The domestic tyre manufacturing industry is all set to bounce back strongly in the coming years after witnessing a lean patch in the last financial year. According to experts, the industry is expected to post a growth of 6.81% in 2009-10, and register a five-year CAGR growth of 8.21% from 2008-13. The T&B and LCV tyre categories are expected to register a five-year CAGR of 6.83% and 8.97%, respectively during the period.
The Indian tyre manufacturing industry enjoyed a smooth ride till 2008-09 with the industry tonnage production registering a five-year compounded annual growth rate (CAGR) of 8.02% between 2003-08.
The largest category of truck and bus (T&B) tyres recorded a five-year CAGR of 5.90% while the light commercial vehicle (LCV), motorcycle and car tyre categories grew at 13.34%, 12.27% and 13.98% respectively during the period.
However, as the economy in general and the automobile industry in particular decelerated in 2008-09, the demand for tyres also came under pressure. In the first three quarters of the last financial year, the industry managed to record a marginal tonnage growth of only 2.19% as against a growth figure of 7.38% in the same period of the previous year.
The tyre off-take by the original equipment manufacturers (OEMs), a majority of whom are small and mid-sized players, also declined by 6.17% during the period. The T&B tyre category was affected the most by this, registering a 0.01% fall in the first 9 months of 2008-09. A similar fate awaited the tyre manufacturing industry in the export markets as well due to stiff Chinese competition and a slowdown in demand. Consequently, the export market off-take shrunk by 9.82% during the period under review.
In the face of dwindling demand, the tyre industry saw production adjustments by all major players in the past couple of months. Even the government’s efforts to provide an external stimulus to exporters by announcing a 6% excise duty cut across industries failed to boost sales, thus leaving the small and mid-sized exporters high and dry.
The excise duty for tyres was reduced by the government from 14% to 10% on December 7, 2008. The duty was further reduced to 8% on February 25, 2009.
The easing of raw material prices from September 2008 onwards has been the only silver lining amid the gloom. However, the impact of the fall in commodity prices was not visible in the quarterly results of the companies, as they had been laden with high-priced inventories for some time. The benefits of the flagging raw material prices will be reflected only in the last quarter of 2009-10, provided the demand supports the topline.
The Indian tyre and radial manufacturing companies, especially the mid-sized players, have faced tough competition from China in the domestic market during the last financial year. Imports as a percentage of total domestic production stood at 10% in 2008-09, with more than 90% of these imports coming from China.
While anti-dumping duty has been levied on the import of Chinese T&B bias tyres, the industry players now want it to be extended to Chinese T&B radial tyres as well to alleviate the market threat. In addition, the industry has urged the government for provide customs duty relief on the import of raw materials which will allow industry players to compete with their Chinese counterparts. A report by CARE Research Ltd |
