Boom in automobile sales drives tyre industry's growth into high-speed lane

The boom in automobile sales is responsible for a higher proportion of the tyre industry’s growth.

In the past, the latter was mostly driven by replacement market demand, still the lion’s share of total tyre sales. However, the share of sales to automobile makers, also termed Original Equipment Manufacturer (OEM) sales, is moving up for tyre makers.

“With bullishness in the economy and the automobile industry, the tyre industry was also on an upward march (in FY18). Our own estimates indicate the growth has been led by the OE sales, more than by the sales in the replacement market,” leading tyre maker Apollo noted in its FY18 annual report. 

The contribution of OEM sales in growth is estimated to be strengthening in the current financial year. In the first quarter of FY19, production of all automobiles (passenger and commercial vehicles, two and three-wheelers) rose a little over 16 per cent. The production volume (excluding tractors) had grown almost 15 per cent in FY18, to 29.07 million units.  The trend so far this year indicates it could be another record year of production.

MRF has pegged tyre volume growth at eight to 10 per cent. However, it expects replacement demand to grow six to eight per cent, against eight to 10 per cent growth in OEM consumption. While overall volume growth was a welcome sign for tyre makers, it was also a positive sign that the production volume of commercial vehicles (CVs), which brings the highest revenue to the industry, is also growing at double-digit. After 10 per cent production growth last year, the first quarter’s production of CVs had jumped 68 per cent, though on a low base of the previous year when transition to the Goods and Services Tax (GST) and BS-IV emission norms had impacted sales.

The share of OEM in overall revenue of tyre makers has been inching up. Apollo Tyres saw the OEM contribution move up to 25.5 per cent in FY18 from a little less than 22 per cent four years earlier. Ceat has seen the OEM share increase to 24 per cent last year from 22 per cent in FY14.  

The expanding OEM business and healthy growth in replacement demand in the past couple of years have led to better capacity utilisation in the tyre industry. Imposition of anti-dumping duty on truck and bus radial (TBR) tyres from China last year also supported growth. 

“Chinese tyre imports dropped by almost half after the government imposed anti-dumping duty in 2017. Since then, domestic tyre companies have been witnessing increased demand and their capacity utilisation has gone up. Demand got another boost with the implementation of GST,” Ceat said in its FY18 annual report. 

According to the Automotive Tyre Manufacturers Association, the industry is investing Rs 206 billion in new units and another Rs 157 billion in expansion of existing units. Satish Sharma, president for the Asia-Pacific, Middle East & Africa at Apollo Tyres, said the company would increase TBR capacity at its Chennai unit to 12,000 tyres a day from the current 9,000-9,500. 

Rajiv Prasad, president (India operations) at JK Tyre said it was seeing rising demand from OEMs and the replacement markets -- better road infrastructure, stable interest rates and a good monsoon had supported demand for all automobile segments.