Table of Contents
Industry Overview Government Policy Evolution Present Situation How Does the Industry Work? Customer Segments Factors affecting Tyre Prices Top 10 Players Market Shares and Category wise
Production
Structural Factors of Indian Tyre Industry
Case of Collusion (CCI) Companies under scanner Findings of the DG Result of the Case Competitive Scenario of Indian Tyre
Industry Porter’s 5 Force Model Change in Technology
Indian Tyre Industry
Commercial vehicles
Light Commercial vehicle (LCV)
Heavy Commercial
Vehicle (HCV)
Passenger Vehicles
Cars Motor Cycles
Others
Farm VehiclesIndustrial
vehicle
Industry OverviewTurnover of Indian Tyre Industry: Rs 43000 Crores
Tyre Production (Tonnage): 15 Lakh M.T.
Tyre Export from India (Value): Rs 4209 Crores
Number of Tyre Companies: 39
Industry Concentration: 10 large tyre companies account for over 95% of total tyre production
Radialisation Level- Current: Passenger Car tyres: 98%(as a % of total tyre production) Light commercial Vehicles: 20%
Heavy vehicles (Truck & Bus): 18%
Government Policy
Tyre Industry Delicenced since : 1987
Export (of tyres and tubes): Freely Allowed
Import (of new tyres and tubes): Freely Allowed
Import Policy for Used/ Retreaded Tyres: Restricted from April, 2006
Evolution The evolution and
growth of the Indian tyre manufacturing industry from a state of absolute domination by foreign companies to its present stage of indigenization involved different phases of structural change broadly reflecting various policy regimes in the economy.
Present Situation in Indian Tyre Industry Domestic growth of the Indian Tyre Industry had been recorded at a
modest 8%. Due to moderate demand, slowdown and decline in rubber prices
have led to the increase in tyre prices and are recorded at 4.5 % for Q42012.
Rates of tyres for heavy vehicles and buses are higher than those of passenger vehicles.
Tyre prices have increased at higher rates for truck/bus and motorcycles, but at lower rates for four wheeler (4W) tyres primarily because of higher imports in this segment.
India’s automotive tyre demand has increased at a three year annual average of 18% to 131 million in FY2012.
Customer Segments
The tyre manufactures cater to the following major customer segments either directly or indirectly through dealers/ marketing agents: Original Equipment Manufacturers (OEMs) Replacement Market (aftermarket) Export Segment State Transport Undertakings (STUs)
Factors Influencing Tyre Prices
The industry is highly raw material (RM) intensive. Raw material costs accounts for 80-85% of the total
production cost of tyres. 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.
“Major components which affect the prices of tyres are the
cost of natural rubber and the excise
duty.”
Top 10 Tyre Companies in India
1. MRF 2. Apollo Tyres 3. JK Tyres 4. CEAT Tyres 5. Balakrishna Tyres 6. Goodyear Tyres 7. TVS Srichakra 8. Falcon Tyres 9. Govind Rubber 10. Krypton Tyres
Structural Factors of Indian •As few
large players control majority of the market in India, the market becomes oligopolistic in nature.
•There is a high degree of interdependence among firms.
•Each firm’s price and output decision anticipate the probable actions of other firms at any given time.
Highly Concentrated
Market
•A constant, predictable flow of demand from the customers also tends to increase the risk of collusion.
•Nearly 42% of tyre demand is dependent on automotive production, which due to its cyclical and seasonal character is quite predictable.
Demand & Supply
Conditions
•The products manufactured by these companies are homogenous in nature and hence substitutable. This structural factor may help the manufacturers to collude than compete.
Homogenous Product
Structural Factors contd..
•Trade associations remain vulnerable to stepping beyond the limits placed by competition law because, by definition, they involve meetings, discussions and cooperation amongst various-often virtually all-competitors in a particular line of business.
Active Trade Associations
•OEMs procure tyres from domestic tyre manufacturers and also import from various countries based on their requirement.
•However, it is noted that the OEMs exert substantial countervailing buying power.
Dependence on Customers
•Significant entry barriers arise due to the high capital requirements to setup a tyre manufacturing plant. As per ICRA Report, a plant with an annual capacity of 1 million cross ply Truck and Bus Tyres cost around Rs.6 billion.
Entry Barriers
The Inception Of the Case Of Collusion Against Major Tyre Players in Indian Market
•All India Tyre’s Dealer Federation(AITDF) filed a complaint against tyre manufacturers before the ministry of corporate affairs.
•The Ministry forwarded the case to the MRTP commission.
•Finally the case was transferred to the Competition Commission Of India (CCI).
•The CCI directed the DG (I&R) to conduct an investigation into this matter.
Major Companies under the ScannerJ K Tyre &
Industries Ltd. (J K Tyre)
Apollo Tyres Ltd. (Apollo)
Birla Tyres (Unit of Kesoram
Industries Ltd.)
