GROWTH FOR THE NEXT 5YRS -41.92% Long term Growth Rate 5% dec/year -9.38%AND THEREAFTER CONTINUES AT THIS GROWTH RATE

ROC equals KE in long term 21.390%terminal roc 21.390%terminal rr 23.376%dec/year -33.44%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

GROWTH

-41.9

2%

-41.9

2%

-41.9

2%

-41.9

2%

-41.9

2%

-41.9

2%

-32.5

4%

-23.1

5%

-13.7

7%

-4.38

%5.00

%

RR

-311.07%

-277.63%

-244.18%

-210.74%

-177.29%

-143.85%

-110.40%

-76.9

6%

-43.5

1%

-10.0

7%23.3

8%

NOPLAT210.

71122.

3871.0

841.2

823.9

713.9

2 9.39 7.22 6.22 5.95 6.25



RREINV

-655.

47

-339.

76

-173.

55

-86.9

9

-42.5

0

-20.0

3

-10.3

7 -5.56 -2.71 -0.60 1.46

FCFE866.

18462.

13244.

63128.

2766.4

833.9

519.7

612.7

7 8.93 6.55 4.79TV

WACC21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

21.390%

DF0.82

37920.67

86340.55

90530.46

05440.37

93920.31254

0.257468

0.2121

0.174727

0.143938

PV HG Period674.

4294

TV29.2

1628

DISC TV5.10

4863

TOTAL VALUE679.

5342

EXCESS CASH1.45

6

INV68.5


-212.

11

TOTAL537.

4402

NO. OF SHARES0.42

4

EV537.

4402

Val per share3415

.55

20. Results

Company Actual Share Valuation Method Comment



Price (as on

31/03/08)

Apollo Tyres Ltd. Rs. 41.30 FCFF 130.71 Undervalued

FCFE 186.65 Undervalued

Ceat Tyres Ltd. Rs. 109.25 FCFF 226.96 Undervalued

FCFE 314.00 Undervalued

MRF Tyres Ltd. Rs. 3989.05 FCFF 3123.26 Overvalued

FCFE 3415.55 Overvalued



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 by-

products. 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.

Amongst the Indian Tyre Manufacturers, Apollo tyres and Ceat Tyres Ltd. are undervalued

whereas MRF Tyres Ltd. is overvalued.



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


http://www.domain-b.com/

http://www.jktyre.com/

http://www.mrftyres.com/

http://www.ceattyres.com/

http://www.economictimes.com/

http://www.timesofindia.com/

http://www.indiainfoline.com/

http://www.atmaindia.org/

analysis of the indian tyre industry

Documents