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SUBMITTED BY
Mukesh R. Gehani
MMS FINANCE
BATCH: 2007-09
PROF. P L ARYA
CERTIFICATE
This is to certify that Mr. Mukesh R. Gehani, student of N.L. Dalmia
Institute of Management Studies and Research, has successfully carried
out the project titled “SECTOR ANALYSIS – TYRE INDUSTRY”, under my
supervision and guidance as partial fulfilment of the requirements of MMS
course, Mumbai University Batch 2007-2009
Date:
Place: MUMBAI
ACKNOWLEDGEMENT
MUKESH R. GEHANI
MMS FINANCE
Table of Contents
91 Executive Summary
Marketing 27
10 Tyre Technology
1.1 Introduction 30
7
16 Sector Specifics 52
6.1 Overview 22
17 Sector Trends 53
6.2 Raw material availability 23
18 Outlook 53
7 Government Policy 24
Table of Contents
Table of Contents
N.L.Dalmia Institute of Management Studies and Research Page 4
Analysis of the Tyre Industry
19 Valuation
19.2 FCFF 56
19.3 FCFE 62
20 Results 68
21 Conclusion 69
22 Bibliography 70
1. Executive Summary
1.1 Introduction
The Indian Tyre Industry produced 736 lakh units of tyres (11 lakh tonnes) garnering Rs. 19000
crores in FY07. MRF Ltd. was the market leader (22% market share) followed closely by Apollo
Tyres Ltd. (21%). The other major players were JK Tyre & Industries (18%) and Ceat Ltd.
(13%).
The Indian tyre industry is characterized by its raw material intensity (raw material costs account
for approximately 70% of operating income), capital intensity, cyclicality, fierce competition
among the top players, low bargaining power and resulting low margins. The top players are now
focusing on branding their products and strengthening their distribution network so as to increase
their market share.
The industry derives its demand from the automobile Industry. While OEM market offtake is
dependent on the new vehicle sales, replacement market demand depends on the total population
of vehicles on road, road conditions, vehicle scrapping rules, overloading norms for trucks,
average life of tyres and prevalence of tyre retreading.
The main category of tyres produced in the country is that of Truck & Bus tyres. These tyres
accounted for 57% of the total tyre tonnage production in FY07 followed by LCV tyres which
accounted for 9% of the total tyre tonnage production. Approximately 53% of the total tyre
tonnage offtake was by the replacement market, 31% by OEM and 15% by the export market in
FY07.
The industry tonnage production registered a 5 year CAGR of 9.69% between FY 02-07. The
largest category of Truck & Bus tyres recorded a 5 year CAGR of 7.85% (slower than the
industry) while Light Commercial Vehicle (LCV), motorcycle and car tyre categories grew at
15%, 16% and 14% respectively (faster than the industry). Off the road (OTR) tyre category
(customized tyres) which fetch a higher margin compared to other tyre categories, is the fastest
growing category. The OTR tyre category has registered a 5 year CAGR of over 20% in the last
five years. Most of the top players are increasing their capacity for the production of OTR tyres
so as to improve their product mix, this being a high margin product.
The exports from the country clocked a CAGR of 13% in unit terms and 18% in value terms in
the period FY 02-07. Most of these tyres that are exported are of cross ply design. With
radialisation catching up in some of these markets, the Indian manufacturers will need to
graduate to production and export of radial tyres so as to protect their share in the export market.
Radialisation of tyres is still minimal in India. Only the car tyre market has moved to radial tyres
(95%) but in all other categories, cross ply tyres are still preferred. Poor road conditions,
overloading in trucks, higher cost of radial tyres and poor awareness of the tyre users are the
main reasons for the non transition of the domestic market to radial tyres. However, going ahead
radialisation in truck & bus tyres may increase due to government’s focus on infrastructure
development.
The achievements of the Indian tyre and rubber industry have been an unheralded success story.
It is perhaps the only industry in India to have achieved an average annual 6.5 percent growth
rate for almost 44 years, since 1960.aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
The country's rubber industry got off to a very modest start in Calcutta in 1936 but India is today
the world's 4th largest rubber consuming country, with rubber consumption of over 1 million
tones (1,065,020 tonnes) including 50 percent of reclaim rubber as pure polymer. China is
currently the world's largest consumer followed by the US and Japan. Despite the high volume of
consumption, India's per capita rubber consumption is still under 1kg, compared to an average of
12 kilos in Europe and the US and nearly 3kg in China. This underscores the tremendous
potential of the rubber industry with the country's increasing prosperity and industrialization.
Another unique factor of the Indian rubber industry is that for the past few years it has been the
world's 4th largest producer of natural rubber after Thailand, Indonesia and Malaysia. However,
in terms of production efficiency, India is far ahead of the other three major rubber producing
countries in terms of yield per acre. This can be attributed to the country's highly skilled research
scientists and the outstanding work done by the Rubber Board of India, under the Ministry of
Commerce.
Till just three years ago, India was consuming all of the natural rubber it produced and in fact,
had to import a quantity of the commodity as well. With an eye on globalization, while expecting
increased output from the Indian rubber plantation industry, the Rubber Board decided to
establish India's position as a regular exporter of natural rubber. It has succeeded beyond
expectations, with the export of nearly 76,000 tonnes in the financial year ending March 2004.
Strong natural rubber exports have also helped to stabilize the domestic prices of natural rubber.
Similar to the case in all industrialized nations, India's automotive tyre sector is the major user, at
53 percent, of natural rubber. The country's automotive tyre sector has also been a remarkable
success. Practically every conceivable type of tyre is manufactured in India today, by almost 40
companies ranging from giants to small-scale enterprises. Today, seven Indian tyre companies
feature in the list of the world's top 75 tyre manufacturers. According to the latest rankings based
on 2003 sales, MRF (with sales of US $537.3 million) is ranked at No. 15 followed by Apollo at
No. 17 (sales of $496 million), J. K at No. 18 ($455 million ), Ceat at No. 24 ($318 million ).
They are followed by Birla Tyres at No. 52, Metro Tyres at No. 68 and TVS Srichakra at No. 75.
In the fiscal year ending March 2004, the turnover of India's automotive tyre industry was Rs.
13,500 crore (almost $3 billion), with exports of Rs. 1400 crore ($318 million) to over 70
countries, including the US and Europe. The industry's total output of 54.27 million tyres
signifies capacity utilization of 85 percent of the installed capacity of 60 million.
Since the mid-1980s, Indian tyre companies have made major efforts to established a presence in
overseas markets through their exports. They have thus been able to import duty free raw
materials and remain competitive in the international market, while reducing their dependence on
the domestic local natural rubber market. While some Indian tyre majors export nearly 30
percent of their total tyre productions, about 20 percent of all locally manufactured tyres are
exported in total.
