Tyre 1,3,16,32

CHAPTER-1 INDUSTRY OVERVIEW
Ever since the first Indian tyre company, Dunlop Rubber Company (India) was incorporated in 1926, the tyre industry has grown rapidly and today it is a Rs. 19,000 crore industry. India has 2.61 lakh villages, connected by 6.23 lakh kms of metalled roads and 9.81 lakh kms of unmetalled roads. These villages are linked to small towns and cities. There is a daily traffic of over 4.12 lakh trucks, 1.27 lakh buses, 7.23 lakh cars, and thousands of taxis, two-wheelers, three-wheelers, tractors and animal -drawn vehicles on Indian roads. There exists a vast potential for the tyre industry in India. The fortune of the tyre industry depends on the agricultural and industrial performance of the economy, the transportation needs and the production of vehicles. Hence, this is a very sensitive industry, which has to adapt itself to a highly volatile environment. The size of Indian tyre industry is estimated at about Rs.19000 crore comprising 43 players with an aggregate installed capacity of over 850 lacks tyre. The10 large tyre companies account for over 95% of the total production. In Indian tyre industry, capacities are concentrated in the hands of a few large players with top four tyre companies accounting for over 74 per cent of industry market share. The industry is raw material intensive with raw material constituting over 62 per cent of the sales turnover and 70 per cent of production cost, of which rubber accounts for the major share of the material cost. The main inputs natural rubber smoked sheets and technically specified natural rubber (TSNR) account for 52 per cent of raw material cost of tyres. The major demand comes from the replacement market accounting for around 50 per cent. It is followed by 40 per cent from the Original Equipment manufacturers (OEM) and 10 per cent from the exports. In the past the replacement demand has been the major growth driver of the industry. But the sustained GDP growth of more than 8 per cent has also increased the demand for the OEMs. CAGR is 11% in 2008. The demand and growth for the tyre industry depends on primary factors like overall GDP growth, agricultural as well as industrial production and growth in vehicle-demand. It also depends on the on secondary factors like infrastructure development and prevailing interest rates. In India the primary factors have sustained in the last three years helping the sector to emerge as
S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009
a winner. Even the secondary factors have helped a lot; the only concerns are raising interest rates on the automobile segment and increased rubber prices. The origin of the Indian Tyre Industry dates back to 1926 when Dunlop Rubber Limited set up the first tyre company in West Bengal. MRF followed suit in 1946. Since then, the Indian tyre industry has grown rapidly.
Transportation industry and tyre industry go hand in hand as the two are interdependent. Transportation industry has experienced 10% growth rate year after year with an absolute level of 870 billion ton freight. With an extensive road network of 3.2 million km, road accounts for over 85% of all freight movement in India.
1.1 Contribution in Auto Industry

Tyres and tubes, the strategic rubber products and basic supplements to the automotive vehicles are of utmost importance to the country's economy. The tyre industry sector is providing direct employment to over 40,000 people and indirect employment to lakhs of people. This industry sector is now being considered as a core industry sector. The manufacturing of automobile tyres as an essential ancillary for the development of automobile sector came into being in India during the 1930's when the Dunlop India Ltd., the first tyre manufacturing transnational company started its operation in 1935 at Sahaganj in West Bengal. During the early period the overseas tyre manufacturing companies were having major equity participation in the Indian manufacturing companies. After 1970's there was a change in the policy of Government and it decided not to sanction any foreign equity. The setting up of joint sector projects with multiple foreign collaboration was considered feasible. At present 11 large companies with 15 factories and 9 medium-scale companies scattered all over India are manufacturing tyres and tubes for automotive vehicles including aero tyres and tyres for defense services. As estimated, their total production during 1987 was 128 lakh tyres against the total installed capacity of 179.44 lakhs tyres. The interesting feature of the tyre industry in India is that starting from its inception to the present day its progress has been influenced by repeated
import of technical collaborations. There is an urgent need to build up indigenous capabilities for tyre technology including the tyre machinery. In view of this, it was thought desirable to undertake the review of present status of this industry and to identify and analyze the critical inputs required for absorption and up gradation of imported technology. The technology absorption & adaptation scheme (TAAS) of DSIR seeks to encourage the role by providing optimum inputs for an accelerated absorption and up gradation of imported technology. The scheme was formulated to fill inter-alias, the following specific objectives: To reduce the necessity to further import of technology even after having it in use over a reasonably long period. To upgrade technology imported incorporating improvements identified in the use of technology. To promote the diffusion or export of the imported technology which have been assimilated or adapted. To strengthen the base for selecting and negotiating appropriate and competitive technology where import of technology is considered desirable. The Department of Scientific & Industrial Research (DSIR) organized a workshop on 'Technology in Indian Tyre Industry" on 25-11-1987 in collaboration with Automotive Tyre Manufacturers Association (ATMA). The then Secretary & Director General Technical Development (DGTD) inaugurated the workshop which had participation of various tyre units, concerned organizations and institutions, besides experts from foreign tyre companies and Smithers, USA, a reputed testing research evaluation organization. This report has been finalized after the discussion of its draft in the above workshop and has taken into account the various inputs received from the workshop.
1.2 Industry structure:

The tyre industry has witnessed a CAGR of 8.3% over the last decade mainly fuelled by the strong growth in the domestic auto industry and current CAGR is 11% though the replacement market has driven the industry growth for long time, the OEM market has seen a robust growth over the last couple of years. The industry is highly capital intensive, as it requires around Rs 4bn to setup a radial tyre plant with a capacity of 1.5mn tyres and around
Rs 1.5-2bn for a crossply tyre plant of a capacity to manufacture 1.5mn tyres. 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. The raw material to sales ratio in the industry is around 65%. The industry has high entry barriers because of its capital intensive nature and low operating margins. With demand increasing at a steady pace, the industry is expected to go through a consolidation phase. The industry is dominated by four players viz MRF, Apollo Tyres, JK Industries and Ceat and enjoys 74% of the total market share. The fortunes of the industry are linked to the trend in the domestic auto industry, retreading, trend in road transportation and spending on road infrastructure. The companies have lined up further expansion plans to meet the increasing demand.
1.3 Market Profile :

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 74 per cent of the organised tyre market. The other key players include Modi Rubber, Kesoram Industries and Goodyear, Dunlop, Falcon, Tyre Corporation of India Limited (TCIL), TVS-Srichakra, Metro Tyres and Balkrishna Tyres are some of the other players in the industry captured remaining market share. 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 The Indian tyre industry is two tiered; Tier-I players (top 4 tyre companies), account for over 74% of industry turnover and have a well diversified product-mix and presence in all three major segments, i.e., replacement market, original equipment manufacturers (OEM's) and exports. Tier-II companies are small in size, mainly concentrating on production of small tyres (for two/ three-wheelers, etc.), tubes & flaps and the replacement market.
1.4 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 52 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. Other raw material accounts for 2 percent 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 8 percent, while carbon black accounts for another 23 percent 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 percent 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 exportimport 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.
1.5 Out look for the Industry:

It is estimated that there would be a volume growth of 12-14 percent in 2008-09. The performance of the tyre industry is linked to the automobile and infrastructure sectors, the growth of which is dependent on the performance of the economy. The current estimated economic growth over 8 percent. The continuous thrust being placed by the Government on the development of infrastructure, particularly roads, agriculture and manufacturing sectors, would lead to an impressive acceleration in the automobile, ultimately generating more demand for tyres. However, tyre companies face immense competition together with price and cost pressures. Pricing pressures, from OEMs because of their high bargaining power and in the replacement market due to huge competition, are existent dampeners. Companies are now giving emphasis to innovation in product and process technology and operational efficiencies. The tyre companies would definitely show improvement in the margins sequentially, and if prices remain at these levels, profitability would improve. But then, it would be highly dependent on prices of major raw materials like Rubber, Carbon Black, and NTC Fabric which are highly volatile. The continuously rising trend witnessed in the prices of raw materials remains an area of concern. The trend is very volatile and the future pundits expect the prices to go upwards from the current levels. Globally, the OEM segment constitutes only 28 per cent of the tyre market, the balance from the replacement market. In India, the scenario is quite different. Nearly 50 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, retreading is replacing the worn-out tread of the old tyre with a new one. The popularity of retreading 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 as not made much of a dent in the rapidly growing two-wheeler and passenger car segments.
1.6 Indian Tyre Industry at a glance:

Table: 1 Indian tyre industry at a glance
Financial Year 2007-2008 Turnover of Indian Tyre Industry Tyre Production (Tonnage) Tyre Production All Categories (Nos.) Tyre Export from India (Value) : Number of tyre companies: Industry Concentration Radialisation Level - Current (as a % of total tyre production)
Rs. 20,000 Crores 11.35 lakh M.T. 850 Lakh Rs. 3000 (est.) crores 43 10 Large tyre companies account for over 95% of total tyre production. Passenger Car tyres: 95% Light Commercial Vehicles: 12% Heavy Vehicles ( Truck & Bus ): 3%
Calendar Year 2007 Turnover of Indian Tyre Industry Installed Capacity (Nos.) Capacity Utilitsation Total Tyre Production (Nos.) Total Tyre Import (In 000 Nos.) Government Policy Tyre Industry Delicenced since Export (of tyres and tubes) Import (of new tyres and tubes) Import Policy for Used / Retreaded tyres: ATMA)
US $ 4600 Million 85 Million 87% 78 Million 2077
1987 Freely allowed Freely allowed Since 2001 Restricted Since April, 2006 (Source:
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Current Scenario:
1.7.1 Sector trends
Cross ply 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, fiberglass 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.
1.7.2 Pricing Scenario

