The import volume of tyres in T&B and two-wheeler segments increased by 25.3% and 120.5%, respectively, in 1Q16 year-on-year. Out of the above, of the particular concern is the increase in imports in the T&B segment which accounts for around 60% of domestic tyre industry's revenue. Chinese imports in the T&B segment increased 138% yoy in 1Q16 to INR2.3bn, now accounting for around 80% of the total segment imports. Ind-Ra's analysis indicates that growth in the TBR imports was 80% in 1Q16, with import volumes reaching 0.3 million tyres which is around 22% of the domestic TBR production on an annualised basis. This could be attributed to higher imports from China. The increase in imports from China is likely to continue, driven by reduced demand in China as well as the imposition of high countervailing and antidumping duties by the US on Chinese tyres.
Imported TBR tyres are priced 25% lower than domestically produced TBR tyres. The lower price is attracting price-sensitive customers which have generally low vehicle utilisation and thus were using bias tyres. . This trend has accelerated radialisation in the T&B segment to around 33 % at FYE15 (FYE14: 26%).
Major domestic players have announced capacity expansion in the TBR segment to capture the increasing radialisation. But, a majority of these capacities are likely to come online over FY16-FY17. Increasing imports could result in a significant part of the domestic market particularly the replacement T&B segment being captured by low-cost imports. Currently, the Chinese TBR tyres are not cost effective on per kilometre usage basis in relation to domestic branded TBR tyres and have minimal acceptability among large fleet operators as well as original equipment manufacturers. Tyres from domestic players score over Chinese tyres on parameters such as branding, warranty, after sales service and distribution network. Thus, domestic players' investments in TBR capacity are protected from Chinese threat as long as large domestic consumers do not accept low-cost TBR imports.
A spike in the radialisation due to imports could also lead to a higher-than-expected decline in volumes in the TBB segment. Domestic TBB production declined 5.5% yoy in FY15 to 11.5 million tyres. Ind-Ra's analysis indicates that around 20%-30% of the revenue of the top players in the industry is being contributed by the TBB segment. Increased radialisation due to low-cost imports could lead to these companies seeing a rapid volume and revenue decline in this segment. Lower capacity utilisation of the existing domestic TBB capacity could exacerbate the pricing pressures in the segment.
Tyre manufactures could compensate for the loss of revenue in the TBB segment through higher growth in other segments such as passenger car and two-wheeler tyres. However, given the current sizeable revenue contribution from the TBB segment, companies with surplus capacity in the TBR segment are better placed in this regard. Domestic TBR production increased 31% in FY15, the highest growth rate among the major segments in the domestic tyre industry. Tyre companies continue to see healthy profitability levels and are likely to sustain margins, driven by the low prices of rubber and crude oil. However, increasing imports particularly in the T&B segment could lead to a sustained loss of market share by domestic players in this key segment.
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