Dunlop Tyres of the UK, through its Indian subsidiary, was the country's first major tyre
manufacturer, with a plant in Calcutta. It led the way for Firestone of the US, which established
itself in Bombay and later for Goodyear and Ceat of Italy, which were also Bombay-based. It
was only in the early 1960's that Indian tyre companies (MRF, Incheck and Premier Tyres) broke
the monopoly of the foreign tyre makers. Modi Rubber followed in 1975, after which Apollo
Tyres became a serious player. Meanwhile, the Karnataka state government set up Vikrant Tyres
in Mysore in technical collaboration with the UK-based Avon Tyres. Since then, Premier Tyres
has been taken over by Apollo Tyres and Vikrant Tyres by J. K. Tyres.
With the liberalization of the early 1990's came a short-lived joint venture (South Asia Tyres)
between Ceat and Goodyear, after which the Japanese tyre giant Bridgestone Corporation made
its foray into the Indian market with the Tata Group. Within five years, Goodyear and
Bridgestone took over full control of their joint venture companies, by buying out their local
partners Ceat and the Tata Group respectively.
With enormous strides being made internationally by global tyre majors due to their vast R&D
expenditure, it is naturally difficult for Indian tyre companies to manage without technology
input. While J. K. Tyres has a technical collaboration with Continental AG of Germany (the
world's number 4) and Birla Tyres with world No. 5 Pirelli, Apollo decided in November 2003 to
enter into an agreement with French tyre giant Groupe Michelin, the world's number 1, to set up
a joint venture project near Pune. Michelin has also invested in 26 percent equity in Apollo
Tyres. Other Indian tyre companies manage with in-house R & D and by using the expertise of
tyre experts from Europe and the US, who have taken early retirement from their earlier jobs.
With the Indian economy set for a growth rate of around 8 percent commencing 2005/2006, and
with the massive increase in infrastructure developments and the $18 billion boost for highway
and road construction, the Indian tyre industry is set for an average annul growth rate of at least 8
percent. It is mature enough to withstand the threat of cheap imports arising from possible Free
Trade Agreements with countries like Thailand. The other challenge facing the Indian tyre
industry is the high import duties of raw materials, compared to its competitors in the rest of
Asia. But backed by the rising demand of the country's booming automobile sector, which
crossed the 1 million sale mark in 2004, the Indian automotive tyre sector, and indeed the rubber
industry, is set for an even brighter future.
2. Overview of ITI
Government Policy
Tyre Industry Delicenced since 1987
Export (of tyres and tubes) Freely allowed
Import (of new tyres and tubes) Freely allowed Since 2001 except Truck / Bus (Radial
Tyres), which is in the Restricted List from 24th Nov.
2008 onwards.
Import Policy for Used / Retreaded tyres: Restricted Since April, 2006
3. Radialisation
"Rate of radialisation is actually an index of the status of road development, vehicle engineering
and the economy in general". Notwithstanding the problem areas, constraints and limitations, the
tyre companies have kept pace with the technological improvements that radialisation signifies
and offer state-of-the-art product (tyres), comparable to the best in the world.
• Radialisation can be aptly classified as the most important innovation in tyre technology.
Despite its several advantages (additional mileage; fuel saving; improved driving)
radialisation in India earlier did not catch on at a pace that was expected, since its
introduction way back in 1978. This could be attributed due to several factors, viz. Indian
roads generally not being suitable for ideal plying of radial tyres; (older) vehicles
produced in India not having suitable geometry for fitment of radial tyres (and hence the
general, and wrong, perception that radial tyres are not required for Indian vehicle;
unwillingness of consumer to pay higher price for radial tyres etc.
• However, the situation has radically changed in recent years, especially for the passenger
car tyre segment where radialisation has crossed 97% mark and is expected to reach
100% in two to three years. In the Medium and Heavy Commercial vehical segment
current level of radialisation is upto 4%, and that in the LCV segment is estimated at
15%.
• A few years back a beginning was made in Radialisation of truck and bus and LCV tyres
and this process is gaining momentum.
Future of Radialisation
4. Tyre Retreading
In the manufacture of a new tyre, approximately 75%-80% of the manufacturing cost is incurred
in tyre body and remaining 20%-25% in the TREAD, the portion of the tyre which meets the
road surface. Hence, by applying a new TREAD over the body of the worn tyre, a fresh lease of
life is given to the tyre, at a cost which is less than 50% of the price of a new tyre. This process
is termed as 'tyre retreading'.
However, the body of the used tyre must have some desirable level of characteristics to enable
retreading. Retreading cannot also be done if the tyre has already been over used to the extent
that the fabric is exposed/damaged. Retreading could be done more than once.
Types of Retreading
1. Conventional Process (also known as 'mould cure' or 'hot cure' process) - In this process a
un-vulcanized rubber strip is applied on the buffed casing of the tyre. This strip takes the
pattern of the mould during the process of vulcanization;
2. Precure Process ( also known as 'cold cure')- in this process a tread strip, where the
pattern is already pressed and precure is applied to the casing. It is bonded to the casing
by means of a thin layer of specially compounded uncured rubber (known as cushion or
bonding gum) which is vulcanized by the application of heat, pressure and time.
Retreading is primarly done in the Truck and Bus trye segment. On an average a Truck/Bus trye
is retreaded 1.5 times.
At present only 3-4 large companies are in the organized sector of tyre retreading .Organized
sector is classified as that comprising of companies which operate through the franchisee route.
Similarities
As is the experience in other parts of the world, tyre retreading in India has gained greater
acceptance in the commercial segment, especially truck/bus and light commercial vehicle (LCV)
tyres, due to operational savings.
The share of passenger car tyre retreading is on the decline due to several factors, viz. fitment of
radial tyres as OE fitment giving increased mileage (encouraging owners to go in for new radial
tyres at the time of replacement, strong preference of improved aesthetics of new generation of
passenger cars (and hence new tyres) and above all, a growing concern for safety (due to driving
at increased speeds.
Differences
In the developed countries retreading, by and large, is only through precured methods, whereas
the share of hot/conventional retreading in India is high 50%, with the share of hot/conventional
retreading in select segments, like farm tyres, being considerably higher.
Tyre retreading in the commercial vehicle segment is poised for growth in the future. This
growth will be aided by the following favourable factors and major developments taking place:
Increased level of Radialization in the commercial vehicle segment (due to reduced incidence of
overloading of commercial vehicles);
• Growth in and increased share of multi-axle trucks (with the catching up of the concept
of 'hub & spoke' transportation, long distance movement of road freight will be by multi-
axle trucks whereas distances within and around the cities will be catered by smaller
commercial vehicles);
5. Statistics
Past Trends
1999 -
CATEGORY 1994 - 95 1995 - 96 1996 - 97 1997 - 98 1998 - 99 2000 - 01
2000
Truck & Bus 7309 7696 8095 8095 7913 8969 8612
Passenger Car 3283 3324 3888 4263 4571 6054 6813
Current Statistics
Exports
Export Realisation/Value
Value
Year % Change CAGR
(Rs./crores)
1993-94 606 22
1994-95 680 12
1995-96 719 6
1996-97 832 16
1998-98 907 9
1998-99 808 (-)11
11%
1999-00 864 7
2000-01 1190 38
2001-02 1100 (-)8
2002-03 1250 14
2003-04 1460 17
2004-05 1834 26
2005-06 2383 29
2006-07 2850 20
2007-08 (Est.) 3000 5
Average Annual Compound growth rate in exports during last one
decade is 11%.
