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Numbers speak for Indian tyre manufacturers, most of which reported a healthy profit growth for three years. However, another set of numbers is more revealing. In FY15, on an average, the country saw an inflow of 2,100 tyres a day, up 60 per cent from the previous year. Almost 70 per cent of this comes from China and at a price cheaper to what Indian companies pay for raw material alone
“Chinese imports are coming at prices ($2 a kg) which are lower than our raw material cost. Chinese manufacturers are getting a subsidy to export and they are able to literally dump products. If you buy a tyre in China, it will cost you more than their export price”, said Anant Goenka, managing director of Ceat.
The import is primarily of truck and bus radial (TBRs) tyres, which form 40 per cent of the Rs 23,000-crore truck bus tyre segment. Imported tyres are feeding the replacement demand, according to the Automotive Tyre Manufacturers Association.
“Currently, as much as 25 per cent of the domestic demand for TBRs is being met by imported tyres, mostly from China. In other words, one in every four radial tyres replaced on a truck/bus is an imported one,” said Raghupati Singhania, chairman and managing director, JK Tyre & Industries.
Indian manufacturers are not able to match import prices. “In the replacement market, Chinese tyres are selling at a price lower by 25-30 per cent against the Indian produce. We have dropped prices by three per cent in the past six months,” said Goenka.
Strangely though, the pressure from imports and a high import duty on rubber do not reflect on the profitability. Ceat’s profit went up from Rs 106 crore in FY13 to Rs 299 crore in FY15. JK Tyre’s profit jumped from Rs 105 crore to Rs 253 crore. Apollo Tyres more than doubled its profit to Rs 645 crore in the same period. The profitability is because of a sharp decline in raw material price. “Raw material price may not remain at the current levels. You cannot see the past two-three years in isolation. The industry did not make healthy profits between 2008 and 2012,” said Singhania.
The sector says while profitability has been steady due to cheaper rubber price, growing top line is becoming a challenge in the event of rising imports. “The CAGR (compounded annual growth rate) in top line shows the stress. Today, revenue expansion is a bigger challenge than margin erosion,” said Satish Sharma, president (Asia-Pacific, Middle East and North Africa) at Apollo Tyres.
Apollo’s revenue declined four per cent in FY15, while JK Tyre grew its revenue by only three per cent. According to Goenka, if imports continue in this manner, there will be pricing pressure and eventually, it will start showing on the profits.
The sluggish top line growth comes at a time when many domestic automobile players are struggling to grow volumes. “Surging imports of tyres combined with a slowdown in auto sector has put pressure. The revenue growth of tyre industry has plummeted to just about five per cent in 2014-15 against an average growth of around 10 per cent in the previous years,” said Singhania.
Rubber prices have been going down. The indigenous RSS 4 grade is down 10 per cent since June 2014 and 25 per cent from June 2013. To protect farmers, the government raised import duty by five per cent to 25 per cent from May.
According to Sharma, the pricing of rubber is governed by market forces and is not influenced by lower or higher imports.
Singhania added the increase in import duty would show an impact in the coming months and quarters.
“Today, if you make tyre outside India and import it, it will come cheaper. This works against the whole idea of Make in India. One can import tyres at seven per cent duty, while the rubber import duty is 25 per cent. Theoretically, duty on raw material should always be lower than duty on finished product. This is not an industry-friendly situation”, said Goenka.
“Chinese imports are coming at prices ($2 a kg) which are lower than our raw material cost. Chinese manufacturers are getting a subsidy to export and they are able to literally dump products. If you buy a tyre in China, it will cost you more than their export price”, said Anant Goenka, managing director of Ceat.
The import is primarily of truck and bus radial (TBRs) tyres, which form 40 per cent of the Rs 23,000-crore truck bus tyre segment. Imported tyres are feeding the replacement demand, according to the Automotive Tyre Manufacturers Association.
“Currently, as much as 25 per cent of the domestic demand for TBRs is being met by imported tyres, mostly from China. In other words, one in every four radial tyres replaced on a truck/bus is an imported one,” said Raghupati Singhania, chairman and managing director, JK Tyre & Industries.
Indian manufacturers are not able to match import prices. “In the replacement market, Chinese tyres are selling at a price lower by 25-30 per cent against the Indian produce. We have dropped prices by three per cent in the past six months,” said Goenka.
Strangely though, the pressure from imports and a high import duty on rubber do not reflect on the profitability. Ceat’s profit went up from Rs 106 crore in FY13 to Rs 299 crore in FY15. JK Tyre’s profit jumped from Rs 105 crore to Rs 253 crore. Apollo Tyres more than doubled its profit to Rs 645 crore in the same period. The profitability is because of a sharp decline in raw material price. “Raw material price may not remain at the current levels. You cannot see the past two-three years in isolation. The industry did not make healthy profits between 2008 and 2012,” said Singhania.
The sector says while profitability has been steady due to cheaper rubber price, growing top line is becoming a challenge in the event of rising imports. “The CAGR (compounded annual growth rate) in top line shows the stress. Today, revenue expansion is a bigger challenge than margin erosion,” said Satish Sharma, president (Asia-Pacific, Middle East and North Africa) at Apollo Tyres.
Apollo’s revenue declined four per cent in FY15, while JK Tyre grew its revenue by only three per cent. According to Goenka, if imports continue in this manner, there will be pricing pressure and eventually, it will start showing on the profits.
The sluggish top line growth comes at a time when many domestic automobile players are struggling to grow volumes. “Surging imports of tyres combined with a slowdown in auto sector has put pressure. The revenue growth of tyre industry has plummeted to just about five per cent in 2014-15 against an average growth of around 10 per cent in the previous years,” said Singhania.
Rubber prices have been going down. The indigenous RSS 4 grade is down 10 per cent since June 2014 and 25 per cent from June 2013. To protect farmers, the government raised import duty by five per cent to 25 per cent from May.
According to Sharma, the pricing of rubber is governed by market forces and is not influenced by lower or higher imports.
Singhania added the increase in import duty would show an impact in the coming months and quarters.
“Today, if you make tyre outside India and import it, it will come cheaper. This works against the whole idea of Make in India. One can import tyres at seven per cent duty, while the rubber import duty is 25 per cent. Theoretically, duty on raw material should always be lower than duty on finished product. This is not an industry-friendly situation”, said Goenka.
