Tyre industry may miss outsourcing boom

IN FOCUS / RUBBER

The outsourcing boom that's taking the entire nation by storm is likely to have little impact on the tyre industry that has huge potential, thanks to the lopsided policies of the government.

The tyre industry needs to source rubber at global prices. Availability of rubber at par with international majors like Continental, Pirelli or Yokohama would lead to development of India as a base for manufacturing, according to Anil Sampat, an industry analyst and former rubber industry insider.

India's large players are small compared with global mid sized companies such as Continental, Pirelli or Yokohama, which are about $2-2.5 billion in terms of sales.

Indian companies are yet to achieve this size and most are less than one-fifth the size of such medium players globally.

India's largest player MRF is still one fifth in size of global companies. The only way the Indian tyre industry can grow and reach global scale is to attract investments from international tyre majors as the industry is capital intensive.

All India Rubber Industry Association (AIRIA) a year back had hinted on the US$200 billion outsourcing opportunity. It said if India could even garner one per cent of this, it would have made an impact.

But this is unlikely, reiterates Sampat, a former AIRIA president. "The market in India is worth about Rs 10,000 crore. It is in the hands of four big players, two medium players and few small players. The big four - and here I am assuming Vikrant and JK are merged - are likely to have a 2002-03 turnover of Rs 8,000 crore," he adds.

The two medium players - Goodyear and Birla - should account for Rs 1,000-1,200 crore. The rest should notch up another Rs 1,000 crore.

With a market size of Rs 10,000 crores, the minimum critical mass is Rs 2,000 crore. Below this size, Indian players will find it hard to survive.

Globally the tyre industry is a $70-billion market. All the Indian players rank between 10 and 20 globally. The top three worldwide have sales in the range of $12-13 billion.

The small size of Indian companies is a source of worry, says Sampat. With tyre industry expected to grow only by 2 per cent, "real growth can come only when India offers world class manufacturing facilities for global players," he points out.

The industry is currently suffering as natural rubber, the major raw material input in cost terms, has become expensive.

This has hurt export of rubber products. The price of natural rubber has been rising for a year. It is presently ruling at Rs 53 per kg ex-Kottayam.

The production of natural rubber for 2002-03 was to the extent of 6,49,435 tonne as against consumption of 6,95,425 tonne. The import of natural rubber was 26,229 tonne as against export of 55,311 tonne.

Growth of production of new rubber was 4.12 per cent as compared to the growth rate of 9.54 per cent in consumption. The government was hugely subsiding natural rubber exports where there was very little value addition.