[ Nos.]
2001 - - 2003 2005 - 2007 -
CATEGORY 2002 - 03 2004 - 05 2006 - 07
02 04 06 08
Truck & Bus 1805203 2141438 223155 2503956 2408759 2276049 2431545
Passenger Car 287547 364514 591494 1024561 1052874 966046 1091715
Jeep 40 20 220 391 885 1420 7461
Light Commercial
610692 700868 962972 1130908 1390814 1599230 1621880
Vehicle
6. Raw Material
Tyre Industry is highly raw-material intensive. Raw materials cost accounts for approx. 62% of
tyre industry turnover and 70% of production cost
Given below is the composition of raw-materials as a percentage (%) of Total Raw Material Cost:
Natural Rubber 41%
Nylon Tyre Cord Fabric 18%
Carbon Black 10%
Rubber Chemicals 5%
Butyl Rubber 5%
PBR 6%
SBR 5%
Others 10%
57% of total Natural Rubber consumption is by the Tyre Sector, balance by rubber based non-tyre
industries.
Total weight of raw-materials consumed by tyre industry – 13.39 Lakh M.T.
Total Cost of Raw Materials consumed by tyre industry – Rs.12,500 Crores
7. Government Policy
For details please refers to Preferential Tariff Table for Tyres/ Raw-Materials of Tyre Industry
(Ref. Section on RTAs)
The following are the important and integral components of any RTA:
o Rules of Origin : prescribing minimum value addition in exporting country;
o RTAs have assumed added significance due to slowdown of trade talks at multilateral
platforms (WTO), each industry/sector trying to source/sell globally, intense
competition, progressive reduction in import tariffs etc.
Tyre Industry Related (key features and practical dimension)
The following RTAs concern tyres and raw materials of tyre industry:
a) Asia Pacific Trade Agreement (Bangkok Agreement) Tyres and inner tubes can be
imported from signatories to the Bangkok Agreement (please see list attached) at concessional
rate of customs duty for signatories to the Agreement and specific details, please refer to the
statement given below).
b) Indo-Sri Lanka Free Trade Agreement Tyres can be imported at nil customs duty. Natural
Rubber is in the Negative List of India. Several other raw-materials of tyre industry are eligible
for duty concessions of varying magnitude.
c) SAPTA (SAARC Preferential Trading Agreement) Truck & Bus, LCV and Jeep tyres and
select raw-materials of tyre industry can be imported into India at concessional/Nil rate of duty
from signatory countries, (viz. Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka)
Reference statement given below.
e) India-Nepal Trade Treaty Select raw-materials of tyre industry eligible for concession in
customs duty when imported from Nepal under the Treaty. For details please statement of
customs duty concessions, given below:
9 . Marketing
Categorization
* Includes supply of 1.37% of Truck /Bus Tyres and 0.09% Passenger Car tyres to
Governments/STUs
Dealers
Dealers : Multi Brand (different companies); Single Brand; Company owned exclusive
showrooms.
Dealers of commercial vehicle tyres and passenger segment tyres are different, though some
overlap does exist.
Dealers of commercial vehicle tyres also financing purchase of tyres for commercial vehicles
and agricultural tyres.
Dealers are also an important link between the tyre companies and the end consumers and
replacement / warranty schemes are implemented by the companies through the dealers.
Distribution
The distribution system consists of distributors, followed by large dealers and also small/sub
dealers. Some tyre companies also follow a system of appointing C&F agents, in place of
distributors.
Replacement Market: Tyre companies sell tyres through widespread dealer distribution net-
work ( over 5000 in the country ), either through exclusive dealer of the companies or through
multi-company dealers.
Import: Some tyre companies also import tyres for the domestic market. Such imports are
generally from the principal company overseas or from technical collaborator or from tyre
companies with which it has an alliance for a particular line of tyres, for example, passenger car
tubeless tyres;
With tyre import freely allowed (except Truck / Bus (Radial Tyres)) import of various categories
of tyres is also taking place.
Tyres are imported by importing agents and then marketed through the dealers who are
marketing Indian tyres also.
In early 1950s new concept of Tyre design was developed namely "RADIAL" wherein plies
were made highly flexible by keeping the cords at 90 and in order to improve tyre life,
inextensible (stiff) belts were placed on the top of the Carcass under the tread. This led to
stiffer tread portion, leading to higher Tread life (Mileage) and much more comfortable ride
due to flexible carcass. This was the beginning of 'Revolution' in tyre technology.
Initially Radial tyres were introduced with Casing Plies as well as belt material of textiles.
Continuous development in Radial Concept led to further improvements as explained
below.
Gradually this concept will become fully acceptable with the advent of new generation
vehicles and improved service facilities.
10
Radial (Construction) Tyre - All Steel :
.
In developed countries, Radial Truck/Bus tyres use steel wires in casing as well as in Belts
to achieve the optimum advantage of radial construction. In India also this construction was
tried since late 1970s by Indian Companies using tyres of collaborators. This could not
succeed.
Indian companies started experimentally since late 1980s (themselves or with collaborators)
which continues and the product has found gradual entry into low load application.
11
Tubeless Tyre - Radial Construction :
.
As in the case of Bias Tyres, the concept of tubless tyre was extended to radial construction
and introduced in later half of the century in Developed countries. A tubless tyre not only
has tube eliminated but provides for smoother ride and vehicle handling. This is slowly
entering into the Indian market with the advent of new generation vehicles.
12
Low Aspect Ratio - Radial (Construction) Tyres :
.
The concept of low aspect ratio tyre, after gaining the experience from cross ply
construction, was introduced in Radial construction also. The present trend of tyre
development for high speed tyre is being pursued in this direction. Tyres with aspect ratio
upto 0.65 are being manufactured today enabling Indian Industry to adopt high speed rating
e.g. 190 kmph, 210 kmph etc.
13
High Performance Passenger Car Radial Tyre :
.
High Performance Passenger Car radial tyres not only have very low aspect ratio (0.65 -
0.35) but also have substantial changes in construction. Very low aspect ratio enables use of
large diameter wheels which, in turn, allows better stability at high speeds. The tyre contour
is based on the cross section of a fully loaded tyre and this reduces the energy losses within
the tyre and reduced dynamic fatigue. High performance Passenger tyres are made with
speed rating upto ZR indicating speed capability in excess of 240 kmph. In India, this
concept has not yet been found popular though customers are demanding tyres upto 220
kmph (V Rating).
14
Run Flat (Puncture Proof) Tyre - New Concept :
.
A new concept of run flat tyre (puncture proof) was introduced by Continental in early
1980s wherein the basic construction of the rim and bead was changed by which on loosing
air the tyre tread sits on the rim thus enabling one to drive at a reasonable speed for a long
distance till the flat tyre could be attended to.
This revolutionises the OE need for a new vehicle as the Stepney tyre can also be dispensed
off. However, there is very slow progress of this concept. This has not been tried in India so
far.
16
Green Tyre (Environment Friendly) :
.
