ABSTRACT

 Evolution of tyre industry in India

 Market size and growth -Trends
 Major players and market share
 Type of market structure
 Market concentration – using concentration
ratio and HHI
 Demand patterns by tyre type and segments
 Tyre price trends and Factors
affecting tyre prices
 Cost pattern and trends
 Production and sales of tyres –data and
trends
 Competition strategies adopted by firms
 Tyre import and exports – by country type
and tyre type
 SWOT and Porters’ five force framework
 Collusive practices and CCI enquiry

INDIAN TYRE
INDUSTRY
Comprehensive study of the Tyre Industry in India

SUBMITTED BY:
KHUSHBOO
KHUSHBOORAJ
RAJ

GAURAV MATHUR

HARSHAL

HARDIK
 Evolution of Tyre Industry

Phase Period Characteristics Policy Regime

No domestic production.
Demand met through
Phase I 1920-35 imports. Key players included Liberal imports
Dunlop (U.K), Firestone &
Goodyear (USA)

Domestic production begins

by erstwhile trading
companies: Dunlop, Imposition of tariff & non-tariff
Phase II 1936-60
Firestone, Goodyear and barriers on imports
India Tyre & Rubber
Company

Indian companies-MRF,
Regulation on capacity expansion
Premier & Incheck- enter
and repatriation of profits of foreign
manufacturing sector with
Phase III 1961-74 companies; enforcement of export
foreign technology; licensing
obligation on MNC; protection from
of additional production
external competition
capacity

Entry of large Indian business

houses like Singhania & Modi
& technical collaborations
Delicensing of production, placing
with MNCs, introduction of
Phase IV 1975-91 of imports under OGL with tariff & non-
radial tyres, vertical
tariff barriers
integration and exponential
growth in tyre production &
exports

External trade liberalization &

reduction in import duty; re-
1992 entry of MNCs either Progressive reduction in import
Phase V
onwards independently or in duty; liberalized imports
collaboration with Indian
capital
 Major Players and market share

Net Sales Market

Company Name
(Rs. Cr.) Share
MRF 13,197.58 29%
Apollo Tyres 8,937.82 17%
JK Tyre & Ind 5,951.08 13.96%
Ceat 5,591.66 12%
Balkrishna Ind 3,779.91 7%
TVS Srichakra 1,895.99 4.45%
Goodyear 1,579.15 3.70%
Falcon Tyres 1,198.66 2.81%
Others 494.80 1.16%

Industry's SWOT Analysis:

Strengths
 Revival in economic activity: After reporting falling car sales over the past two fiscal,
India's automotive industry had begun a gradual recovery as customer sentiment
improved following the general election in May 2014. India's new government, led by
Prime Minister Narendra Modi promising to revive economic growth and kick-start
investment. With economic growth, demand revival likely to sustain in consumer
durables, particularly in automobiles, it would have a positive impact on the tyre sector.
Besides, emphasis on infrastructure in terms of development of roads will also increase
demand for tyres.
 R&D initiatives by top players: With the focus on providing better products and
services, the Indian tyre manufacturers are setting up well-equipped in-house R&D
centers with emphasis on developing cutting edge technology for compound
development, development of new designs for different segments, reinforcement
materials, cost optimization for quality improvements and orientation towards changing
customer requirements. Although most of the tyre players do not engage in basic
research due to the high costs involved, but a significant proportion of R&D effort in
the tyre sector is being carried out by four- five top companies.
 Limited competition: Despite having more than 40 players in the Indian market, the
industry's competition is limited to top ten players only as the industry is controlled by
these top ten players, holding 90 to 95% of the market share.
Weakness
 Highly capital intensive: The tyre industry is highly capital intensive and the level of
technological expertise required is also highly specific. One requires roughly Rs 400
crore to set up a radial tyre plant with a capacity of 15 Lakh tyres and around Rs 150-
200 crore, for a cross-ply tyre plant of a 15 Lakh tyre-manufacturing capacity.
 Fluctuation of exchange rate: As most of the tyre companies are expanding their
operations around the globe there is a widespread impact of sharp currency fluctuations.
In simple terms, it shrinks the receivables of exporters and makes life easier for
 importers as the prices of imports get cheaper. A sharp fluctuation in the currency hits
the small and mid-cap companies harder than their larger peers, as the larger players
can manage the situation through actively managing (hedging) the currency and
working with the scale. Eg. Balkrishna Industries' approximately 90% revenues are
generated through exports and the Company also imports lot of its raw materials and
capital equipment’s; it is exposed to high risks due to currency fluctuations.
 Pricing Pressures: The tyre industry in India is a highly competitive sector with a very
cut throat competition among the leading players. Any rise in raw material costs would
result in pressure on the realizations and though the players vouch to increase the prices,
due to competitive pressures, they have not been able to pass on the entire increase to
the consumers.
Opportunities
 Improvement in Automobile Industry prospect: Growing economy leads to
improving Automobile Industry prospect which further leads to Increasing OEM
demand that in turn leads to Subsequent rise in replacement demand. With continued
emphasis being placed by the Central Government on development of infrastructure,
particularly roads, agricultural and manufacturing sectors, the Indian economy and the
automobile sector/ tyre industry are poised for an impressive growth.
 Access to global sources for raw materials: with the access to global sources for raw
materials, Indian tyre industry can stabilize price fluctuation in raw materials and
control their margins. Furthermore, Indian tyre companies can also follow and maintain
global quality standards and international process and system certifications, which will
help them during export. Eg. Balkrishna Industries imports natural rubber and has very
little exposure to domestic rubber price fluctuations and thus margins have remained
strong.
 Exploration of new markets: Many Indian tyre companies are exploring the
opportunities to enter into new markets. Recently, Apollo Tyres confirmed Hungary as
the location for its first Greenfield facility outside India. The company has decided to
setup facility over there after receiving the necessary approval from its board of
directors on the proposed investment towards setting-up a Greenfield facility in Eastern
Europe. This facility will produce both, Apollo and Vredestein branded tyres, and will
cater to the entire European market, and will complement Apollo Tyres' existing facility
in the Netherlands.
Threats
 Introduction of other transport facilities: Introduction of other transport facilities
like metro, monorails and local trains keeping pollution hazards caused by combustion
of automobile fuels.
 Cheaper imports of Tyres: The major concern for the Indian manufacturers is that the
price of the tyres in the overseas market like China and South Korea is comparatively
low compared to domestic market. Therefore, many automobile manufacturers have
switched to the option of importing tyres from international market. The landed cost of
tyres from China is much lower than the Indian price. In addition, tyres from South
Korea are imported at 30% customs duty while from other countries the duty levied is
35%. Therefore in both cases the Indian tyre manufacturers are on receiving end.
  Expectation of rise in natural rubber prices: Natural rubber prices, which accounts
for over one third of total raw material costs, are expected to rise as Total output of
Natural rubber in India is likely to drop over 10 percent in 2014/15 from the previous
crop year, hit by heavy rain in key growing regions and as farmers suspends tapping
due to lower prices.

Michael Porter's Five Forces Model Indian Tyre Industry

1) Bargaining power of supplier

Rubber
There are two reasons behind this being low first one is most of the tyre firm’s get 150 day’s
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
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
something 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 towards 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.

Price Trends and factors affecting tyre prices

Pricing a product is a function of many factors. The tyre market is not very price sensitive.
Consumers are more concerned about the tyres functionality, than its price. Besides, being a
homogenous product, most tyre companies price their tyres at more or less the same levels.
International players such as Bridgestone price their tyres slightly higher than the rest of the
market. This is partially to demonstrate its superior quality and pedigree.

Demand Drivers of the Industry:

1) Industrial and freight activity
The truck and bus tyre segment accounted for 19% of tyres produced in India. Every truck/bus
manufactured generates a demand for seven tyres. In addition, the price of a truck tyre is
significantly higher than that of a passenger car tyre (roughly 10 times). Thus the demand
multiple emanating from the commercial vehicle segment is highest in value terms.
2) Personal purchasing power
As the economy booms and disposable incomes in the hands of the Indian middle- class
burgeon, the sale of passenger cars has been witnessing an upward swing over the past decade.
Since tyre sales are directly linked to car sales, both through OEMs and the replacement market,
the tyre industry has witnessed a corresponding increase in its sales figures.
3) Automobile sales
The demand from the OEM segment is a derived one and directly correlated to the level of
automotive production. The recent Slowdown in automotive industry and global economic in
general negatively impacted the Indian tyre industry.
Demand Pattern by tyre type and segment

Segments According to Vehicle Categories:

Production and sale of tyre and date trends
It shows a relatively significant increase in percentage of production of tyres in the segments
related to passenger cars, tractors, light commercial vehicles and motorcycles. On the other
hand, production of tyres for scooters and mopeds declined by nearly 8 per cent.

Exports
The figure shows a significant decline in exports in the truck and bus, tractor, ADV and
industrial tyre categories. On the other hand, the figure shows a significant increase in exports
in the tyre categories of jeeps and trailers.
Sales
Tyre supplies are targeted and marketed primarily to the following categories: Replacement
market, Original Equipment Manufacturers’, Export, Government Supplies and State Transport
Undertakings. The replacement market is significant for manufacturers of tyres in the category
of motor cycles, scooters/mopeds and tractors, while the OEM segment is significant for the
category of passenger cars and jeeps.