Pricing is influenced by the demand. Since the tyre demand has significantly increased in the last one year, many of the tyre companies have surplus stocks. Hence in. The cheap imports of non-radial tyres from China are also adding to the present woos of these tyre manufacturers. The All India Tyre Dealers' Federation has sought a 17-22 per cent cut in tyre prices from the tyre majors like Apollo, JK, MRF and Ceat. In a letter to the Prime Minister Manmohan Singh and UPA Chairperson Sonia Gandhi seeking their intervention, the Federation has claimed that tyre majors are indiscriminately jacking up prices even when the raw material prices have nosedived to the bottom. The federation has pointed out that natural rubber prices have fallen by 46 per cent to Rs 85 per kg since October, but these companies have hiked prices by 2 per cent in the last two weeks. Tyre prices had been jacked up by 15-20 per cent during March-August period for all categories, the letter said. High tyre prices lead to increased capital investment and low rate of return for tyre dealers, the federation said. (Business Standard, 14 November08)
1.7.3
Exim Scenario
The demand from the export market obviously hinges on the global economic scenario. This apart, the economic health in key tyre-producing countries in South-East Asia and China would also have a major bearing on the export of tyres. Exports contribute about Rs 8 billion to the total industry turnover of Rs 100 billion. China has an advantage in terms of lower prices for its tyres - almost 25 per cent less than Indias tyre prices. However, Indian tyres are considered to be of better quality than Chinese made tyres. The export market holds tremendous potential for domestic manufacturers. Tyre exports have grown at an annual compounded rate of 27% over the past 10 years. Indian tyres are exported to 56 countries, which are primarily developing countries Approximately, 19 per cent of total Truck & Bus tyres produced domestically are exported. Indian cross ply tyres have excellent acceptance in developed countries. All large tyre companies are engaged in sustained exports as a long-term commitment. The bulk of exports are directed to the US. Apart from the US, tyres are also exported to the West Asian and Asian countries. A segment-wise analysis of exports indicates that the truck and bus tyre segment accounts for about 74 per cent of the total tyre exports.
1.7.4 Government Policies

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. 1.7.5 Crystal Gazing The future is expected to see many strategic alliances among the domestic and global players to enable them to have access to latest technology and expand their distribution network. A better distribution will also ensure easy availability. The introduction of newer auto models will significantly have a bearing on the tyres demand. The tyre companies will also be looking for
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tie-ups with the OEMs for better stability and long-term relationship. For instance, the international player Bridgestone has a tie-up with Tatas for supply of tyres for its model Indica. Bridgestone has entered the Indian market in association with Associated Cement Companies and has set up a manufacturing plant at Khera in Madhya Pradesh. Hyundais associate tyre manufacturer is reported to set up operations at Sriperumbudur, in Tamil Nadu. Other multinational tyre companies are also likely to enter the Indian market viz. Michelin with J.K. Tyres and Pirelli of Italy, with Birla Tyres. Such arrangements are very essential if one has to remain competitive. The governments emphasis on improving the road infrastructure will facilitate the road transport sector that in turn will brighten the prospects of the tyre industry in the coming years.
1.7.6 Imports of tyres and its Impact on the Industry

Cheaper imports of tyres, especially from China, South Korea, Japan, Thailand and Indonesia, which sell at very low prices, have been posing a challenge to the industry. India signing of the Bangkok agreement with ASEAN countries, in October 2003, intensified the import threat, as this agreement provided for preferential customs duty of 15 per cent for imports from China and South Korea, along with Sri Lanka and Bangladesh, as against the standard rate of 20 per cent. This led to a gush of imported tyres from these countries. The landed price is approximately 25 per cent lower than that of the corresponding Indian Truck/LCV tyres. Imports from China now constitute around 5 per cent of the market share. However the import of tyre decreased around 2% due to devaluation of Indian currency.
1.7.7 Increasing Radialisation in India

Rate of radialisation is actually an index of the status of road development, vehicle engineering and the economy in general. 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. 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. However, the situation has radically changed in recent years, especially for the passenger car tyre segment where radialisation has crossed 85 per cent mark and is expected to reach 95 per cent in two years. In the Medium and
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Heavy Commercial vehicle segment current level of radialisation is up-to 2 per cent, and that in the LCV segment is estimated at 10 per cent. Going forward, with the improvement in the quality of highways, radialisation is expected to gather some momentum; levels of radialisation in MHCV is predicted to be 10 per cent in five years time, while in LCV, around 20 per cent.
1.8 Road infrastructure

Sr no. 1 2 3 4 5 6 NHDP Component Total Length 5846 7300 380 962 12,109 6500 33,097 Completed 4-lane 5629 (96%) 1559 163 337 274 7962 Under implementation Length(km) 217 4762 211 605 1801 148 7944 No. of contract 25 148 8 16 32 2 231
GQ NS-EW Port connectivity Other NHs NHDP Phsase -3 NHDP Phase - 4 Total
1.8 Impact of budget on tyre industry

The Indian tyre industry was Rs.19, 000 crore market comprising 43 companies with an operational capacity of 78 mn units by the end of FY07. Despite capacities being concentrated in the hands of a few large players with top 4 tyre companies accounting for over 74% of industry market share, the Indian tyre industry is intensely competitive and price sensitive with volumes becoming the key earnings driver. Demand for tyres is derived mainly from the replacement segment which has been influencing the growth of the industry for long. However, with the rapid growth in automobile production, the OEM
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segment has seen robust growth in recent times. Truck & Bus tyre is the dominant product category accounting for 59% in tonnage terms. Passenger car tyres with 9% share is one of the fastest growing segment along with LCV and motorcycle tyres As much as 96% of the raw material consumed by tyres is either natural rubber or petroleum products like nylon tyre cord fabric (NTC), styrene butadiene rubber (SBR) or poly butadiene rubber (PBR) etc. With their cost accounting for nearly 55% of the turnover and 70% of production cost, the price trends in key raw materials have a major bearing on the profitability of tyre companies. The period witnessed several price hikes across tyre categories prompted by continuous rise in prices of natural rubber. On an average, increase in tyre prices has been about 10-15% in both replacement and OEM market during this period. The cut in customs duty on tyres is likely to increase cheaper imports, especially from countries for which preferential tariff treatments are extended under regional trade agreements. Imports, however, form a negligible portion of the total market and would continue to remain so. Also cheaper imports are unlikely to moderate the domestic tyre prices. The cut in customs duty on key petroleum based raw materials like PBR, SBR, and CB etc is likely to help tyre companies contain their costs to some extent. The cut in excise duty on caprolactam and its feedstock benzene is likely to moderate the cost further as caprolactam is a key raw material for NTC fabric which forms 22% of cost of manufacturing tyre. Continued economic expansion coupled with the investment in road infrastructure is likely to have a favorable impact on the replacement and OE demand for tyres in the long run. Overall impact for the tyre industry is expected to be moderately positive.
Table: 2 Custom duty
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(Source: Financial times) Table: 3 Impact on companies
(Source: Financial times)
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CHAPTER-2 MAJOR PLAYERS

Figure: 1 Market share Covered by Major Players
MARKET SHARE (%)
26% 13%
22%
MRF APOLLO J K TYRE
18%
21%
CEAT OTHERS
2.1. MRF
MRF is the market leader among tyre manufacturers in India, with a 22% share in terms of revenues. Its leadership position, coupled with its strong brand recall and high quality, MRF commands the price-maker status. MRF has a strong presence in the T&B segment, the largest segment of the tyre industry, and commands around 19% market share in the segment. It is the leader in the two/ three-wheeler segment (including motorcycles) and tractor front tyres, and holds second place in the passenger cars and tractor - rear tyres. Exports account for around 12% of the gross sales in MRF. The Company has a distribution network of 2,500 outlets within India and exports to over 65 countries worldwide.
2.2 Apollo Tyres (ATL)

Apollo Tyres is the second largest player in the Indian tyre industry, with a market share of 21%, in terms of revenues, and the largest player in the
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T&B segment, with around 21% market share and 83% of its product mix coming from this segment. It also enjoys a strong brand recall. ATL derives 80% of its revenues from the replacement market, where the EBITDA margins are higher; hence, at operating levels, Apollo Tyres has better margins compared to those of its peers. ATL is a strong player in the domestic market, with just 2% of sales coming from exports. Apollo's recent foray into the relatively fast growing passenger radial market is probably the only major positive feature. However, the competitive pressure and a late entry into the segment would pressurize profitability, at least in the near term. From an investment perspective, investors could look for opportunities to exit from Apollo and the tyre sector per segment.
2.3. JK Industries
JK Tyre & Industries Ltd. is the flagship company under the umbrella of JK Organization. JK Industries has 18% market share, in terms of revenue, making it the third largest player in the industry. The Company ranks first in the MHCV and Passenger Car tyre segments, with 79% and 7% of its product mix coming from these segments, respectively. Exports account for approximately 17% of its gross sales. 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. Core Value 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. JK Organisation is an association of industrial and commercial companies and charitable trusts. Its member companies, employing nearly 50,000 persons are engaged in the manufacture of a variety of products and in diverse fields of commerce.
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Trusts are devoted to promoting industrial, technical and medical research, education, religious values and providing better living and recreational facilities. With the spirit of social consciousness uppermost in mind, J.K. Organisation is committed to the cause of human advancement.
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2.4 CEAT
CEAT has a 13% market share, in terms of revenues, and is an average player across categories. 68% of its product mix comes from the MHCV segment. Its leading brands in the T&B segment are Lug XL, Mile XL and Rib XL, Secura in two-wheelers and Formula-1 in passenger radials. In terms of profitability, CEAT has lower margins compared to its peers, in spite of deriving 60% of its revenues from the replacement market. The oldest company of the RPG Enterprises, CEAT Tyres was established in 1958. Today, we are one of Indias leading tyre manufacturers, with an annual turnover of Rs 1,952 crores (US $434 million). Our solid brand equity has empowered us to establish a strong presence in both, domestic and international markets. Our tyres, tubes and flaps are renowned for their superior quality and durability, and are recognised as being born tough. Possessing an enviable list of clients Ceat enjoy long-standing business tie-ups with major OEMs including TATA Motors, Ashok Leyland, Mahindra & Mahindra, Maruti, L&T, Eicher, Swaraj Mazda, Caterpillar, Bajaj Tempo, Piaggio, Hero Honda, HMSI (wholly owned subsidiary of Honda Motors, Japan) and TVS Motors. CEAT enjoys long-standing relationships with leading OEMs in the tyre industry. Working closely with our partners' Research and Technology departments, we manufacture scientific, highly-durable, customized tyres for all Indian vehicles including Trucks, Light Commercial Vehicles (LCVs), Passenger Cars (PCs), Utility Vehicles (UVs), Tractors, Truck Trailers and Two-wheelers. By creating new business opportunities, reducing costs, getting to market faster and increasing customer satisfaction, their OEM partners have empowered us to grow exponentially. Table: 4 OEM partners include:
Category OEM Partner
Truck LCV Passenger Car
TATA Motors, Ashok Leyland, Eicher Motors TATA Motors, Eicher Motors, Swaraj Mazda, Mahindra & Mahindra Maruti Udyog, Bajaj Tempo, Piaggio, Mahindra & Mahindra, Scooters India, Bajaj Auto
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Utility Vehicle Farm HCV Two-wheelers OTR
TATA Motors, Maruti Udyog, Mahindra & Mahindra Mahindra & Mahindra, Eicher Tractors, HMT, TAFE JCB, L&T Bajaj Auto, TVS, Hero Honda, HMSI Caterpillar, JCB, TELCON, L&T, BEML
CHAPTER-3 TYRE MANUFACTURING PROCESS