This is the latest development in Passenger Radial tyres. These tyres have a rolling
resistance appreciably lower than normal tyres. These tyres have high proportion of non
petroleum based material used in their construction and are called environment friendly or
'green tyres'.
This concept is well perceived and will gradually find its application world over, including
India.
2. Load
From the safety point of view, the overloading of tyres should be carefully avoided,
otherwise dangerous conditions exists. Misapplication of tyre from the load capacity is
prevented for original equipment on new vehicles, which require manufacture of motor
vehicles and trailers to affix a label that include the gross Axle Weight Rating on the front
and all other axles. The total load per tyre must not exceed the manufacturers specified tyre
load-carrying capacities at corresponding inflation pressures for both the tyre and the rim.
• Distribution Network-
With typically higher margins in the replacement market, companies need to invest in brand
building and distribution network, which acts as an effective entry barrier. A nation wide
distribution network and strong brand recalls are factors critical to tyre sales. Domestic
companies enjoy the advantage of an existing distribution network and so will however
spend higher on marketing, distribution and advertising to maintain brand visibility among
foreign majors.
• Cyclical
Due to high minimum economic size, demand supply mismatches constantly exist. Tyre
industry has a derived demand due to dependence on a cyclical auto industry. Prices of petro-
based raw material and natural rubber also tend to be cyclical.
• Technology Incentive
Tyre manufacturing involves sophisticated technology and now with the advent of radial
tyres, technology has assumed importance in tyre manufacturing. Global spending on R & D
is growing (more than Rs. 10 billion per annum by each major producer). All foreign cars
introduced in India are launched on redial tyres.
• Retreading
As only the outer surface of the tyre wears out, tyres are usually retreated and used again.
Truck tyres are usually retreated twice, while other tyres are retreated around 4 times.
Bargaining power of suppliers can be segregated in two parts according to the demand of
industry.
Rubber
There are two reasons behind this being low first one is most of the tyre firms get150 days credit
for buying the rubber from international market which is not the case if they buy it from
domestic rubber growers. And the second reason is, this credit is being offered at LIBOR, which
is the London Inter-bank Offered Rate. It is the rate of interest at which banks borrow funds from
other banks.
Other Petro chemical based material (Carbon black, Nylon tyre cord etc.)
The power of suppliers is high in this category as India is limping back in case of Petro based
raw materials like carbon black and chemicals which account low in quantity terms but are high
cost generators. Also the price of NTC fluctuates in line with the prices of Caprolactam (a
petroleum derivative)-it¡¦s main raw material. The prices of these materials are beyond control of
tyre industry.
OEM's
The OEMs are always in strong position when the bargaining power of buyers is concerned. The
reason behind this is most of them are having contract with their relative tyre manufacturer under
which the prices of tyre remains stable for this OEM irrespective of market price. The benefits
are given to them as they are buying in bulk and the relation gives the tyre firms some thing
called brand association.
Replacement
The scene in replacement segment is quite reverse as the bargaining power for the replacement
segment is moderate due to the fact that the buyers are not that strong as compared to OEMs.
The demand in buses and truck segment is always high because of Indian poor road conditions
apart from this the purchase is made in small units.
3) Threat of substitute
N.L.Dalmia Institute of Management Studies and Research Page 35
Analysis of the Tyre Industry
It is moderate or as the industry is facing opposition from retreading sector all over the globe.
This cheaper option, around 20-25% of the original tyre cost, is present in developed countries
since some decade back. And this is heading to wards strong position here in India too.
The threat of new entrant is moderate or can be described as low because the industry is highly
capital intensive and the level of technological expertise required is also highly specific.
But if we see from domestic (Indian) industry's point of view, this better can be defined as high.
The reason being, global tyre industry is already seeing mergers and acquisitions in order to
restructure. And as of now India and China going to be the hub of activities as far as tyre
industry is concerned due to low production cost as well as other relevant benefits. So for any of
the global big shot Indian company will be a good option to go for.
5) Industry rivalry
High, because gradually the overseas players are expanding their wings over Indian tyre industry
and also a limited and every player is moving towards automated technology, like ERP and
SCM.
Apart from the aforementioned reason, the industry is seeing high competitive scenario at present
because of various reasons like rising input costs, low realizations from growing OEM segment
where the vehicle manufacturers are not ready to share the burden of tyre firms, the portion of
replacement pie continuously taken away by the retreading sector which is slowly but firmly
rising its head and that to in high realization segment of Bus-Truck tyres and last but not the least
the unorganized sector is always there to give head ache to these established players like CEAT,
JK, Apollo and MRF etc.
Strengths
Extensive distribution networks - For example Apollo Tyres has 118 distinct
offices, 12 distribution centres and 4250 dealers.
Weakness
Cost Pressures - The profitability of the industry has high correlation with the prices
of key raw materials such as rubber and crude oil, as they account for more than 70% of the
total costs
Pricing Pressures - The huge raw material costs have resulted in pressure on the
realisations and hence, the
players have been vouching to increase the prices, although, due to competitive pressures, they
have not been able to pass on the entire increase to the customer
Highly capital intensive - It requires about Rs 4 billion to set up a radial tyre plant with a
capacity of 1.5 million tyres and around Rs 1.5-2 billion, for a cross-ply tyre plant of a 1.5
million tyre-manufacturing capacity
Opportunities
Threats
Continuous increase in prices of natural rubber, which accounts for nearly one third of
total raw material costs
Cheaper imports of Tyres, especially from China, selling at very low prices, have been
posing a challenge. The landed price is approximately 25% lower than that of the
corresponding Indian Truck/ LCV tyres. Imports from China now constitute around 5%
of market share
With crude prices scaling upwards, added pressure on raw material prices is expected
Ban on Overloading, leading to lesser wear and tear of tyres and subsequent slowdown
in demand. However, this would only be a short-term negative
Cyclical nature of automobile industry
While the tyre industry is mainly dominated by the organised sector, the unorganised sector
holds sway in bicycle tyres. The major players in the organised tyre segment consist of MRF,
Apollo Tyres, Ceat and JK Industries, which account for 63 per cent of the organised tyre
market. The other key players include Modi Rubber, Kesoram Industries and Goodyear India,
with 11 per cent, 7 per cent and 6 per sent share respectively. Dunlop, Falcon, Tyre Corporation
of India Limited (TCIL), TVS-Srichakra, Metro Tyres and Balkrishna Tyres are some of the
other players in the industry. MRF, the largest tyre manufacturer in the country, has strong brand
equity. While it rules supreme in the industry, other players have created niche markets of their
own
15.1 JK Tyres
the best. A mindset that says, when it is good enough, improve it. It is a way of thinking that
comes only from a power within." - H.S.Singhania
J.K. Tyre has been at the forefront of the radial revolution in India. Since inception, we have
been regularly releasing high quality, high technology products, which have withstood the
test of time and are forerunners in the industry today. Our leadership position in the industry can
be attributed to the mantra of offering high technology products and services to the customer. In
J.K. Tyre, it is our philosophy to continuously anticipate and understand the customer
requirements, convert them into performance standards for our products and services, and
meet these standards every time.
