The recent slowdown in the auto industry notwithstanding, tyre manufacturers seem to believe in the long-term growth story.
After Apollo, JK and Ceat, Bridgestone announces $52 m investment
MUMBAI: The recent slowdown in the auto industry notwithstanding, tyre manufacturers seem to believe in the long-term growth story.
On Wednesday, Japan’s top tyre maker Bridgestone Corp said it would invest about $52 million (6 billion yen) in India to increase daily production capacity by 4,500 tyres to 15,000 by 2010. The company has one plant in Indore manufacturing passenger car radials.
According to a Bridgestone India official, the proposed expansion would be brownfield in nature. “There is no proposal at this point of time to expand the product line-up (from passenger car radials to truck and bus radials). The expansion would be to meet the growing local demand,” he said.
However, Bridgestone is investing about two and half times that amount to expand capacity in its Indonesia plant by 8,400 tyres to 27,000 tyres a day during the same period.
After three years of growing at over 25%, commercial vehicle sales in India have shown degrowth this fiscal on rising interest rates. Commercial vehicles account for over three-fourths of all tyres consumed (by volume and value) in the country.
“During the years when the CV industry grew at 25%, the tyre industry did not grow at that rate. We grew at a modest 9-10%. So, now that the CV sector is not growing, it won’t be fair to assume that the tyre sector would also degrow. At this point in time, our industry is tracking the GDP growth rate more closely than the CV sales growth,” said a senior official from Apollo Tyres, India’s largest tyre company by sales.
“There is absolutely no change in our stated capex plan in spite of the slowdown in the CV sector,” she said.
The domestic tyre industry is estimated to be worth Rs 16,000 crore, and growing at 9-10%.
Manufacturers are counting on strong export and replacement demand to boost growth, in addition to the OE segment. Also, new markets like truck and bus radials (TBR) are now opening up. TBR penetration has doubled in one year to 5% and over the next 4-5 years, is expected to breach the double digit mark.
Thanks to the 20-30% growth rate the auto sector has witnessed over the last couple of years, the replacement market is very strong and the companies are also exploring newer export geographies.
Almost all tyre majors have lined up aggressive capex plans. Apollo Tyres is setting up a greenfield plant in Tamilnadu with an investment of Rs 520 crore to manufacture TBRs and passenger car radials (PCR) for domestic and export market.
Rival JK Tyre, which currently is the only player to manufacture TBRs in the country, has lined up Rs 1,100 crore capex plans to hike capacity to 12 million units annually by 2010 from 9 million currently. The capex amount is over four times what the company has spent in the previous three years.
Ceat Tyres, the fourth-largest player, is also scouting for locations to set up two greenfield plants. One of the plants would come up in Maharashtra, for manufacturing specialty tyres. For the other, which would produce TBRs and PCRs, the company is exploring Uttaranchal, Gujarat and Tamil Nadu. The two plants would have a collective capacity of about 200 tonnes per day and soak up investments worth Rs 700-800 crore over the next three-four years.
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