Indian Tyre Industry – Driving on the Auto Sector Growth

The Indian Tyre Industry is an integral part of the Auto Sector and its fortunes are interdependent on those of the Automobile players.

For the year 2010-11, the industry has clocked a turnover of almost Rs. 30,000 Cr. of which 90-95% has come from the domestic market. While there are around 40 tyre manufacturers in India, the top 10 tyre players account for around 90-95% of the total tyre production in India.

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The tyre industry can be divided into 6 categories based on the different auto segments that they are manufactured for. The table given below gives the category-wise production for 2010-11.

On a volume basis, the 3 major segments of the tyre industry are Two-wheelers, Passenger Cars and Truck and Bus (T&B).

The table given below gives the list of the top 3 players (considering their market share as per volumes) in these 3 major segments.

As seen in the above table, the T&B (Truck & Bus) segment is highly competitive with the top 3 players having market share very close to each other.

JK Tyre is slightly ahead with a 22% market share. Apollo Tyres is the market leader in the Passenger Car segment with 24%. MRF which has a good presence in all the segments is the leader in Motor Cycle with a 28% share.

So, how does the Indian tyre industry work?

Here is the analysis…

The working of the Tyre industry has been explained pictorially below:

Inputs:

The industry is highly raw material (RM) intensive. Raw material costs account for 65-70% of the total production cost of tyres.

The pie chart gives the composition of raw materials as a percentage (%) of Total Raw Material Cost. Natural rubber constitutes is the major raw material used by the industry and accounts for around 43% of the total cost.

The other raw materials consumed by the tyre industry are crude derivatives such as synthetic rubber (SBR – styrene butadiene rubber, PBR – polybutadiene rubber), nylon tyre cord fabric, carbon black and rubber chemicals. Therefore, rising crude oil prices increase raw material costs and affect the profitability of the company.

End-users:

Based on the customer segments, the tyre market can be broadly divided into 2 categories – Original Equipment Manufacturers (OEM), and Replacement Market.

1) Original Equipment Manufacturers – This includes automobile manufacturers like – Maruti Suzuki, Ashok Leyland, Tata Motors, etc. The demand from the OEM market fluctuates directly in line with end-user demand for the automobile/construction equipment segment; it is thus prone to a high degree of cyclicality.

The total tyre sales to OEMs are on average 40-45% of the total sales.

2) Replacement Market – These are the end customers who replace old tyres of their vehicles. Replacement demand for tyres depends on the on-road vehicle population, road conditions, vehicle scrappage rules, overloading norms, retreading intensity and miles driven.

It is less cyclical than OEM demand and is generally a higher-margin business for tyre manufacturers. On average, the replacement market accounts for 45-50% of the total sales.

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