This has resulted in development of many innovative products from the most modern,
technologically advanced production facilities, some of which are listed below:
in the 4 Wheeler tyre segment with a market share of 20.8 %. J K Tyre and Vikrant continue to
be the leaders in the commercial tyre segment which constitute 70% of the Tyre Market with the
highest market share in the Indian Tyre Industry. J K Tyre maintains its dominant position in the
Passenger Car Radials. J K Tyre is a preferred supplier with most of the OEMs. J K Tyre has
launched several new products including recently launched Tractor Radial Tyre. J K Tyre is in
the process of further expanding its Passenger Radial capacity to strengthen its position further.
A greater thrust on exports is yielding good results. J K Tyre along with Vikrant holds its No.1
position being the highest exporter of Tyres in the country with exports to over 60 countries
across 6 continents. J K Tyre has tied up with a leading tyre manufacturer in China & is
outsourcing tyres for its international markets. These initiatives shall be further intensified in the
coming months. J K Sugar achieved growth of 31 % in the cane crushed for the season. J K
Sugar is also implementing expansion. The 1st phase of capacity expansion up to 4300 TCD is
already complete. J K Agri Genetics, the makers of "J K SEEDS" has continued to perform well
and maintain its leadership in the Hybrid Seed Industry. The expected revival in the Indian
economy, particularly the transport and automobile sector should lead to further strengthening
the company's operations in the coming months. Today, JK Tyre's products compete with the
best international players in the premium international bias market in more than 55 countries in 6
continents. JK Tyre had obtained international accreditation for its products in the US, Europe,
South America and the Middle East.
JK Tyre, a division of the Hari Shankar Singhania group's flagship JK Industries, has increased
its share in the commercial tyre market to 24.5 per cent from April to September 2001. The
company's market share was 22.4 per cent during 2000-01, as per the data available with the
Automotive Tyre Manufacturers Association (Atma). JK Tyre is the largest player in the
commercial segment of the domestic tyre market. The commercial vehicles segment accounts for
almost 70 per cent of the Rs 10,000 crores tyre market in India.
HISTORY
In addition, by readers of the A & M magazine, MRF was considered as one of India's most
admired Marketing Companies. Then MRF was chosen for fitment on the Daewoo Cielo, Ford
Escort, Opel Astra and Fiat Uno, showing its world-class quality and appeal. A special factory
dedicated entirely to the manufacture of radials was started at Pondicherry.
Brands
• MRF Radial CC
Bias Ply
• Legend • Estate
Apollo Tyres Ltd (ATL) is one of the leading tyre manufacturing companies in India. ATL
manufactures automobile tyres, tubes & flaps and is well entrenched in the T&B (truck and bus)
tyre replacement segment, which comprises the bulk of the market. However, it’s presence in the
fast growing passenger car and two-wheeler segments are low. One other point of concern is the
less than cordial state of industrial relations in the company. After coming out of a prolonged
agitation in FY99, the company’s workers in Baroda went on a strike recently. In FY2000,
thanks to the upturn in the automotive segment, ATL has posted a sales growth of 17%yoy in the
first nine months of the year. However, rising cost of material inputs and increased competition
has put pressure on operating margins. The company has, however, succeeded in holding on to
its market share by affecting a change in product mix with production of more car radials.
ATL has grown rapidly in the last decade, and from being a marginal player, it has raced ahead
to become the third largest player in the tyre industry. ATL management has been quick to spot
opportunities and has displayed remarkable market savvy. In FY2000, ATL has tied up with
Castrol Ltd and Kotak Mahindra Finance Ltd to provide multiple product opportunities to its
exclusive dealers. The management has not been found wanting when it comes to introducing
new products to tap growing segments in the auto industry.
Amazing performance
A marginal player in the tyre industry a decade ago, Apollo Tyres leads the replacement market
in the heavy vehicle and car radials segments. "The focus is to increase our market share to 25
per cent from 15-18 per cent in all the market segments."
Bus and truck tyres account for a lion’s share of the industry's revenues. Since the OE market is
margin-sensitive, all the action is focused on the lucrative replacement market, especially in the
heavy vehicles segment. According to Satish Sharma, product manager at Apollo Tyres, "The
size of the truck tyre replacement market is 4 lakh tyres per month, and our share in that is 25per
cent." Though the volume will be small, talks have been initiated with Volvo India.
Apollo Tyres is also giving MRF Ltd, the leader in the car tyres market, a run for its money. Its
Apollo Excel tyres, rolled out from its Baroda plant, have received an excellent response in the
marketplace, according to the company. In the OE segment MRF has been losing its hold to
Bridgestone. And in the replacement market, Apollo Tyres has become a major threat. Apollo
Tyres is now negotiating with Hyundai Motors and Hindustan Motors for OE sales. In the two
wheeler market, Apollo is focusing on the motorcycle tyres market.
To boost sales, Apollo Tyres has tied up with Castrol India and Kotak Mahindra Finance. Apollo
Tyres dealers will stock Castrol lubes and improve their earnings. The tie-up with Kotak
Mahindra will facilitate sales by providing finance for tyre purchases, for the first time in India.
Apollo Tyres has increased its ad budget to Rs 35 crores from Rs 25 crores earlier, in order to
push sales. According to the Apollo management, the company sells 1.1 lakh of the 5 lakh car
radials sold per month in India today.
At present, the company's tyres are fitted as OE in Hindustan Motors’ Ambassador and
Contessa models, in tractors from Tafe, Punjab Tractors and Mahindra & Mahindra, and
trucks made by Ashok Leyland and Telco.
Ceat Ltd, a part of the RPG Goenka group, is the second largest tyre
manufacturer in the country after MRF. Ceat manufactures truck &
bus, passenger car, scooter and LCV tyres. The company is a
dominant player in the truck & bus and passenger car tyre segments
with a market share of 14% and 17% respectively. In FY2000, Ceat
did well to posting a 21%yoy sales growth in the replacement market for truck & bus tyres. It is
presently focusing on catering to the fast growing passenger car and two-wheeler industry.
Towards this, it is commissioning a new radial tyre factory in June 2000.
Being the second largest selling brand in India with a market share of 14.6 per cent, Ceat caters
primarily to the replacement market. Due to the strong growth in the OEM sector, the share of
the replacement market in the total revenue of the company has fallen. Ceat is part of the RPG
group, which is diversified, with presence in major sectors like power, fertilizers,
pharmaceuticals, tyres, computer, telecom, financial services etc. The group stumbled trying to
grow via diverse platforms and has many companies that have turned sick. But lately the strategy
seems to be one of restructuring and consolidation. The group is divided into 4 broad areas -
rubber & allied products, power, electronics & telecom and chemicals. Ceat’s investments in its
subsidiaries have also come down this fiscal which is a sign of prudence on the management.
Since inception in 1958, CEAT has been at the forefront of Indian Tyre industry. It has
established itself as one of the Top Manufacturers of Superior quality tyres. Their endeavor to
continually improve business processes & ensure conformance to the established quality
standards has earned a high reputation with their esteemed customers. CEAT is committed to the
Customers by delivery of outstanding products & services at the most affordable prices.
Amidst the rapidly changing business scenario, they have now established an additional
communication platform to interact with each other. In this seamless world, they recognize the
importance of linking themselves with the cyber age.