Ceat Tyre Ltd. (CEAT) MRF Tyres Ltd. (MRF)
Dunlop India Limited (Dunlop)
Goodyear India Ltd. (Goodyear)
Bridgestone India Private Limited (Bridgestone)
Michelin India Tyres Pvt. Ltd. (Michelin)
The Findings of the DG’s Report
ATMA
Apollo Tyres Ltd
MRF Ltd.
CEAT Tyre Ltd.
Birla Tyre Ltd
JK Tyre Ltd
Major Allegations Against The Companies
The benefit of reduction in excise duty has not been passed to the consumers. (32% to 10% in the last 5 years)
Price parallelism existed amongst the tyre companies. No reduction in the Net Dealer Price (weighted price) in proportion
to the actual production. Under utilization of full capacity resulting in limiting the supply. The companies have been able to earn positive margins in most of
the period under investigation.
Major Allegations Against The Companies
The tyre companies have been inflating some miscellaneous expenses into the cost of production to reduce the net profit margins. Similarly, the analysis also explains that the change in price of natural rubber had no impact on the cost of production and therefore, it does not explain the possible reason for the increase in price of tyres.
The tyre companies are operating on high margins and the same is not passed on to the consumers.
The five domestic tyre companies occupy about 95% of the market share of the total production. This high concentration made OEMs and the replacement market highly dependent on these companies.
Results of the CCI Case
The fact that market concentration is very high with entry barriers and the product is homogenous, support cartel formation.
But high bargaining powers of OEMs due to the volumes, options to replacement consumer to retread, increasing radialization, imports effectively being cheaper even in the brief period of anti dumping duty go against sustaining a cartel structure.
Competitive Scenario of Indian Tyre Industry
High Barriers to Entry due to huge
investment required on new
plant setup, advertising and
branding costs and in setting up of dealer network.
Due to these high initial investments,
the gestation period remains
very high.
Manufacturers have to rely on rubber prices and crude prices which are key determinants of input costs. Sharp increase in these costs lead to sharp dent in profitability of the industry.
The market of Tyres is price sensitive which makes it
challenging for Tyre Manufacturers to pass on increase in input costs
to the end consumers. Margins tend to remain under severe
pressure when input costs rise.
Industry is dominated by few big names covering more
than 95% of total market. This
makes it tougher for new entrants to penetrate the
market in any significant rise.
Indian Tyre Sector
VulcanizationIn 1839 Charles Goodyear discovered that by adding sulphur to melted latex the much sought-after attributes of elasticity and strength were attainable. This new vulcanised rubber was used initially as ‘cushioning tyres’ for carriages and cycles.
Pneumatic Type Tyre:In 1888, John Dunlop invented the air-filled or pneumatic tires, however, his were for bicycles. In 1895, André Michelin was the first person to use pneumatic tires on an automobile, however, not successfully.
Cord TyresIn 1915 the Palmer Tyre Company of Detroit pioneered the first rubberised ‘cord’ fabric and made the first ‘Cord Tyre’. All the strands of cord were laid parallel to each other and pressed into sheet rubber. The tyre casings were built using sheets of cord material, cut on the bias and laid across each other - each ply completely separated from the next by its rubber coating. The cross-ply had come into being.
Radial Tyres Michelin first introduced steel-belted radial tires in
Europe in 1948. Radial tires are so named because the ply cords radiate
at a 90 degree angle from the wheel rim, and the casing is strengthened by a belt of steel fabric that runs around the circumference of the tire.
In radial tires the ply cords are made of nylon, rayon, or polyester.
The advantages of radial tires include longer tread life, better steering characteristics, and less rolling resistance, which increases gas mileage.
On the other hand, radials have a harder riding quality, and since they are technologically more complex than bias-ply tires, they are about 45 percent more expensive to make.
Technological Advancement In the Recent Years
Run Flat Tyres• One of the major recent
developments in the tyre world has been the continuing popularity of run flat tyres.
• These allow a car to continue to move safely despite its tyres losing pressure - i.e. because they have run flat.
• Latest available technology is a gel tyre “bonded” to the tyre that means the tyres become similar to a run flat.
Eco Tyres• So-called Low Rolling Resistance tyres are made by adding silica to the tread compound of a tyre. This affects the amount of energy a tyre can absorb while it is turning or ‘rolling’. The less resistance caused during rolling, the less fuel your car requires to move.
• What’s the end result for the motorist? Well according to Michelin, eco tyres can save the average motorist £65.00 a year.
Nitrogen• Filling your tyres with nitrogen
may seem odd but that’s exactly what motor sport and aviation professionals have been doing for years. Nitrogen is completely safe.
• And by using it in a mixture with oxygen to inflate your tyres the theory is that it’s possible to negate the issue of slow deflation, which is caused by oxygen slowly infusing through the tyre wall from the atmosphere.
• Having a tyre that does not deflate means you will improve fuel consumption and will probably improve safety standards too.