Home » Money

Truck & bus radial tyres to the rescue of automobile industry margins

Saturday, 2 July 2011 - 8:00am IST | Place: Mumbai | Agency: DNA
With radialisation in passenger cars at almost 90%, demand in the heavier segment seen driving next leg of revenue growth.

Growing radialisation of trucks and buses might just save the day for tyre manufacturers, whose margins have been under severe pressure due to high input costs. As demand rises, most of the players have started adding capacities for truck bus radials (TBR).

Meanwhile, raw material prices have also started to soften in the international markets, which is likely to help improve margins further for these manufacturers.

A TBR tyre can give 300-400 basis points better margins than bias tyres, according to Surjit Arora, analyst, Prabhudas Liladher.

With radialisation in passenger cars at almost 90%, demand in the TBR segment is seen driving the next leg of revenue growth for the industry. Indeed, the level of radialisation is seen doubling in the next two years from around 15% now.

According to a report by Quant Capital, TBR capacity is set to treble by FY13. Almost all tyre companies have announced their capacity addition plans in the TBR segment.

JK Tyres, one of the early entrants to this segment, currently has a market share of around 35%. The company is in the process of expanding its TBR capacity from 800,000 tyres a year to 1,000,000 tyres a year.

Also, gauging the demand, players like Bridgestone, Birla Tyres and Ceat have announced forays into this segment.

“We have recently started producing TBRs at our Pithampur plant in Madhya Pradesh with 200 tyres per day. We plan to increase this number to 400 tyres per day by next year. Our upcoming plant in Chakan near Pune will also focus on manufacturing of TBR,” said Ajay Sevekari, director, Bridgestone.

Apollo Tyres has planned an investment of Rs2,300 crore at its Chennai plant. Of the total capacity, 70% will be for truck bus radials. “There has been a lot of focus on radialisation by most companies. This will further boost domestic radial manufacturing,” said Satish Sharma, chief, India operations, Apollo Tyres.

“With new players entering the commercial vehicle segment, the demand for TBRs is on the rise. Companies like Mercedes, Volvo, Mahindra Navistar, Asia MotorWorks are all radialising. We do not expect this market to mature in the next few years,” said Rajiv Buddharaja, president, Automotive Tyre manufacturers’ Association.

Even the existing dominant players in the commercial vehicle segment —- Tata Motors and Ashok Leyland —- are promoting radialisation with their new generation truck ranges like Prima and U-Truck.

But imports from China are a bother even in the TBR segment. “According to Sharma of Apollo Tyres, “Chinese imports were at an all-time high in the last two months. There will always be a threat from such imports as it impacts profitability.”

A further positive sign for the industry is a softening in raw material prices. Natural rubber, which is currently trading at Rs205 per kg, has been at an all-time high at around Rs240/kg a few months back. According to analysts, the entire commodity space is undergoing a correction. Raw materials crashed almost 30%, which is good news for the tyre industry.


Jump to comments

RELATED

Around the web