Ceat, a part of the RPG Enterprise, is planning to set up a production facility to manufacture
truck radial tyres at an investment of around Rs 200-250 crore. The tyre manufacturing company
is also investing around Rs 75-80 crore to expand its capacity for passenger car radial tyres.
Though the life (number of months in use) of radial tyres for trucks is expected to last 35-40%
longer, company officials said the tyres would cost 15-20% more. Development in the road
infrastructure is cited as a major reason for possible shift to truck radial tyres. Almost the entire
truck demand is now cross ply or bias ply tyres. On the passenger car radial tyres, Mr. Paul said,
“We plan to invest Rs 75-80 crore to ramp up the passenger car radial capacity to one lakh
units.” At present, the company enjoys only 6% market share in the passenger car radial market.
In the two and three wheeler market, Ceat had increased its capacity to five lakh units per month
during the last year (from 60,000 units) by roping in three dedicated third party manufacturers —
who now contribute 80% of this capacity. He said the company had drawn up plans to increase
its market share in the motorcycle segment by 9% to 20% in ‘03-04 and consolidate its presence
in the scooters segment (25% market share). “We have achieved a major breakthrough by
signing an OE contract with a major south-based two wheeler manufacturer. Such contracts will
give boost to the two and three wheeler market.”
However, the production growth in the automobile sector over the past few years should provide
a boost to the replacement market in the coming years and Ceat could be a major beneficiary
thereof. With the advent of multinationals like Goodyear, Michelin, Bridgestone and
Continental, a major shakeout in the industry is imminent and the same could result in Ceat,
which is already operating on thin margins, being hived off as a joint venture with Goodyear,
The tyre industry is a major consumer of the domestic rubber production. Natural rubber
constitutes 80 per cent of the material content in Indian tyres. Synthetic rubber constitutes only
20 per cent of the rubber content of a tyre in India. World wide, the ratio of natural rubber to
synthetic rubber is 30:70. Apart from natural and synthetic rubber, rubber chemicals are also
widely used in tyres.
Most of the RSS-4 grade natural rubber required by the Indian tyre industry is domestically
sourced, with only a marginal amount being imported. This is an advantage for the industry,
since natural rubber constitutes 25 per cent of the total raw material cost of the tyres.
The two types of synthetic rubber used in tyres are Poly Butadiene Rubber (PBR) and Styrene
Butadiene Rubber (SBR). The former is used in most of the tyres, while the latter is mainly used
in the radials for passenger cars. Synthetic rubber accounts for 14 per cent of the raw material
cost. Unlike in the case of natural rubber, India imports 60 per cent of its synthetic rubber
requirements.
Apart from rubber, major raw materials are nylon tyre cord and carbon black. The former is used
to make the tyres strong and impart tenacity to it. The latter is responsible for the colour of the
tyre and also enhances the life span of the tyre. Nylon tyre cord comprises 34 per cent, while
carbon black accounts for another 13 per cent of the raw material cost. In India, the carbon black
used is of the N660, N220 and N330 variety.
To sum up, the tyre industry is highly raw-material intensive, with raw material costs accounting
for 70 per cent of the cost of production. Fortunately for the industry, the rubber and carbon
black prices have taken a beating recently, which means lower costs for the tyre industry. The
export-import policy allows free import of all types of new tyres and tubes. However, import of
retreaded tyres, either for use or for reclamation of rubber is restricted. This has led to used tyres
being smuggled into the country under the label of new tyres. Though tyre import and all raw
materials for tyres except natural rubber are under open general license (OGL), only import of
natural rubber from Sri Lanka is eligible under OGL.
Crossply tyres have been used in India for several decades. In these tyres, the ply cords run
across each other or diagonally to the outer surface of the tyre. Rayon and nylon tyre cords are
used as the reinforcing medium. These tyres can be retreaded twice during their lifetime and are
hence preferred by Indian transport operators who normally overload their trucks. A vehicle with
the normal carrying capacity of around 12 tonnes is usually loaded with double the capacity.
Moreover, one also has to contend with the bad suspensions and bad road conditions. No
wonder, 95 per cent of the tyres used in India are crossplies.
Radial tyres have their cords running radially from bead at 90 degrees angle to the rim or along
the outer surface of the tyre. The reinforcing mediums used in these tyres are polyester, nylon,
fibreglass and steel. Hence, these tyres are 20 per cent more expensive than the crossplies. But
they have a longer life and provide lower fuel consumption. The unhealthy condition of the
Indian roads has resulted in radial tyres accounting for only 5 per cent of the tyre industry as
against a global trend of 60 per cent. With two-thirds of the capacity of all major tyre
manufacturers being reserved for radials, this is a real cause for concern.
18. Outlook
Globally, the OEM segment constitutes only 30 per cent of the tyre market, exports 10 per cent
and the balance from the replacement market. In India, the scenario is quite different. Nearly 85
per cent of the total tyre demand in the country is for replacement. This anomaly has placed the
retreaders in a better position than the tyre manufacturers. Retreading is looming over the tyre
industry as a colossal threat. The Coimbatore based Elgi Tyres and Tread Ltd., the largest
retreader in India, is giving the tyre barons sleepless nights.
Simply put, rethreading is replacing the worn-out tread of the old tyre with a new one. The
popularity of rethreading stems from the fact that it costs only 20 per cent of a new tyre but
increases its life by 70 per cent to 80 per cent. Most of the transporters in India retread their tyres
twice during its lifetime, while a few fleet owners even retread thrice. In their zealousness to
economise costs, they overlook the reality that retreading reduces the quality of the tyre. It is
highly popular in the South unlike in the North where the transporters overload their trucks and
have to ply their vehicles in a rough terrain an environment in which buying a new tyre is the
best option. Though retreading has penetrated 25 per cent of the tyre market, it has not made
much of a dent in the rapidly growing two-wheeler and passenger car segments.
19. Valuation
%
PEG -36.44 0.33 313.45 -57.15 1.22 6.64
EPS (Rs.) 4.40 42.72 6.46 16.42 21.21 401.75
Enterprise Value 2207. 2348.1
(in crs) 01 809.23 220.44 363.84 1274.61 8
EV/EBIDTA 15.66 4.47 4.77
4.58 2.73 5.06
17.85 28.95 Ke
3.32% 27.77% 12.50% 17.42
ROE
% % RFR 8.50% %
460.6 145.78
RM 0.0021.90%914.95
Debt
5 617.35 0.9618 848.09
2340. 226.99
BETA 264.96 1241.79
51 2165.2
Mcap + Debt
57 818.00 5
EBIDTA (Rs. In 481.5 14.08 81.42 267.29
Ke 21.39%
Crores) 0 296.64 463.61
19.2 FCFF
131.11042
MARKET PRICE(rs.) 88
NO. OF SHARES(Cr) 4.885
640.47444
MV OF EQUITY 49
DEBT 460.65
EV 1101.1244
WACC 16.137%
200 200 201 201 201 201 201 201 201 201 201
8 9 0 1 2 3 4 5 6 7 8
11. 11. 11.
