May 17: The Indian automotive tyre industry, which flourished for a few years of an automobile boom, is showing clear signs of recession, according to the rating agency, Care. The industry comprises 15 producers, with seven of them contributing over 95 per cent of the total turnover. Production increased from 20 million in 1993 to 30 million in 1997, at a CARG of 10.5 per cent. The aggregate industry turnover grew at a CARG of 15.6 per cent during the same period to reach Rs 73 bn in FY'97. Currently, supply exceeds demands and the level of competition among the major players is quite high.The agency said the growth in demand is driven by a number of factors including the entry of new brands of cars and overall economic growth leading to increase in passenger traffic and movement of goods. The introduction of a number of foreign models especially in the passenger car segment, has popularised radial tyres, which are estimated to account for about 40 per cent of consumption of car tyres. On the flip side,improvement in retreading facilities in the country acts as a deterrent to the growth of the replacement market. Moreover, radialisation leads to longer life for tyres and a slower growth in the replacement market.
The replacement market is the largest market segment in the industry, accounting for 54 per cent, followed by OEM (39 per cent) and exports (seven per cent). The share of the OEM segment declined from 44 per cent in FY'97 to 39 per cent in FY998, following the recession in the automobile sector. Growth in the replacement market has also been tardy, especially in the Commercial Vehicles (CV) segment, in the recent past, after a few years of steady growth.
Margins in the industry have been sensitive to the prices of natural rubber. The price of natural rubber, which had skyrocketed to Rs 70 per kg in June 1995, continuously declined thereafter, and presently rules at around Rs 30 per kg or lower. Prices of synthetic rubber, viz. Styrene Butadiene Rubber and Poly Butadiene Rubber have also beenfalling since December 1996.
Prices of other raw materials like Carbon Black and Nylon Tyre Cord have also declined. Despite falling raw material prices, the fortunes of the industry are on the decline, due to stagnant volumes.
Prospects of the tyre industry are largely dependent on the performance of the automobile industry. The market for new CVs and hence the OEM market for CV tyres is expected to remain sluggish in the near future reflecting the downturn in the economy. Growth in the replacement market for CV tyres has stagnated, partly due to the sub-optimal utilisation of fleets by CV operators.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
