The domestic tyre industry has lined up investments worth over Rs 10,000 crore between now August 2013. The additional investment is in 19 tyre projects targeted for completion this year. A major chunk of the projects are coming up in Gujarat, Tamil Nadu and Maharastra.
Industry experts say that post-2013, with the stabilisation of these projects and the availability of incremental domestic radial capacities, the dependence on Chinese imports would reduce. “Despite the worrying macroeconomic indicators and a general slowdown in domestic automotive sales, the Indian tyre industry continued to post a healthy 25-30 per cent revenue growth during the first quarter of 2011-12 supported by strong replacement and export demand," said a report prepared by ICRA.
Domestic OEM demand growth was also healthy at around 15-20 per cent, albeit weaker than in the previous fiscal. However continued cost pressure from high cost NR inventory led to a 300-350 bps operating margin erosion, both on a year-on-year (y-o-y) and sequential quarter basis, the report said.
For fiscal 2011-12, while ICRA expects moderation in automotive OEM tyre demand, the strong growth in OEM sales in the last two fiscals is expected to translate into higher replacement demand. Growth in M&HCV replacement demand however could be affected by a slower economic growth.
Besides grappling with high input costs and weak demand, domestic players are expected to face additional pressure with the lifting of anti dumping duty (ADD) (with effect from August 2011) on Truck and Bus radials (TBRs) imported from China and Thailand.
While this move is expected to be contested by the industry players, the lifting of ADD makes the imported TBRs cheaper by 15-20 per cent, limiting domestic demand and pricing power. The domestic tyre industry has been in an investment mode during the last few years with almost all participants adding significant capacities.
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Supply additions were high between 2008 and 2010, with domestic capacities increasing by around 49 per cent. While the capacities in 2010-11 are estimated to have increased by eight per cent, the industry is poised for another 25 per cent addition during the next two years.
Of this, bulk of the investments are expected in fiscal 2011-12 with 19 tyre projects targeted for completion this year. The industry has already witnessed an addition of 17.7 lakh tyres from JK tyre, Metro Tyres Limited (Metro tyres) and Bridgestone India Private Limited during the first quarter of fiscal 2011-12.
Other major projects scheduled for completion during the current year include JK Tyres, MRF Limited, Falcon Tyre Limited, and Metro tyres, with most of the capacity additions being towards radial capacities. The table below details the investment schedule plans in the Indian tyre industry.
Apollo Tyres investing Rs 2,300 crore in Tamil Nadu and Gujarat, Balakrishna Industries investing Rs 1,400 crore in Gujarat and Maharastra, Bridgestone is investing Rs 3,210 crore in Pune and Pithampur, Ceat is investing Rs 340 crore in Maharastra, Dunlop is investing Rs 450 crore in Assam, Falcon Tyres Rs 570 crore in Uttharkhad and JK Tyres investing Rs 1,815 crore in Tamil Nadu and Karnataka.
Michelin group investing Rs 4,000 crore investments at Chennai, which is spread over a period of seven years.