MRF expansion may focus on CV radials

MRF Ltd is on a Rs 150 crore expansion plan that is expected to focus on the radial tyre market for commercial vehicles (CVs).

While company officials refused to reveal details of the deployment of capital proposed for the current year, there are some hints available.

Philip Eapen, executive director, marketing, told Business Standard, "We see the market for commercial vehicles particularly looking up. Our investments will look at this."

He was not as buoyant about the passenger car tyre market, though he said the expansion will address all segments.

Earlier, at the company's annual general meeting, chairman and managing director, K K Mammen indicated that the Golden Quadrilateral project and the North-East-West-South linkages were the inspiration for their expansion plan.

Currently radial tyres account for a mere two per cent of the Indian truck tyre market. JK Tyre is among the leaders in the segment.

French tyre major Michelin has been rolling in small quantities of radials and is talking of importing about 15,000-20,000 tyres in the current year. Its joint venture with Apollo announced plan to get into truck radials production by the first quarter of 2005 on Tuesday.

MRF, which is the pioneer in indigenous radial production, has been making truck radials for the past 10 years. However, this product line has not been commercialised. Market estimates are that the company makes about 200-500 truck radials a month.

Eapen refused to discuss figures and break-ups. All he offered is, "Our supplies have been according to market demand."

Sources said MRF has been releasing this product selectively into the market, based on enquiries. Eapen confirms that MRF is an OEM radial tyre supplier to Volvo.

The domestic market for conventional 'biased' truck tyres has been seeing a major infiltration by Chinese, Taiwanese, Thai and Korean products.

Tyre companies have been talking of major unsold inventory build-ups. But Eapen said this is not true of MRF. "We live a hand to mouth existence and do not allow inventories to build up."

Some dealers agree that MRF is very strict about level of products brought to the market. "They do not believe in dumping, offering discounts or allow inventory pile-up," a Chennai dealer said.

In fact, the market grapevine is that MRF has actually cut back on its truck tyre production this month to deal with the oversupply situation. Eapen denies this. "Don't paint us with the same brush as rest of the industry. Our tyre production has actually grown in the past two months," he says.

The fact that Michelin is moving in big time and is actually in talks with Volvo is also a good reason for MRF to start comercialising its product.

Though MRF's truck radials are available only on enquiry, they are the cheapest ones on Indian roads today. JK offers the most popular truck radial - 10.0020 (size) - at Rs 24,764 (ex-factory).

Michelin offers the same at Rs 29,300 (ex-factory). MRF has been making its product available at Rs 20,872 (ex-factory). Market observers, however, figure that MRF will raise its price once they commercialise their product.

While the price differential between biased (almost brands offer the 10.0020 biased tyre at Rs 17,500) and radial tyres for commercial vehicles range between 25 and 40 per cent, the life expectancy and fuel efficiency of the radials will give them an edge.

While the life of a tyre widely varies according to its usage, the biased tyres are estimated to average 50,000 to 60,000 km. On the other hand, radials average about 85,000 km. This makes radials a cheaper proposition in the long run. The cost of biased tyre is estimated at 14-15 paise a km, while the radial works out to about 9 paise a km.

Once the quadrilateral roadways are in place the share of truck radials are expected to jump to seven per cent of the market for commercial vehicle tyres.

So far radial tyres have not been so attractive for commercial vehicles in India as they are not suited to overloading which is the bane of Indian transportation practices. The bigger issue has been the road conditions.

The roadway projects in the making is going to change the transportation experience. Vehicles are going to have smoother and speedier rides.

Internationally 75 per cent of the commercial vehicles on the roads run on radials. Once Indian roadways match international standards, the preference will swing in the direction of radials.

However, overloading will still remain an issue. The market for the conventional biased tyres for commercial vehicles will continue to grow at 10 per cent. But the bigger difference will be felt in the truck radials segment. It is the most logical direction for MRF's expansion plan to take.