27 11.2 27 11.2 11.2 27 9.81 8.36 6.91 5.45 4.00
GROWTH % 7% % 7% 7% % % % % % %
119 119 119
.36 119. .36 119. 119. .36 100. 81.5 62.6 43.7 24.7
RR* % 36% % 36% 36% % 45% 3% 2% 0% 9%
275 306. 340 378. 421. 469 515. 558. 596. 629. 654.
NOPLAT .11 11 .60 98 69 .20 25 33 90 45 63
328 365. 406 452. 503. 560 517. 455. 373. 275. 162.
RREINV .37 37 .54 35 32 .04 55 21 76 08 27
- - - - - -
53. 59.2 65. 73.3 81.6 90. - 103. 223. 354. 492.
FCFF 26 6 94 7 4 84 2.30 12 14 37 36
TV
16.
137 16.1 16.1 16.13 16.13 16.1 16.13 16.13 16.13 16.13 16.13
WACC % 37% 37% 7% 7% 37% 7% 7% 7% 7% 7%
0.86 0.7 0.63 0.54 0.4 0.40 0.35 0.30 0.26 0.22
105 414 839 968 733 754 091 215 017 402
DF 2 1 2 8 1 4 7 7 3 2
-
39.
PV HG 758
Period 4
405
6.65
TV 7
105
5.43
DISC TV 3
101
TOTAL 5.6
VALUE 75
191.
EXCESS 892
CASH 6
302.
INV 71
non core -
operating 411.
capital 09
109
9.18
TOTAL 7
460.
DEBT 65
NO. OF 4.88
SHARES 5
638.
537
EV 2
Value per 130.
share 71
WACC 16.610%
WTS. COST
61.94% 21.39%
38.06% 8.83%
Ke
RFR 8.50%
RM 21.90%
0.9618
BETA 51
Ke 21.39%
8.55%
dec/ye
4% ar 0.91%
dec/year 10.16%
200 200 201 201 201 201 201 201 201 201 201
8 9 0 1 2 3 4 5 6 7 8
8.5 8.55 8.55 8.55 8.55 8.5 7.64 6.73 5.82 4.91 4.00
GROWTH 5% % % % % 5% % % % % %
74. 74.
86 74.8 74.8 74.8 74.8 86 64.7 54.5 44.3 34.2 24.0
RR* % 6% 6% 6% 6% % 0% 5% 9% 4% 8%
238 258. 281. 305. 331. 359 386. 413. 437. 458. 476.
NOPLAT .48 88 03 07 16 .49 97 02 06 53 87
178 193. 210. 228. 247. 269 250. 225. 194. 156. 114.
RREINV .52 79 37 36 90 .10 37 29 02 98 84
59. 65.0 70.6 76.7 83.2 90. 136. 187. 243. 301. 362.
FCFF 96 9 6 0 7 39 59 73 05 54 03
TV
16.
610 16.6 16.61 16.61 16.61 16.6 16.61 16.61 16.61 16.61 16.61
WACC % 10% 0% 0% 0% 10% 0% 0% 0% 0% 0%
0.85 0.73 0.63 0.54 0.4 0.39 0.34 0.29 0.25 0.21
755 540 064 081 637 771 106 248 081 509
DF 6 2 8 6 8 7 4 2 9 2
508
PV HG .18
Period 08
287
0.88
TV 6
720.
DISC TV 074
122
TOTAL 8.2
VALUE 55
EXCESS -
4.96
CASH 18
INV 9.6
non core
operating 21.8
capital 1
125
4.70
TOTAL 3
477.
DEBT 6
NO. OF 3.42
SHARES 4
777.
103
EV 1
Val per 226.
share 96
WACC 13.341%
WTS. COST
35.89% 21.39%
64.11% 8.83%
Ke
RFR 8.50%
RM 21.90%
0.9618
BETA 51
Ke 21.39%
200 200 201 201 201 201 201 201 201 201 201
8 9 0 1 2 3 4 5 6 7 8
13. 13.
71 13.7 13.7 71 13.7 13.7 11.7 9.83 7.8 5.94 4.00
GROWTH % 1% 1% % 1% 1% 7% % 8% % %
184 184 91.
.59 184. 184. .59 184. 184. 153. 122. 83 60.9 29.9
RR* % 59% 59% % 59% 59% 67% 75% % 0% 8%
210 239. 272. 309 352. 400. 447. 491. 530 561. 584.
NOPLAT .71 60 45 .80 27 56 69 68 .44 96 44
388 442. 502. 571 650. 739. 687. 603. 487 342. 175.
RREINV .95 28 91 .85 24 39 96 52 .08 26 23
FCFF - - - - - - - - 43. 219. 409.
178 202. 230. 262 297. 338. 240. 111. 36 70 20
.24 68 46 .06 98 83 27 84
TV
13.
341 13.3 13.34 13.3 13.34 13.34 13.34 13.34 13.3 13.34 13.34
WACC % 41% 1% 41% 1% 1% 1% 1% 41% 1% 1%
0.88 0.77 0.6 0.60 0.53 0.47 0.41 0.3 0.32 0.28
229 844 868 597 465 172 619 672 398 585
DF 6 7 2 9 3 2 9 1 8 4
-
972
PV HG .72
Period 1
438
0.86
TV 8
141
DISC TV 9.35
446
TOTAL .62
VALUE 93
EXCESS 1.45
CASH 6
68.5
INV 6
non core -
operating 212.
capital 11
304.
535
TOTAL 3
124
DEBT 9.48
NO. OF 0.42
SHARES 4
-
944.
EV 945
19.3 FCFE
186.64806 Rs per
MARKET PRICE 75 share
NO. OF SHARES(Cr) 4.885 cr
MV OF EQUITY 911.7758
KE 21.390%
Ke
RFR 8.50%
RP 21.90%
0.9618
BETA 51
Ke 21.39%
10.87
%
dec/ye
5% ar 1.17%
200 200 201 201 201 201 201 201 201 201 201
8 9 0 1 2 3 4 5 6 7 8
10.
87 10.8 10.8 10.8 10.8 10.8 9.7 8.52 7.3 6.17 5.00
GROWTH % 7% 7% 7% 7% 7% 0% % 5% % %
126 64. 43.
.31 116. 105. 95.4 85.1 74.8 55 54.2 96 33.6 23.3
RR % 02% 72% 3% 4% 4% % 6% % 7% 8%
275 305. 338. 374. 415. 460. 505 548. 589 625. 656.
NOPLAT .11 02 19 96 73 94 .64 74 .07 44 71
347 353. 357. 357. 353. 344. 326 297. 258 210. 153.
RREINV .49 87 54 82 94 98 .39 72 .97 58 51
- - -
72. 48.8 19.3 17.1 61.8 115. 179 251. 330 414. 503.
FCFE 38 5 5 4 0 96 .25 02 .10 86 20
TV
21.
390 21.3 21.39 21.39 21.39 21.39 21.3 21.39 21.3 21.39 21.39
WACC % 90% 0% 0% 0% 0% 90% 0% 90% 0% 0%
0.82 0.67 0.55 0.46 0.37 0.3 0.25 0.17 0.14
379 863 905 054 939 125 746 0.2 472 393
DF 2 4 3 4 2 4 8 121 7 8
291
PV HG .81
Period 43
307
0.21
TV 8
536.