Each tyre undergoes an extensive process beginning with raw materials and ending with a final inspection.
3.1 Manufacturing Process:

Mixing the materials Various grades of natural and synthetic rubber are combined with carbon black, sulphur and chemical products in an internal mixer to meet specific compound requirements. The resulting blend is called the "master batch", which is formed into rubber sheets, and cooled. Some rubber is used for additional processing while the majority is prepared for the extruding stage. Extruding the tread Heat is applied to the rubber to make it more elastic and then it is put through extruders machines where the tread and sidewalls, which require two different rubber compounds, are formed into the required shapes. The extruders produce a continuous sheet of tread rubber, which is then cooled and cut to specific tyre lengths. Weaving the plies Spinning cords such as rayon, nylon, steel and polyester undergo a process called calendering, where they are woven into sheets and coated with rubber on both sides. Once this is finished, the sheets are then cut at the proper angle into specific
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widths and lengths and eventually used for casing and cap plies, while steel cords are used for the belts. Preparing the bead core The bead core is formed by aligning, and then coating plated steel wires with rubber. After, it is wound on a coil a certain number of times to form bead rings, which provide a specific diameter and strength for a particular tyre.
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Building process
The building process involves two stages. Stage 1: Beginning with the woven sheets, the inner liner, body plies and sidewalls are placed on the building drum. The correctly-positioned beads rings are then attached, which results in the automatic wrapping of the ply edges around the bead core, and the simultaneously movement of the sidewalls into position Stage 2: The tyre is shaped by inflating the rubber and applying side tread rubber, two steel belts and a cap ply to achieve a "green" tyre.
Vulcanisation
The green tyre is placed in a curing press for a certain period of time (1015 minutes) at a specific pressure and temperature. Once heat and pressure has been applied to the tyre, it is then removed from the mould having achieved its final size, shape and tread pattern.
Trimming
Excess rubber from the curing process is removed, and the tyre is trimmed to order.
Final inspection
Each tyre is visually and electronically inspected for balance, quality and uniformity. This final check ensures consistent and reliable performance.
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3.2 Tyre Recycling:

There are some uses of waste tyres. Such as: operations for burning tyres as fuel are in the cement industry Rubber crumb is also mixed with bitumen and sprayed onto roads Waste tyre also used to stop flood spreading. The ability to reuse scrap tires in polymer applications has been long desired. Efforts have been underway over the past 30 years in many areas, including rubber modified asphalt, tire derived fuel, etc. Many of these projects have met with various degree of success, and they have all been
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limited by the ultimate particle size of the scrap tire rubber particle. Recent research efforts in several areas have shown how smaller particle size rubber particles have a very positive effect on physical properties. Additionally, new testing instruments focused on the areas between under rubber and plastics have been introduced to the industry and now allow testing on the new types of materials that are neither rubber nor plastics, but blends and alloys. The focus of these new test instruments is in the polymer viscosity area, with the main measured parameters being torque, modulus, viscosity and tangent delta. With the rising economies of the world, there are many products has been created and also many waste have been generated. Take for examples, scrap tyres, the output of scrap tyres waste in almost every developing country is reaching over million tons per year and continue to be increasing at a double digit rate. According to research, the recovered rate of these scrap tyres are less than 50% which also means many of these scrap tyres will end up in illegal sites. Its developed a new recycle system to extracts fuel oils, steel wires and carbon black from these scraps tyres. These are commercially valuable materials that can resell back for high profits. The rate of recovery is 45% for fuel oil, 30% for carbon black and 10% for steel wires for each scrap tyres. That means if there is million tons of waste can be recycle to million tons of fuel oil, steels and also carbon black These are not only environment friendly to the world but also highly profitable solutions for todays recycling of scrap tyres. With the latest research and development, the extraction of oil and raw materials from tyre is going to be an upcoming trend in the recycle industry.
3.3 Types of Tyres:

Solid Tyres Solid tyres generally confined to specialist industrial applications have very limited usage. solid and Pneumatic or air filled. High pressure tyres. Balloon or conventional tyres Super cushion tyres
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Pneumatic Tyres These tyres employ air as a cushioning medium confined in an inner tube. They are classified into three types according to pressure and volume. The pneumatic tyres are further classified as tube tyres and tub less tyres a. Tube Tyres These tyres have an inner tube and a tyre casing or an outer cover with a special inner lining. The inner tube retains the air and inflates the tyre while the outer cover makes contact with the road and takes the wear and weight of the vehicle. Both the tube and the tyre casing are mounted on the wheel rim. The inflated inner tube makes the tyre casing to resist any change of shape. The casing is made up of layers of cord impregnated with rubber. The rubber side walls and trade are applied over them. The layers of cord called plies are formed over a spacing device. b. Tubeless tyres These tyres are a recent addition as basic equipment to the most of the new passengers motor vehicles. These tyres do not require inner tube. They are mounted on the rim with the air retained between the rims and casing. The amount of air pressure required for inflating the tyres depends upon the type of tyre and operation. Passenger car tyres are inflated to about 1.54 to 2.1 kg/cm 2 while heavy duty tyres used on trucks and buses are inflated up to pressure of 7kg/cm2. The tubeless tyres consist of outer cover with a special inner lining. The edge of cover is sealing against the wheel rim. These tyres are lighter and run cooler than the tubed tyres. In these tyres, valve is a separate unit and is fitted in a hole in the wheel rim. They are constructed in such a way that the air will be retained in than even after being penetrated if the object is left in position of penetration. If the cover is properly and correctly sealed to the rim they would provide good air sealing qualities. A puncture sealing is provided by the soft inner liner cones. Care should be taken while fitting or removing these types of tyre so that the bead is not damaged. High Pressure Tyres These are the tyres used in certain commercial vehicles and cars. They operate at [pressures ranging from 1.96 to 5.6 kg/cm2. these tyres having a square section tread provide a flat surface to the road. These help them to hold their cross -sectional shape even when the tyre is under load. These tyres can be used boath with soft and hard springs without giving much deflection. In relation to the wheel rim, they have almost no side ways movements. High pressure tyres use
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pressure into 4.2 kg/cm2. They are heavier in construction. As compared to other two tyres, they have more plies. Balloon or Conventional Tyres Balloon tyres are provided pressures ranging from 1.68 to 2.8 kg/cm 2 and are generally used on most of the American cars as original equipment. These tyres are considerably larger in cross-section as compared to corresponding high pressure tyres because it requires a grater volume of air in the tyre to carry the same load or decreased pressures. Super Cushion Tyres Super cushion tyres generally operate at pressure ranging from 1.4 to 1.68 kg/cm2. they are provided with passenger cars driving and extra soft ride as an optional equipment. As compared to similar balloon tyres, the super cushion tyres are considerably larger in cross-section. Normal Tyres These tyres have more flexible walls allowing side ways movement of the tread in relation to the wheel. They have square treads. These tyres operating at pressures ranging from 1.54 to 1.96 kg/cm2 have limited sideways movement.
Low Pressure Tyres These tyres operating at pressures between 0.84 kg/cm 2 and 1.54 kg/cm2 are the round section tyres. The tare pattern extends round the walls of the tyre without providing a square edge. The tyre tread provides undersides loads. It takes up a fresh path gently instead of slipping side ways or skidding as usually happens with square section trades on breakaway. Al though these system is conflicting with most of the concepts of tyre adhesion yet it work quite efficiently. Most of radial ply tyres are of these tyopes. Radial Ply Tyres These tyres have considerably varying construction and manufacturer recommendations regarding pressures. Incase radial ply tyres are fitted to the front of a vehicle with cross ply tyres at the rear or there are mixed tyres on the same axle, there always chances of loss of stability. But these combinations are now not allowed by the law.
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3.4
Raw Materials
The tyre industry is raw material intensive, which accounts for more than 60-70% of the production cost. Therefore, prices of raw materials directly affect the profitability of tyre companies. Since most of these raw materials are petroleum based, their prices fluctuate with the international prices of petroleum products. The main raw materials for tyre are rubber (natural or synthetic), carbon black, nylon tyre cord and rubber chemicals. Except natural rubber, the costs of all other raw materials in tyre production are related to crude oil prices. Table 5 shows the proportion of each raw material in terms of their value and weight. Table 5: Raw materials using by weight Raw material Natural Rubber Nylon Tyre Cord Fabric Carbon Black Rubber Chemicals Butyl Rubber PBR SBR Others Weight 41% 18% 10% 5% 5% 6% 5% 10% (Source: ATMA)
Figure: 2 weight of raw material
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Weight of Raw material
10% 5% 6% 5% 5% 10% 18% 41%
Natural Rubber Nylon Tyre Cord Fabric Carbon Black Rubber Chemicals Butyl Rubber PBR SBR Others
3.4.1 Natural Rubber

Natural rubber accounts for 50% of the cost of the tyre. In India mixture of both natural as well as synthetic rubber is used for making tyres. However the consumption ratio is towards higher usage of natural rubber due to Indian climatic conditions, over loading of vehicles and poor road condition. In India the consumption of natural to synthetic rubber is 80:20 which is in stark contrast to international ratio. The industry uses RSS 4 grade rubber. Indias 90% of the rubber production comes from Kerala. Domestic rubber production has increased at a average rate of 24.12% .Avg. consumption is 20 %.Average import is 20 % Table: 6 Tonnes ) Production Year 2004-05 2005-06 2006-07 2007-08 200809(Est.) Total 749660 802625 852895 825345 875000 3405525 Tyre sector Consumption 406220 442921 462081 495577 521000 2327799 Non tyre sector consumption 349170 358189 358224 365878 378000 1809461 Total Consumption 755390 801110 820311 861455 899000 4137260 Import 68700 85285 89699 86394 80000 370078 (Source: Atma) Production, consumption & import of Natural Rubber (In
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3.4.2 Synthetic Rubber

Synthetic rubber is generally of two types poly-butadiene rubber (PBR) which forms 40% of the synthetic rubber used in tyres. The other variety is Styrene Butadiene Rubber (SBR) primarily used in passenger car radials to give the grip to the tyres. At present, IPCL is the only domestic producer of PBR. However its able to meet only 44% of the tyre industrys requirement. Thus India is a significant importer of synthetic rubber. There is an urgent need to increase production capacity of SBR to supplement natural rubber.
3.4.3 Carbon Black

