Two wheeler tyre space set for major competition

The two-wheeler tyre market is headed towards an intense competition and oversupply with the entry of new players such as Apollo and planned entry of other companies. Until now, this segment was overlooked by players who focussed primarily on the truck-bus and car tyres.

Earler this month, thirty-year-old Apollo Tyres, the country’s second largest tyre company by revenue, launched two-wheeler tyres. Initially, the company will sell tyres in the replacement market but it is in talks with some two-wheeler companies to become their original supplier.  The use of tyres is equally divided between two-wheeler makers and replacement market. If one has to be a serious player one needs to enter both the segments.

The company claims that being a late entrant will not impact its growth plans. Apollo Tyres vice-chairman and managing director Neeraj Kanwar said there is nothing called a late entry. Kanwar said the company was not scared of competition. “I am very confident that given our leadership in other categories, we will do well here”. Apollo has priced products around the prices of leading competitors.

The two-wheeler tyre segment is dominated by players like MRF, Ceat, TVS Srichakra and Michelin. Some of these players are also expanding capacities but entry of new suppliers can cause pressure on margins. Ceat, part of RPG Group, declined to participate in this story. An official at TVS Srichakra too said the company does not wish to comment.  

Paras Chowdhary, former managing director at Ceat said, “Many players in past decided not to enter two -wheeler tyres. But with growing margins, one cannot ignore it now.”

Entry of more players will make the segment more competitive. Since existing players are also expanding we may soon see a situation of oversupply. But, we have to wait to see who gets impacted and to what extent”.

The two-wheeler industry might be going through a tough time but two-wheeler tyre makers are on a firm footing. Other than the softened raw material price, which is common to all tyre makers, the two-wheeler segment last year has faced a shortage that lifted margins. This was due to a suspension of operations at Falcon Tyres’ Mysore plant in January last year because of labour protests. The suspension lasted eight months and helped two-wheeler tyre makers to improve profitability. Take the case of TVS Srichakra. Its net profit zoom by 109 per cent in the nine month ended December 31, 2015 to Rs 145.77 crore.

Apollo is not the only one excited by the prospects. JK Tyre is investing Rs 2,200 crore in acquiring a tyre unit from BK Birla Group which will provide the Delhi headquartered company a quick entry into the fast growing segment. Japanese company Bridgestone is also planning to enter the two wheeler tyre segment. Taiwanese tyre manufacturer Maxxis is investing in a two wheeler tyre plant in Gujarat.  

Volumes wise, two wheeler tyres make up for over 50 per cent of tyres sold in India. Value wise, however, it is a small 13 per cent. The two-wheeler tyre segment is growing at a compounded annual growth rate of 8.5 per cent. The growth triggers are a growing middle class population, disposable income in rural areas and easy finance schemes.

IN EXPANSION SPREE

• Earlier this month,  Apollo Tyres, launched two-wheeler  tyres
   
• Company will sell tyres in the replacement market but it is in talks with two-wheeler companies to become their original suppliers
   
• Company claims that being a late entrant will not impact its growth plans
   
• Two-wheeler tyre segment is dominated by players like MRF, Ceat, TVS Srichakra and Michelin
   
• Some of these players are also expanding capacities, but entry of new suppliers can put pressure on margins
   
• JK Tyre is also investing Rs 2,200 cr in acquiring a tyre unit from BK Birla Group