448
DISC TV 9
828.
TOTAL 263
VALUE 2
191.
EXCESS 892
CASH 6
302.
INV 71
non core -
operating 411.
capital 09
911.
775
TOTAL 8
NO. OF 4.88
SHARES 5
911.
775
EV 8
314.004387 Rs per
MARKET PRICE 8 share
NO. OF SHARES(Cr) 3.424 cr
MV OF EQUITY 1075.1510
KE 21.390%
Ke
RFR 8.50%
RP 21.90%
0.9618
BETA 51
Ke 21.39%
5YRS
dec/ye -
Long term Growth Rate 5% ar 0.48%
AND THEREAFTER CONTINUES AT THIS
GROWTH RATE
200 200 201 201 201 201 201 201 201 201 201
8 9 0 1 2 3 4 5 6 7 8
2.5 2.58 2.58 2.58 2.58 2.58 3.0 3.55 4.0 4.52 5.00
GROWTH 8% % % % % % 7% % 3% % %
23. 23. 23.
86 23.8 23.7 23.7 23.6 23.6 57 23.5 47 23.4 23.3
RR % 1% 7% 2% 7% 2% % 2% % 2% 8%
238 244. 250. 257. 264. 270. 279 289. 300 314. 330.
NOPLAT .48 64 96 45 10 92 .23 15 .81 40 12
56. 58.2 59.6 61.0 62.5 63.9 65. 68.0 70. 73.6 77.1
RREINV 91 6 4 6 1 9 82 1 61 5 7
181 186. 191. 196. 201. 206. 213 221. 230 240. 252.
FCFE .57 38 32 39 59 93 .41 13 .20 75 95
TV
WACC 21. 21.3 21.39 21.39 21.39 21.39 21.3 21.39 21.3 21.39 21.39
390
% 90% 0% 0% 0% 0% 90% 0% 90% 0% 0%
0.82 0.67 0.55 0.46 0.37 0.3 0.25 0.17 0.14
379 863 905 054 939 125 746 0.2 472 393
DF 2 4 3 4 2 4 8 121 7 8
779
PV HG .04
Period 23
154
3.32
TV 8
269.
660
DISC TV 5
104
TOTAL 8.70
VALUE 3
-
EXCESS 4.96
CASH 18
INV 9.6
non core
operating 21.8
capital 1
107
5.15
TOTAL 1
NO. OF 3.42
SHARES 4
107
5.15
EV 1
Rs per
MARKET PRICE 3415.55 share
NO. OF SHARES(Cr) 0.424 cr
MV OF EQUITY 537.4402
KE 21.390%
Ke
RFR 8.50%
RP 21.90%
0.9618
BETA 51
Ke 21.39%
-
ASSUMPTION: GROWTH FOR THE NEXT 41.92
5YRS %
-
dec/yea 9.38
Long term Growth Rate 5% r %
AND THEREAFTER CONTINUES AT THIS
GROWTH RATE
200 200 201 201 201 201 201 201 201 201 201
8 9 0 1 2 3 4 5 6 7 8
-
- - - - - - - - 13. -
41.9 41.9 41.9 41.9 41.9 41.9 32.5 23.1 77 4.38 5.00
GROWTH 2% 2% 2% 2% 2% 2% 4% 5% % % %
-
- - - - - - - - 43. -
311. 277. 244. 210. 177. 143. 110. 76.9 51 10.0 23.3
RR 07% 63% 18% 74% 29% 85% 40% 6% % 7% 8%
210. 122. 71.0 41.2 23.9 13.9 6.2
NOPLAT 71 38 8 8 7 2 9.39 7.22 2 5.95 6.25
- - - - - - - -
655. 339. 173. 86.9 42.5 20.0 10.3 - 2.7 -
RREINV 47 76 55 9 0 3 7 5.56 1 0.60 1.46
866. 462. 244. 128. 66.4 33.9 19.7 12.7 8.9
FCFE 18 13 63 27 8 5 6 7 3 6.55 4.79
TV
21.3 21.3 21.39 21.39 21.39 21.39 21.39 21.39 21.3 21.39 21.39
WACC 90% 90% 0% 0% 0% 0% 0% 0% 90% 0% 0%
0.82 0.67 0.55 0.46 0.37 0.25 0.17 0.14
379 863 905 054 939 0.31 746 0.2 472 393
DF 2 4 3 4 2 254 8 121 7 8
674
PV HG .42
Period 94
29.2
162
TV 8
5.10
486
DISC TV 3
679.
TOTAL 534
VALUE 2
N.L.Dalmia Institute of Management Studies and Research Page 66
Analysis of the Tyre Industry
EXCESS 1.45
CASH 6
68.5
INV 6
non core -
operating 212.
capital 11
537.
440
TOTAL 2
NO. OF 0.42
SHARES 4
537.
440
EV 2
Val per 341
share 5.55
20. Results
21. Conclusion
The industry, already bogged by over capacity, is facing a severe threat of dumping of cheap
tyres by South Korea. Under the Bangkok agreement, signed between India and South Korea in
1976, import of tyres from the latter into India would attract a concessional duty of 33 per cent as
against the normal tariff of 40 per cent.
Two years ago, the industry estimated the growth in the passenger car radial demand at 20 per
cent per annum. However, the auto recession has hit them badly. But South Korea made a killing
by dumping cheap car radial tyres and walked away with 11 per cent of the tyre market.
Another threat to the industry is the price of its raw materials, most of which are petroleum by-
products. Carbon, synthetic rubber and nylon tyre cord are offshoots of petrochemicals. Thus, the
future of the industry will swing with the supply of crude oil.
The biggest threat, however, is yet to fully materialise. It will be from global majors like
Bridgestone and Michelin, which control 36 per cent of the global tyre market. These players
have set up their bases in Southeast Asia and the slump of the markets in this region, coupled
with the vast growth potential of the Indian market, is beckoning them towards India.
Bridgestone has tied up with ACC for a 100 per cent radial tyre unit and Michelin is also
marketing its products through retail outlets. The industry is driven more by volumes than by
margins and each of the big five in the global tyre industry Continental, Michelin, Goodyear,
Pirelli and Bridgestone generate an annual tyre production equivalent to the total demand of the
Indian market. These MNCs have deep pockets and can easily withstand losses for 2-3 years.
Their financial muscles also permit them to invest in R&D, which is beyond the reach of the
average Indian tyre manufacturer.
Amongst the Indian Tyre Manufacturers, Apollo tyres and Ceat Tyres Ltd. are undervalued
whereas MRF Tyres Ltd. is overvalued.
22. Bibliography
• ATMA Tyre manual
• www.atmaindia.org
• www.way2wealth.com
• www.nseindia.com
• www.indiainfoline.com
• www.timesofindia.com
• www.economictimes.com
• www.ceattyres.com
• www.mrftyres.com
• www.jktyre.com
• www.apollotyres.com
• www.domain-b.com
• www.buzzle.com