Carbon black is a key raw material used in the manufacture of automotive tyres. More than 70 per cent of the demand for carbon black is from the tyres segment. Carbon black feed stock (CBFS) is the key raw material used to manufacture carbon black. Roughly 2.2 tonnes of CBFS is required to produce one tonne of carbon black. Its main use is as a reinforcing agent in tyres. Though there are more than twenty types of CB, the ones used for tyre production are mainly of three types, N220, N330 and N660. N660 is mainly used in the carcass of the tyres, N330 is used for the tread and N220 is used for the tread of heavy-duty tyres. On an average, about 45% of the CB consumed by the tyre industry is of the N660 variety, 28% of N220 and 27% of N330 variety. Truck tyres consume 20 kgs of CB per tyre, while smaller tyres like Maruti consume 1.5 kgs. Overall approximately 60 65% of the CB produced in India is consumed by the tyre industry. Indian market is dominated by the top three players in the industry -- Philips Carbon Black, Hitech Carbon (unit of Indian Rayon) and Cabot India
3.4.4 Nylon Tyre Cord

This is mainly a reinforcing material and lends strength and tenacity to the tyre. It is placed below the tyre tread, in contact with the road. Almost 90% of nylon cord manufactured in India is consumed by the industry. The tyre cord fluctuates in consonance with the prices of caprolactum its main input.
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3.4.5 Rubber industry in post GATT era

With the lifting of physical barriers on imports of all commodities by April 2001, as also phasing out of various subsidies for exports, the rubber industry is in for a very rough tide. With the slowdown in economy compounding the problem, the automobile majors are in for a major shakeout.
Table 7: Consumption Patterns of Major Raw Materials (2007-08) (In tones) Raw Materials Natural Rubber SBR PBR Carbon Black Nylon Tyre Cord Rubber Chemicals Steel Tyre Cord Butyl Rubber Total Cons. 861455 110965 88205 435000 104000 42000 15000 35000 Tyre Sector Cons. 57% 67% 86% 63% 100% 52% 100% 59% Non Tyre Sector Cons. 43% 33% 14% 37% 48% 41% Total Import 86394 97150 28180 20000 50000 3000 10000 59260 Tyre Sector Imports 95% 77% 80% 100% 100% 100% 100% 59% Non Tyre Sector Imports 5% 23% 20% 41% (Source: ATMA)
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CHAPTER-4 P PRODUCTION, DEMAND & IMPORT SCENARIO PP44

4.1 Production:
Table: 8 Category wise productions Tyres for Truck & Bus Passenger Car Light Commercial Vehicle Tractor Scooter / Moped Motor 2007-08 65.57 80.06 25.17 19.89 55.65 134.11 percentage 17 20 6 5 14 34 2008-09 67.93 88.36 27.86 21.89 50.95 153.49 (In lakh nos.) percentage 16 21 7 5 12 36
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Cycle 12.88 Others 393.34 Total (Source: ATMA) Figure: 3 Category wise Production (2007-08)
Catagory wise production ( 2007-08)
4 100
13.1 423.58
3 100
4% 34%
17%
20% 6%
14%
5%
Truck & Bus Tractor Others
Passenger Car Scooter / Moped
LCV Motor Cycle
Figure: 4 Category wise Production (2008-09 Est.)
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Catagory wise Production (2008-09)

3% 36% 21% 12% Truck & Bus Light Commercial Vehicle Scooter / Moped Others 5% Passenger Car Tractor Motor Cycle 16%
In 2007-08 Out of total production major portion covered by Motor cycle, Passenger car and Truck and bus by 34%, 20% and 17% respectively.
4.2 Demand:
4.2.1 Demand cycle:
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Source: way to wealth
4.2.2 Demand by market:

Demand for tyres can be categorized under three segments: OEM Replacement Export
Table: 9 Segment wise sales Category Production (Nos.) 2007-08 13136592 17904812 55319922 3048002 11603930 27920746 128934004 Segment wise sales (in %) (as % of Total Production) Replace OEMs Export ment Market 61% 20 % 19% 45% 49 % 6% 43% 27 % 30% 50% 47% 3% 48% 48 % 4% 52% 50% 47 % 40% 1% 10% (Source: ATMA) Figure: 5 Segment wise sales
Truck/Bus Passenger Car LCV Tractor Scooter / Moped Motor Cycle Total sales
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Segment wise sales

Percentages
0.6 0.4 0.2 0 Replace ment OEMs 50% 40% 10% Ex port
Segment
The replacement market constituted 50% of tyre sales (by volume), followed by OEMs at 40%. Exports constituted 10%. According to the products, the maximum tyre sales in the Replacement market 0f Truck & Bus at 61%, in OEM segment scooter at 48% and in Export segment LCV at 30%.
A.
Growing OEM demand
Traditionally, the replacement market has been the main growth driver for the tyre industry, as also the major segment that consumes tyres; however, with the recent escalation in auto sales, OEM demand too, has been on a substantial increase, thus enlarging its share in the sales pie. Auto sales have been growing at a CAGR of 15.8% during 2002-07, which has driven the growth in the tyre industry, keeping the OEM demand buoyant. Going forward, the automobile industry is estimated to grow at double digits. This, in turn, is expected to keep demand, for tyres from OEMs, buoyant. Looking at the global rail-to-road cargo scenario, in Europe, roadways have an 84% share, while in India, currently, the ratio is 35:65, which was 62:38, two decades ago. There would be a further shift in freight movement, from railroad to roadways. This would lead to an increase in demand for automobiles and hence, the OEM demand for tyres. B. Replacement Market
Replacement market to see sustainable growth The Replacement Market is one of the more sought-after markets by Tyre players, since the margins are better, compared to those of OEMs (who are relatively few in number and have a huge bargaining power). Replacement demand, which comes from existing automobiles, has been increasing for sometime now and is expected to do the same, going forward. Replacement of tyres varies across
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categories, due to different life-spans of tyres, which depends on reasons like i. Road conditions ii. Load carried iii. Distance traveled iv. Re-treading The typical life of truck tyres is 40,000-45,000 kms or, on a general basis, around 12 to 18 months. The replacement cycle is relatively longer for twowheelers and cars, ranging anywhere between 24 to 48 months. However, the demand for radial tyres in cars has further augmented the replacement cycle. Here, it becomes important to talk about Re-treading, which is a phenomenon of repairing the outer surface of the tyre in order to increase its life. The cost of retreading a tyre is around 50% of the cost of a new tyre. A re-treaded tyre lasts for around 60% of the life of a new tyre. Though the quality of tyre deteriorates on retreading, since it is highly economical, it is highly resorted to, especially in the passenger car segment. In the LCV/ HCV (truck) segment, re-treading depends on the type of operator. For instance, for a single truck operator that operates over shorter distances, mainly on inter-city and intra-state routes, re-treading is high. However, the organised or large-fleet operators prefer to replace the tyres after an average usage of 40,000-45,000 kms. These operators do not risk using old or retreaded tyres on long-distance trips because breakdowns costs are immense. The substantial growth that the auto and tyre industries have seen in the last few years is bound to keep the replacement demand high, in the years to come. Similarly, the current growth in the auto industry and mounting OEM demand would keep replacement demand further buoyant, going ahead. The replacement market, including State transport undertakings and Government buying, accounted for around 50% of the total tyre demand in FY 2008. The demand in the replacement market depends on the vehicle population, the level of economic activity, life of the products transported, kilometreage per vehicle, the price of the tyres and the quality of the existing road infrastructure. Additionally, the replacement market, which offers better margins, is extremely competitive. The replacement market is dominated by the truck and buses segment, which accounted for 20% of all tyre sales in the replacement market in FY 2008.The large size of the replacement in turn is determined by the interplay of various factors as discussed below:
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The replacement demand may be lower because of longer replacement intervals and lower business mileage if the economic activity slows down. Replacement demand in India is higher because of a low vehicle scrappage rate. Poor road conditions by lowering the life of tyres have a positive impact on replacement demand. Stricter enforcement of the MV Act, which seeks to prevent overloading of vehicles, will result in an increase in the life of tyres and thus impact replacement demand negatively. Applying a new tread or "re-treading" can extend the life of the tyre at a significantly lower cost, thereby lowering replacement demand. In India, re-treading finds greater acceptance in the commercial segment. Radialisation of tyres is likely to result in lower replacement demand. While car radialisation in the country has reached a level of 65%, truck and bus radialisation stands at just 2-10%. Poor road and support infrastructure as well as traditional vehicle designs act as a barrier to radialisation in the commercial vehicle segment. Radial technology for trucks and buses would help increase operating efficiencies by delivering better mileage and minimizing wear and tear. According to ATMA, even if only 25% of the truck and bus segment is radialised, the savings in fuel costs would be around Rs. 7,500 million. Introduction of tubeless tyres in the passenger car segment is also likely to affect replacement demand adversely. Introduction of eco-friendly radial tyres such as hyper-bonding silica technology in the passenger car segment may affect replacement demand adversely. C. Exports Table: 10 Export Value & growth
YEAR VALUE (IN PERCENTAGE
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CRORES)
CHANGE(GROWTH)
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
1100 1250 1460 1834 2383 2850 3000
14 17 26 29 20 5 (Source: ATMA)
Figure: 6 Export value and growth

Export value and Growth Value (in crores) 3500 3000 2500 2000 1500 1000 500 0 2002- 2003- 2004- 2005- 2006- 200703 04 05 06 07 08 year value (in crores) %change(growth) 35 30 25 20 15 10 5 0 Growth (in %)
Government providing various export incentives and with good demand overseas, we expect exports to add to the growth of the tyre companies. In 2006-07, exports growth rate is 20% and for 2007-08 is a growth rate is 5%.Tyre exports are increasing but at decreasing rate. With tyres being export to over 65 countries worldwide. Tyre exports grew at a CAGR of 18.5 %, over FY2002 to FY2008.
Table: 11 Category wise Export
(in
nos.)
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Percentage Category Truck & Bus Passenger Car LCV Tractor Motor Cycle Scooter Other Total 2007-08 1280939 540745 803280 47221 164105 226506 34697 3097493 41 17 26 2 5 7 2 100 2008-09 1061929 530372 924642 44604 193466 250815 36135 3041963
percentage 35 17 30 1 6 8 3 100
(Source: ATMA) Figure:7 Category wise Export (2007-08)

Catagory wise Export (2007-08)
Truck & Bus
5% 2%
7% 2%
Passenger Car Light Commercial Vehicle Tractor Motor Cycle Scooter
41% 26%
17%
Other
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Figure: 8 Category wise Export (2008-09)
Category wise Export (2008-09)
8% 6% 1%
3% Truck & Bus 35% Passenger Car LCV Tractor Motor Cycle
30% 17%
Scooter Other
Tyre exports for the financial year 2008-09 is at 30, 41,963 units as against 30, 97,493 units. Truck and bus tyre exports decreased by 6 % as compared to 2007-08. Export of passenger car remains at 17%,Export of LCV increased to 30%.Export of motor car & scooter increases only by 1% while export of tractor decreases by 1%.Tyre export is consistently, with tyres being exported to over 65 countries worldwide. 4.2.3
Demand Determinants:
Relative Importance of Road Transport

With the share of railways in carrying freight coming down over the past few years, this has led to higher demand for road transport. Thus, increased usage of commercial vehicles should translate into more demand for tyres. Also, the poor road conditions in most parts of the country and overloading of vehicles would require superior quality tyres.
Retreading
Retreading a tyre costs around 20% of the price of a new tyre. It is more prevalent in truck and bus segments due to their high prices. A tyre can be retreated at least 3 times. According to some estimates, retreading has reduced demand in the replacement market by around 10%. As technology for retreading improves, it could act be a dampener to growth in replacement market.
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Radialisation' in India - Current Status & Future Trends 63% of passenger car tyres produced in India were radials and the industry is further expecting radialisation in this segment to over 70% in the coming two years. While in the commercial vehicles segment they are expecting 1315% radialisation by that time. "Rate of radialisation is actually an index of the status of road development, vehicle engineering and the economy in general". Not with standing 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 95% mark and is expected to reach 100% in two to three years. In the Medium and Heavy Commercial vehicle segment current level of radialisation is up to 3% and that in the LCV segment is estimated at 12%. 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 - happening Overload Control - happening Retreading Infrastructure.
4.2.4 Demand Supply Gap
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The demand for tyres is in the domestic market and in the export market. As far as domestic demand is concerned, the OEM and the replacement segments are likely to witness strong growth given the current performance of the automotive sector. Given the strong linkages of tyre industry with automotives, its demand is likely to be strong over the short to medium term. As for the export demand for tyres, the outlook is positive, even though some downsides remain. As regards supply of tyres, currently, the major players are in the process of expanding their capacities, in anticipation of uptrend in sales. For instance, Apollo Tyres has set up a joint venture with Michelin for manufacture and sale of bus and truck radials. JK is expanding its Mysore truck and bus radial facility along with eyeing acquisitions of smaller units. Ceat has increased its offtake by 3 times from Pirelli. However, a characteristic of the Indian tyre industry is that most of the tyre manufacturers in the past had increased capacities in anticipation of a surge in demand, but when it did not materialise, they reduced their addition to capacities.
4.3
Import :
Table: 12 Import value & Growth Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Value ( in'ooo) 80 88 221 506 873 1162 %change (Growth) 10 151 129 73 33
Figure: 9 Import value & Growth
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Import value & growth

Value (in crores) 1400 1200 1000 800 600 400 200 0 2002-2003-2004-2005-2006-200703 04 05 06 07 08 year 160 140 120 100 80 60 40 20 0
Growth
Value ( in'ooo) %change (Growth)
In 2004-05, there is sharp increase in imports but after increases at diminishing rate. In 2007-08 import growth is at 33% as compared to growth at 151%in 2004-05.This is because of devaluation of Indian currency.
CHAPTER-5 COST STRUCTURES AND DISTRIBUTION SCENARIO

5.1 Raw material cost
Raw material costs account for almost 70% of the tyre industrys incomes. Labour cost is another significant overhead. The Tyre industry has a narrow product range, huge operating overheads and high break-even levels. Raw material costs for the last three years have been raising constantly, especially those of rubber and crude oil-linked raw materials. The steep rise in raw material prices has impacted profit margins of all players. Consistent rise in major raw materials costs (those of natural rubber, nylon tyre cord, carbon black, synthetic rubber), with limited pricing flexibility, has resulted in pressure on margins of tyre companies, despite a good topline growth.
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Consequently, while the revenues showed a healthy growth, profitability remained depressed. In fact, some of the major tyre companies are operating at break-even situations Table: 13 Raw material Cost in a Tyre construction Raw materials Rubber Carbon Black 23 Nylon tyre cord 8 Chemicals 15 Others 2 Total 100 Cost (%) 52
(Source: ATMA) Figure: 10 Raw material cost

Raw material cost
15% 8%
2%
Rubber Carbon Black 52% Nylon tyre cord Chemicals Others
23%
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5.1.1 Rubber Prices

Table: 14 Rubber Prices year 2003-04 2004-05 2005-06 2006-07 2007-08 Domestic 5040 5300 6699 9204 11000 International 5278 5455 7200 9779 10000 (Source: ATMA) Figure: 11 Rubber Price (Domestic Vs International) Domestic & international Rubber prices
12000 10000 8000 6000 4000 2000 0 2003- 2004- 2005- 2006- 200704 05 06 07 08 year Rubber prices
Domestic Rubber price InternationalRubber price
In 2007-08, production and imports of rubber grew decrease while consumption increased. And thats why the average domestic price of rubber increased by 19.5%, while the international prices soared by 2.21% in the same period. Domestic rubber prices have been witnessing an upward trend from 2003-04 onwards. The annual average price increased to Rs 5,040 per quintal during 2003-04 compared to Rs 3,919 per quintal during 2002-03 due to an increase in the growth of the tyre industry. The annual average price for 2005-06 was even higher at Rs 6,699 per quintal because of increased economic activity, including increased automobile sector activity. The annual average price for 2006-07 soared to Rs 9,204 per
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quintal. This phenomenal increase has been due to the robust growth of the tyre sector, which consumed about 55 per cent of the total rubber production. The spot price is Rs 11000per quintal. In the international rubber market, the Bangkok market price of RSS-3 grade rubber is considered equivalent to Indian RSS-4 grade. From the following chart, we can observe an upward trend for rubber prices for the period under consideration. Beginning from a low of Rs 3,343 per quintal from 2001-02, the prices have increased to Rs 9,779 per quintal (average) in 2006-07. During 2003-04, prices went up to Rs 5,278 per quintal because of large supply-demand imbalance, leading to stock depletion, while year 2005-06 was marked with a civil unrest in some Thai provinces and heavy rain in rubber producing areas, which pushed up prices. In 2006- 07, prices soared to Rs 9,779 per quintal (average) due to unseasonable heavy rain over the main rubber producing regions of South East Asia and increased demand from China and Japan.
5.1.2 Other Raw Materials

The prices of other raw materials like carbon black, styrene butadiene rubber (SBR) and poly butadiene rubber (PBR) are closely linked to global crude oil prices. The average domestic price of carbon black increased by 9 %, nylon price increased by 11.6%, the average prices of both SBR and PBR increased by 17% and 46%, respectively, prices of rubber chemical and bead wire increased by 16% & 30% respectively during 2007-08.
5.1.3 Hike in Raw material cost

The rising raw material prices have been the key concern for the tyre industry, especially due to the lack of pricing flexibility. Since the tyre industry is highly competitive and price sensitive, players have been very conservative about increasing the prices. However, after the constant rise in raw material costs, almost every player has, stepped up their product prices. In 2005-06, the average tyre prices have been hiked thrice and the cumulative increase in truck & bus tyres is 4.6%, in car nylon is 1.2% and in car radial tyres is 5.1%, over the same period last year. The price hikes in 2007-08 have resulted in a cumulative price hike of 20% across all categories, by almost all players, with MRF an exception, which did not increased prices in July06. Combined with the price hikes, if the current price-levels of raw materials persist, it would result in better profitability for tyre companies. There also exists a possibility of tyre companies rolling back the price hikes, since the prices of rubber and oil-related raw materials
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have come down. However, it is very difficult to predict rubber and other raw material prices.
5.2
Distribution Scenario
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.
5.2.1 Replacement market:

Tyre companies sell tyres through widespread dealer distribution network (over 5000 in the country), either through exclusive dealer of the companies or through multi-company dealers.
5.2.2 OEM: Direct supply by tyre companies through negotiations. 5.2.3 STU: Direct supply by tyre companies through tender system. 5.2.4 Government: Direct supply by tyre companies through tender
system. Through dealers in the exporting countries.
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CHAPTER-6 GLOBAL SCENARIO

6.1 Current Global Scenario
The world tyre industry is worth around US$70bn. The industry is marked by a presence of around half a dozen major players who together occupy 70% of the world market share. The table below indicates the individual market share of the major players. The worldwide tyre industry is likely to witness more restructuring efforts after the deal between Goodyear and Sumitomo of Japan. Analysts are speculating that there will be only six to seven major players across the globe. Table 15: Current Global Scenario
Companies Michelin Bridgestone
Market share (%) 19.4 19.4
Goodyear 16.6 Continental 7.1 Sumitomo 4.9 Pirelli 3.9 Yokohama 3.5 Kumho 1.7 Others 23.5
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Figure 12: Market share of global companies

market share of global companies
23% 19%
Michelin Bridgestone Goodyear
2% 4% 4% 5% 7% 17%
Continental
19%
Sumitomo Pirelli Yokohama Kumho Others
The 'big three' of the industry i.e. Michelin, Bridgestone and Goodyear (before its alliance with Sumitomo) each had annual sales of US$12bn. inevitably; the alliance has increased the competitive pressure on second-tier majors, notably Continental of Germany, Pirelli of Italy and Yokohama of Japan. They would also have to go on the acquisition route in order to survive. The structural developments are taking place against a background of continuing overcapacity in the industry, estimated at around 30% and slow growth in Latin America and the Asia-Pacific region in the wake of their financial crises. Table: 16 Segment wise Worldwide Sales of Tyres Mn nos. Cars OEM 217.7 Replacement 482.4 Total 700.1 100.00 248.8 100.0 949 100.0 68.90 198.2 79.7 681 71.7 31.10 50.6 20.3 268 28.3 % of total Truck % of total Total % of total
Figure: 13 Segment wise Worldwide Sales of Tyres
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segmentwise world wide sales of tyre
OEM 28%
Replacement 72%
One striking feature, which comes out prominently from the above table, is that major part of world sales of car and truck tyres is to the replacement market. The replacement market is self-perpetuating and has inbuilt growth despite short-term setbacks from time to time. As the worldwide automotive sales is rising by a marginal 2% per annum, sales to the replacement segment will continue to dominate. However, some recent trends in new vehicle manufacturing will go to help the OEM segment. Today, tyres are being purpose-developed for each new model with technicians working alongside car suspension engineers. Secondly, new markets like India and China offer the world major tyre producers a large market to exploit. In its latest industry analysis, the Economic Intelligence Unit (EIU) forecasts that sheer muscle in terms of marketing and technical development will enable the three biggest players to continue to take an ever-larger share of the global market, reaching 70% by 2009 from little more than 50% from now.
6.2 India Vs Global:

The global tyre market currently is estimated at USD 70 billion while the Indian market is around Rs. 100 million. The global market is dominated by Goodyear-Sumitomo with a share of 22%. On the other hand, the domestic industry is dominated by MRF Ltd. Several mergers and acquisitions have characterized the global market, in the recent past. This is essentially to acquire technology, gain wider access to markets and be competitive. Indian players are also reengineering their businesses and looking at strategic tieups in this segment.
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In terms of technology, radial tyre usage has been catching up at a quick pace in the global market. Almost all the automobile segments have shifted to radial tyres and the usage of cross ply is restricted to trucks and buses only. On the other hand, in the domestic market, the radial tyres are being used only in the passenger car segment while the rest of them still stick to the cross ply variety. This is because of the lower price of cross ply and its retreadability. In addition, the poor quality of roads in India restricts the use of such tyres.
CHAPTER-7
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OVERALL ECONOMIC ANALYSIS:

Table: 17 Indian Economy Statistics & Indicators: SR.NO. 1. 2. 3. 4. 5. 6. 7. 8. ECONOMIC INDICATOR GDP Growth Rate Labor wages Export Import Inflation Rate Investments Current a/c Exchange Rate 2006 9% $496.4 million 4,65,748 cr. 6,95,412 cr. 8% 28.1%(GF) -43,737 cr. Rs. 44.101 2007 7.4% $509.3 million 5,79,128 cr. 8,65,484 cr. 9.21% 29.2%(GF) -45,343 cr. Rs. 45.33 2008 8.7 % $516.4 million 6,37,190 cr. 9,99,286 cr. 8% 31.8%(GF) -70,357 cr. Rs. 50.23
(Source: RBI)
ANALYSIS:1. While analyzing trends in the global economy it has been observed that serious challenges confront the WTO as far as implementation of the Doha Round of World Trade Talks are concerned. The Trade Talks aims to allow greater accessibility to world markets to goods produced in the Third World Countries. 2. The foreign exchange rate of India amounted Rs.50.23 in Nov. 2008. 3. Indias GDP growth rate was 7.4% in 2007 while it is 8.7% in 2008. 4. Exports is 6, 37,190 Cr. In 2008, while Import figures stood at 9, 99,286 Cr. 5. Investment is 31.8% in 2008. 6. The inflation rate in dec.-2008 is 8%. 7. The GDP rate in aug-2008 is 8.7%
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. As to the World Bank data, the world constitutes a total surface area of 133940.9 thousand square kilometers in the year 2006. The estimated population over the world has reached at 6,525,170,264 according to July 2007 estimation with an annual percentage growth rate of 1.14. It has a life expectancy rate of 64.77 years as to July 2007 estimation. The birth rate and death rate per 1000 is calculated at 20.05 and 8.67 respectively in the same year. The infant mortality rate per 1,000 life births for July 2006 is 48.87. The output over the world increased by 4.4% in the year 2006. The largest contributors of the world output were India, China and Russia. The Gross World Product (in purchasing power parity) as to the 2006 estimated data has reached at $ 60.71 trillions with a real growth rate of 4.7%. The services sector contributes a largest share to the world GDP. As to the 2006 estimated data, the services sector accounted for 64% followed by industries at 32% and Agriculture 4%. The Gross Domestic Product in the country like India is experiencing a faster rate of growth in the recent years. With regards to the composition of GDP, the percentage shares of various sectors have largely changed. The percentage share of the agriculture in the total GDP has declined, on the contrary the percentage share of services in the GDP is rising faster. .
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CHAPTER-8 ANALYSIS 8.1 4 ps analysis:

Product
Based on the technology, the automotive tyres can be broadly classified into traditional cross-ply tyres and technically superior radial tyres. The usage of the radial tyres is picking up steadily, especially in the passenger car segment. Radial constitute about 50% of the total market for passenger car tyres. However the usage of radials is negligible in other segments. Though the host of the radial facilities has been set up in the recent past, India is still a major producer of cross-ply tyre has Indias forte. Globally the cross-ply tyre is a fading concept characterized by relatively low vale addition. Radial tyre production involves a highly technology intensive process as a result the price of a radial tyre is about 30% more than crossply. Realizing growing importance and reference for radial tyres, domestic majors are gearing up to exploit the opportunities. Almost all companies such as CEAT, Goodyear, MRF and JK Industry has set up facilities for radial tyres. Apollo which had hitherto confined itself to the trunk and bus segment, has turned its attention to the radial market.
Price
The tyres are available in different price according to its size and quality of the tyre. The price of the tyre is mostly depending on the price of the raw material used. In the tyre Industry significant portion of the buyers are organized, so prices are more competitive in the Industry. It is very difficult to charge premium price for the product as there is no significant difference in the quality of product.
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The two wheelers and three wheelers are available in the price range of 1000 to 2500 rupees, small car and big car tyres are available in the price range of 2500 to 5000 and the trucks, tractor and LCVs, a type available in the price a range of 10,000 to 40,000.
Place
Most of the companies have their own exclusive dealers in the country for the distribution of their products. Some of them also have replacement centre for the replacement facility to the customers. The distribution network is very with the kind of buyers viz. OEM, Replacement and Export Market. The typical distribution network in the industry is as follows. Company C & F Agent Original Equipment Manufacturer Replacement Buyers
Company
Dealers Exclusive, Show rooms
Promotion
The Indian tyre Industry is become more competitive than before in such a competitive market sales promotion plays very important role for remain present and enhance sale the various tools of sales promotion are used by different players in the market viz. exclusive show room for attract customer, offering discount, offers services like computerized wheel aligning, balancing and tyre fitting, besides selling plain vanilla tyres and providing physical ambiences. Most important perhaps, though exclusive showrooms, tyre companies can directly influence purchase in fever of the labels they make. High-voltage advertising that a few tyre companies do, word of mouth counts for a lot and is usually a very important purchase influencer. Little wonder that it makes sense to directly influence your customers buying
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habits by creating an ambience where he feels happy about buying the product. Exclusive ambience is required, given the technologically upgraded cars available today.
8.3 Five Force Analysis:
Michael Porter's Five Forces Model
Threat of New Entrants
Industry Competitors
Bargaining power of Suppliers Bargaining power of buyers
Intensity of rivairy
Threat of New Substitute s

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Supplier Power-High
The demand of most raw material especially rubber is high, while supply is restricted
Barriers to New Entrant-High

Capital- intensive Distribution Network Low operating Margin Branding
Rivalry among competitorsHigh

Top 4 players enjoying over 74% of total market share
Threat of SubstitutesLow
No direct substitutes Here we consider retread tyre as a substitute for new tyre
Buyer Power- High

High competition pressure due to high bargaining power of OEMs and wide brand choice in the replacement market.
Bargaining power of suppliers

In the tyre industry the Bargaining power of suppliers is high because the demand for most raw materials, especially rubber, is high. While the supply
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is restricted. So, it will result into the rise in the price. And it will be resulted in high supplier power.
Bargaining power of buyers

This can be segregated 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. So it is obviously that bargaining power of buyer is high.
Threat of substitute
It is moderate 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 and this is heading towards strong position in India too.
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.
Industry rivalry
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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.
8.4 PEST Analysis:

Description
The PEST analysis is a framework that strategy consultants use to scan the external macro-environment in which a firm operates. PEST is an acronym for the following factors:
PEST factors play an important role in the value creation opportunities of a strategy. However they are usually outside the control of the corporation
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and must normally be considered as either threats or opportunities. In the table below you find examples of each of these factors. Political (incl Legal) Environmental regulations and protection Tax policies Economic Social Technological
Economic growth Interest rates & monetary policies Government spending
Income distribution
Government research spending Industry focus on technological effort New inventions and development Rate of technology transfer Life cycle and speed of technological obsolescence Energy use and costs
Demo Figureics, Population growth rates, Age distribution Labor / social mobility
International trade regulations and restrictions Contract enforcement law Consumer protection Employment laws
Unemployment policy
Lifestyle changes
Taxation
Work/career and leisure attitudes/Entrepreneurial spirit Education
Government organization / attitude
Exchange rates
Completing a PEST Analysis is relatively simple, and can be done via workshops using brainstorming techniques. Usage of PEST analysis can vary from: company and strategic planning, marketing planning, business and product development, and research reports.
Political Factors
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Government Policy Tyre Industry Delicenced Export (of tyres and tubes) Import (of new tyres and tubes) Import Policy for Used / Retreaded tyres: A.
1987 Freely allowed Freely allowed Since 2001 Restricted Since April, 2006
Trade Policy 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 Tariff Duties
B.
Item - Tyres-Basic Import Duty Normal rate of basic custom duty (MFN) -10% C. Under the Asia Pacific Trade Agreement (formerly Bangkok Agreement)-8.60% Under the Indo Sri Lanka Agreement-Nil Under the SAARC Agreement-5% ( only Truck/Bus tyres) Under the India Singapore Agreement-5% Budget Impact on Tyre Industry
Budget Proposals Excise duty on tyres and its raw materials to remain at 16% Reduction in excise duty on Caprolactam (raw material for NTC) from 16% to12%. Excise duty on Benzene used in manufacture of Caprolactam also reduced from 16% to 12%. A special purpose fund for re-plantation and rejuvenation of rubber to be launched.
As many changes were made in the 2007-08 Budget there are very few recommendations this time. In the budget 2007-08 customs duty on tyres was reduced from 15 per cent to 12.50 per cent where as there was no
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reduction in customs on natural rubber smoked sheets and technically specified natural rubber and duty on these continues to be 20 per cent. This is an anomalous situation and needs to be corrected in such a way that indigenous rubber growers interest is not adversely affected. As a result the industry has asked for the following. Reduce custom duty from 20 per cent to 10 on natural rubber smoke sheets and technically specified natural rubber, subject to tariff rate quota allocation in a financial year. In case of polyester tyre cord and butyl rubber, customs duty should be 2.5 per cent less than the applicable on tyres and tubes. As far as the possibility of above thing happening is very low, the reduction in the custom duty will definitely help the tyre companies to improve the margins as it would reduce the cost of SBR, PBR and NTC. The Union Budget 2008 offers a mixed bag to the domestic tyre industry. Despite lobbying, the Budget continued extending protection to the domestic natural rubber growers and belied tyre manufacturers' hope of a reduction in import duty on its prime raw material from the existing 20 per cent. However, reduction in customs duty on synthetic rubber, rubber chemicals and other inputs will offer some breather to the industry. This coupled with the reduction in duty on imported tyres from 12.5 per cent to 10 per cent is expected to keep a check on tyre prices in India. Since, tyre constitutes a substantial part of the cost of road transportation, the Budget may, therefore, keep a check on freight cost too. "The reduction in duties in other raw materials will offer tyre manufacturers and opportunity to part offset the impact of rising cost of natural rubber.
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Economical Factors
The industry is expected to grow at an average rate of 7% per annum during Eleventh Five-Year Plan period.
Volatility in Raw Material Cost with Exchange rate:

Table: 18 Natural rubbers cost Vs Avg. exchange rate Year Q1-07 Q2- 07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Nat. rubber cost 100 109 96 106 104 100 105 avg. ex. Rate 44 41 40 39 40 42 44
Figure: 14 Natural rubber cost Vs Avg. exchange rate

natural rubber cost vs avg. ex. rate
120 100 price 80 60 40 20 0 Q1-07 Q2- 07 Q3-07 Q4-07 year nat. rubber cost avg. ex. Rate Q1-08 Q2-08 Q3-08 44 41 40 39 40 42 44 100 109 106
96
104
100
105
Table 19: Tyre cord fabric cost Vs Avg. exchange rate Year Q1-07 Q2- 07 Q3-07 TCF cost 100 100 101 Avg. ex. Rate 44 41 40
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Q4-07 Q1-08 Q2-08 Q3-08
100 95 91 90
39 40 42 44
Figure 15: Tyre cord fabric cost Vs Avg. exchange rate

tyre cord fab. vs avg ex. rate
120 100 price 80 60 40 20 0 Q1-07 Q2- 07 Q3-07 Q4-07 year TCF cost avg. ex. Rate Q1-08 Q2-08 Q3-08 44 41 40 39 40 42 44 100 100 101 100 95 91 90
Table 20: Carbon Black cost Vs Avg. exchange rate

Year Q1-07 Q2- 07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 carbon black cost 100 107 119 107 100 98 101 avg. ex. Rate 44 41 40 39 40 42 44
Figure 16: Carbon Black cost Vs Avg. exchange rate
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carbon black cost vs avg ex. rate

140 120 100 80 60 40 20 0
100
107
119
107
100
98
101
price
44
41
40
39
40
42
44
Q1-07
Q2- 07
Q3-07
Q4-07 year
Q1-08
Q2-08
Q3-08
carbon black cost
avg. ex. Rate
Table 21: Overall raw material cost Vs Avg. exchange rate

Year Q1-07 Q2- 07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 overall raw material cost 100 105 102 103 100 99 100 avg. ex. Rate 44 41 40 39 40 42 44
(Source: Way2wealth)
Figure 17: Overall raw material cost Vs Avg. exchange rate
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overall r/m cost vs avg. ex. rate

120 100 price 80 60 40 20 0 Q1-07 Q2- 07 Q3-07 Q4-07 year overall r/m cost avg. ex. Rate Q1-08 Q2-08 Q3-08 44 41 40 39 40 42 44 100 105 102 103 100 99 100
Trade Policy:
All the category of tyre can be exported freely. All the category of new tyre can be imported freely. No WTO bound rates for tyre & tubes. Second hand /used tyre can also imported freely (certain condition)
Dumping
Dumping means to sell the same product in another country at the fewer prices then that countries price. So basically to break market by selling at cheap price. The domestics tyre industries fear dumping of tyre in Indian by mid-size foreign tyre companies following the government s decision to allow tyre imports. The industry is more worried about import of used and second- hand tyre into the country than the new tyres. The second hand tyres could be offered to Indian customer at throw away prices since disposing of used tyre is a major problem in developed countries. Thus these how the Indian tyre industry is getting affected by dumping. The recommendation for imposing provisional anti-dumping duty on import of cross-ply tyres from China and Thailand seems to have brought the domestic manufacturers to a stand-off with its dealer network and sections of user industry as well. All India Tyre Dealers Federation (AITDF), which had objected to ATMA's anti-dumping plea before the designated authority, however, believes that
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imports are here to stay and is going to have a long term impact on trade and services for two reasons: First, new players are bringing in new trade practices like paving way for higher rate of return to the dealer network. Second, apart from the low-end products, imports are increasing at a faster clip in the high-end category as well.
Import-Export and Tyre Industry

Relief on reduction on import duty by 3.5% on input like buty rubber, nylon tyre cord, rubber chemicals, steel tyre cord and synthetic rubber will help. Big tyre manufactures will be happy, as there are ancillary industries in this sector.
Social Factors
Human Resource Development
Employment is always a major factor when measuring the significance of any economic activity. The automotive industry, on account of its backward and forward linkages, is a significant generator of employment - both direct and indirect. While direct employment is by way of workers engaged in the production of Tyre, indirect employment is generated in feeder and supplier industries to the tyre industry, such as the growers of Natural Rubber, dealer, retreaders, service and maintenance provider and employment in raw material sector etc. Thus steps are needed to ensure that demand supply gap, both quantitative and qualitative, in terms of human resources, does not arise. Vision Statement: Based on the above scenario, the Vision Statement for Indias automotive sector will be as follows: To emerge as the destination of choice in Asia for the design and manufacture of automobiles and automotive components. The output of Indias automotive Sector will be USD 145 billion, contributing to more than 10% of Indias Gross Domestic Product and providing employment to 25 million persons additionally by 2016.
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Manufacturing process of Tyre include the burning of rubber, so obliviously it spread lots of air pollution in the environment and it may be dangerous for the heath concern.
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Technological Factors
Increased cash and technology requirements in the domestic automobile tyres industry, given the strain on sales and working capital requirements as a fallout of the low growth and excess capacity in the industry. The industry was facing increasing technology requirement in terms of quality, consistency and longevity necessitating additional investments in modernization, larger working capital requirements were also expected on account of the stiff demand conditions prevailing in the industry, it added. The rating agency believes that increasing technology needs of the industry, especially with respect to radial tyres, is likely to emerge as a key area in future.
Technology Ladder
A. 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. B. 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 was needed to match cotton strength, concept of ply rating developed. It was also possible to have higher ply ratings now. C. 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
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durability. Nylon casing gave a boost to retread ability. 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. D. Radial (Construction) Tyre - Textile/Textile belt (Rayon/Nylon/Polyester): In spite of continuous development in Bias Tyre Technology, inherent problem of high heat development and poor life remains a continuous 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. E. 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. F. Radial (Construction) Tyre - Textile/Glass Fiber Belt: Similarly, development of glass fiber which is practically inextensible, led to application in passenger and Light Commercial Vehicle tyres with Textile Casing, providing corrosion free radial Tyre belt material. G. 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. H. Tubeless Tyre (Cross Ply):
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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. I. 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). J. 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. K. Tubeless Tyre - Radial Construction:
As in the case of Bias Tyres, the concept of tubeless tyre was extended to radial construction and introduced in later half of the century in Developed countries. A tubeless 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. L. 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 up to 0.65 are being manufactured today enabling Indian Industry to adopt high speed rating e.g. 190 kmph, 210 kmph etc.
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M.
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 up to ZR indicating speed capability in excess of 240 kmph. In India, this concept has not yet been found popular though customers are demanding tyres up to 220 kmph (V Rating). N. 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 revolutionizes 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. O. 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 finding its well deserved place in Indian Industry. P. 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.
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8.2 OT Analysis:
Opportunities
o Growing Economy - --Growing Automobile Industry ----Increasing OEM demand ----Subsequent rise in replacement demand. A. Growing Automobile Industry
Since the first car rolled out on the streets of Mumbai (then Bombay) in 1898, the Automobile Industry of India has come a long way. During its early stages the auto industry was overlooked by the then Government and the policies were also not favorable. The liberalization policy and various tax relieves by the Govt. of India in recent years has made remarkable
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impacts on Indian Automobile Industry. Indian auto industry, which is currently growing at the pace of around 18 % per annum, has become a hot destination for global auto players like Volvo, General Motors & Ford. A well developed transportation system plays a key role in the development of an economy, and India is no exception to it. With the growth of transportation system the Automotive Industry of India is also growing at rapid speed, occupying an important place on the 'canvas' of Indian economy. B. Growing OEM demand
Traditionally, the replacement market has been the main growth driver for the tyre industry, as also the major segment that consumes tyres; however, with the recent escalation in auto sales, OEM demand too, has been on a substantial increase, thus enlarging its share in the sales pie. Auto sales have been growing at a CAGR of 15.8% during 2002-06, which has driven the growth in the tyre industry, keeping the OEM demand buoyant. Going forward, the automobile industry is estimated to grow at double digits. This, in turn, is expected to keep demand, for tyres from OEMs, buoyant. Looking at the global rail-to-road cargo scenario, in Europe, roadways have an 84% share, while in India, currently, the ratio is 35:65, which was 62:38, two decades ago. Also, with growth in roadways and with projects like Golden Quadrilateral and NSEW getting implemented, there would be a further shift in freight movement, from railroad to roadways. This would lead to an increase in demand for automobiles and hence, the OEM demand for tyres. o 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 o Access to global sources for raw materials at competitive prices, due to economies of scale o Steady increase in radial Tyres for MHCV, LCV
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Threats
o Continuous increase in prices of natural rubber, which accounts for nearly one third of total raw material costs so it become a big threats again industry. o 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 o With crude prices scaling upwards, added pressure on raw material prices is expected o Ban on Overloading Industry estimates say that nearly 15% of Commercial Vehicles are overloaded to the extent of 100-150%, which results in a higher wear and tear of tyres. The recent Supreme Court order, to curb the overloading of trucks, is expected to affect the demand for MHCV tyres, in both, the replacement and OEM markets. On account of the ban on overloading, the life of a tyre would increase and also, tyres that are not overloaded would further enable re-treading, before being replaced. Hence, the replacement demand may come down. However, the curb on overloading is expected to lead to additional truck sales, as also the demand for multi-axle vehicles would rise. This would lead to higher OEM demand. So, in the short term, ban on overloading could be a dampener, but in the long run, it is definitely a positive move. The ban would also provide a fillip to radialisation. o Cyclical nature of automobile industry. o Threat from imports The increase in import of cheap Chinese tyres last quarter has resulted in the fall of tyre prices by over 25 per cent in the market. Tyres majors, including MRF and Metro, may oppose the entry of Chinese tyres, but the worlds top tyre makers Michelin and Bridgestone have announced to import topend radial tyres for trucks and buses to supply across the country. The recent easing in import norms for tyres is another bother for local tyre producers. There is hardly any major duty
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differential between the import of tyres and tyre-inputs. Moreover, tyre imports from a few Asian countries enjoy a further concession of 5 per cent under the Bangkok agreement.
As a result, local tyre producers face the threat of cheaper imports. Fortunately for them, the threat is confined broadly to the radial tyre segment. Considering that India is a major maker and exporters of bias tyres, local producers do not face the import threat in this segment. However, it would be a bit premature to take a firm view on the extent of import threat. Local producers have been working, and have also managed, to match international companies in terms of product quality. This, coupled with a sharp depreciation in the value of the rupee, has stemmed the flow of imports. However, from the long-term perspective, the flow of cheaper imports is a major threat to the domestic industry. Top global majors, such as Goodyear, Bridgestone and Michelin, have huge capacities spread across the globe. With import norms being progressively relaxed, these companies may find it lucrative to have a presence in India. Such a trend is already evident in the cases of Michelin and Bridgestone. Bridgestone has set up a unit in India and is concentrating on the radial tyre segment. It has also decided to market imported tyres from its overseas parent. Industry sources also point out that Michelin has started marketing its product in India, albeit in a very low-key fashion.
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Key Success Factors:
Technology upgradation
In Tyre Industry technology upgradation is absolutely critical issue. In the era of modernization and globalization, there are difficult to find a place or exist into the business without innovations or upgradation of technology. So, many companies are come by the certain technology innovations and newer things. In Tyre Industry now a day we find concepts of Tube-less Tyres, Environmental Friendly Green Field Tyre, and Anti puncture Tyres and So on. We can put this technology upgradation as a major Key Success Factors in the Tyre Industry.
Radial Tyres
Industry likely to focus on the manufacturing of high performance Radial Tyres. Radial Tyre provides long life in compare of the other basic tyres. And there are threat from the China and South Korea who are providing the Radial Tyres with the high amount of efficiency with the low prices. Some companies are now realizing the importance of this technology and they are start working in this area. If the companies are successful in production of Radial Tyre with high efficiency and low price then it will be drives the growth rate of Tyre Industry at new levels. So, Radial Tyre will be a one of the major Key Success Factor for the Industry.
Introduction of new Concepts
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Another major Key Success Factor for the Tyre Industry will be a degree of introduction of new concepts by the players. The pace of the introducing newer concepts will certainly helps to the Tyre Industry. New concepts like Puncture proof tyres, Low Rolling resistance tyres, Environmental Friendly Green Field Tyres and so on.
Growth Of Automobile Industry
Main source of demands in Tyre Industry depends on the Automobile Industry. So, Automobile Industry plays very crucial role as a Key Success Factors in Tyre Industry. In India there are constant and steady growth seems in the Automobile Industry. So we can put this factor as a Key Success Factor in Tyre Industry.
Government Policy
Government policy also works as a Key Success Factors in Tyre Industry. It means to say that how much government is aggressive towards the infrastructure developments and the other policies and rules towards the Industry. This factor leads the whole industry in particular directions.
CHAPTER-9
FUTURE OF TYRE INDUSTRY

9.1 Impact of recession
Due to global recession Indian tyre industry also affected with this. Indian tyre industry faces recession period in present time. And major decline in sells of all types of vehicles for last 1 year. So, selling of tyres also affected with this. Global recession impact via auto industry Global recession has devastated the global auto industry with pinching effects on the Indian auto industry. India is a strong and growing economy but the hit of recession has put red marks on the entire balance sheet of the Indian economy.
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Among the leading car manufacturers, General Motors and Ford were the first one to file for bankruptcy. GM is struggling to stay alive and claims that the company has just enough cash to continue its operations. Even the merger talks of GM and Chrysler have been officially brought to a halt because of the liquidity crunch. U.S sales have fallen down by 32% which has directly affected the Indian car industry where GM has recorded a fall of 45%, Ford of 30% and Chrysler down by 35%. All the three major car manufacturers have reported declined growth after the hit of recession. After the industry experienced a heavy fall in the month of August due to inflation, September proved to be a promising month with things setting out at the right place. Then again the market went in the negative terrain swayed by the wind of recession. October usually is considered to be the best month for car sales because of the festive season. Unfortunately, this year it proved to be a curse for the Indian auto industry. At one end of the spectrum, car manufacturers like Tata Motors, GM, Hyundai, Ford, Renault, Mahindra, and Maruti Suzuki are investing huge amounts to establish new production plants and line up launch of car models. At the other end of the spectrum, SIAM has cut down the growth forecast of automotive sales from 12.5% to 9.5%. This initiative taken by SIAM further forced few car manufacturers like Tata Motors and Maruti Suzuki to cut down their production which further took away the job of almost 300 workers. Even Mahindra-Renault reduced the number of production units of their Logan. In addition, the severe liquidity crunch in the U.S market has also forced many of the car buyers to cut upgrades to bigger cars and many are pushed back from buying new cars. With deteriorating car sales, even production has gone down to a great extent, which has eventually put a negative impact on the auto component industry. In October, overall car sales declined to about 9.05% over October 2007 and the car production fell down to about 12.32%. Further to that even the month of November was not successful in bringing some charm to the industry. In fact, November recorded the steepest fall in car sales in the past five years. Maruti Suzuki recorded a fall of 27%, Mahindra & Mahindra recorded a fall of about 40%, and Tata Motors showed 12% decline in the car sales.
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It is also said that the recent Mumbai terror attack and the cyclonic rain in South India have added to the woes of Indian car manufacturers.
9.2 Future Scenario:

The tyre industry in India has already embarked on a process of consolidation, and this is no different from what has basically happened in the rest of the world already. India is no more an isolated economy, and the continued economic liberalization, and relaxation of import duties and laws, makes competition from overseas inevitable. In fact, tyres are already being imported into India. Nevertheless, while the Indian tyre industry does lack scale, the tyre companies themselves have proven to be very competitive. What is especially encouraging is the vigor with which the Indian tyre companies are proactively changing to face global competition in the changed economic and industrial environment. Product improvements and cost reduction programs, along with a focus on the future - radials - augurs well for the industry. Also, we believe the unique road conditions, and consumer behavior in India, provides a window of opportunity, for a few years at least, before the mainstay of the Indian tyre industry-bias truck and bus tyres - will be threatened by the shift towards radials. We are confident that the continuing innovative efforts of our partners in the Indian tyre industry will produce the necessary results that allow them to continue to perform credibly in the future as well.
9.3 Crisis in the industry:

India, as a whole, is clearly going through trying times, while GDP growth continues to slow the growth rate from a peak of 7.5% has decelerated to a little less than 5%. What is of more concern to us is the fact that the growth in industrial production had dropped drastically from a peak of around 11% per annum to a little over 4%. The lack of investment, and project fruition, especially in the infrastructure sector, is now clearly adversely affecting the Indian industry. The general slow down in exports and increased competition from imports, and the overall picture is a sea change from the high levels of optimism of three - four years ago. So the tyre industry growth has also slowed down. Some manufacturers have even stopped production altogether. The fact that some of our major customers had reduced production this year due to inventory build-up, and labor unrest, also has not helped.
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The SBM is coping with the crisis effectively. To tide over the crisis, it has expanded its business interests outside the tyre and rubber industry. It supplies a healthy range of products to the plastics, optical fiber and power cables, synthetic fibers, pharmaceuticals and security industries as well. This has effectively mitigated the risks of being dependent on just one industry - especially a cyclical one - such as tyre and rubber. The continued political instability, Far Eastern economic crisis, and possible global recession are complex variables. We do hope, however, that by early 2000, the economy should start improving.
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CONCLUSION
The industry is definitely set to grow, with an estimated volume growth of 12-14% in 2008-09. Both, OEM and Replacement demand would drive growth, with exports also adding-in. The growing economy and the infrastructure sectors provide the much-needed stimulus. However, tyre companies face immense competition, together with price and cost pressures. Pricing pressure, from OEMs because of their high bargaining power and in the replacement market due to huge competition, is a substantial dampener. Companies are now giving emphasis to innovation in product and process technology and to operational efficiencies. However, the continuously rising trend witnessed in the prices of raw materials remains an area of concern. Though the rubber Price is continuously rising. But Domestic price is higher than international price. Tyre companies would definitely show improvement in the margins, sequentially, and profitability would improve. But then, it is highly dependent on the prices of major raw materials like Rubber, Carbon Black, NTC Fabric, SBR and PBR, which are highly volatile. However, with surging automobile sales, if demand for tyres increases without the supply catching up with it, then, prices of tyres are likely to increase. This may provide some benefit to the tyre companies. If we view the financial performance of various tyre-manufacturing companies, most of them are operating at thin margins and any substantial increase in costs would hurt the business adversely .Hence, we do not find tyre stocks attractive, from an investment perspective. At current levels, all tyre stocks look fairly valued. One can invest at lower levels, keeping in mind the view on rubber prices. When rubber prices fell from their highs, , giving good returns to the investors.
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CHAPTER-1 INDUSTRY OVERVIEW

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

1.1 Contribution in Auto Industry

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

1.2 Industry structure:

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

1.3 Market Profile :

1.4 Sector specifics:

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

1.5 Out look for the Industry:

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

1.6 Indian Tyre Industry at a glance:

US $ 4600 Million 85 Million 87% 78 Million 2077

1.7.1 Sector trends

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

1.7.2 Pricing Scenario

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

1.7.4 Government Policies

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

1.7.6 Imports of tyres and its Impact on the Industry

1.7.7 Increasing Radialisation in India

1.8 Road infrastructure

1.8 Impact of budget on tyre industry

Table: 2 Custom duty

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

(Source: Financial times) Table: 3 Impact on companies

(Source: Financial times)

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

CHAPTER-2 MAJOR PLAYERS

MRF APOLLO J K TYRE

2.2 Apollo Tyres (ATL)

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

Truck LCV Passenger Car

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

Utility Vehicle Farm HCV Two-wheelers OTR

CHAPTER-3 TYRE MANUFACTURING PROCESS

3.1 Manufacturing Process:

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

3.2 Tyre Recycling:

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

3.3 Types of Tyres:

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

Figure: 2 weight of raw material

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

Weight of Raw material

10% 5% 6% 5% 5% 10% 18% 41%

3.4.1 Natural Rubber

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009

3.4.2 Synthetic Rubber

3.4.3 Carbon Black

3.4.4 Nylon Tyre Cord

S.P.C.E./ MBA DEPARTMENT-Visnagar Batch 2007-2009