Caught in pincer, tyre cos drive outward

Tyres makers are deploying different strategies such as stepping up exports and changing product mix to combat the current slack in tyre demand.

While demand has slowed down from both vehicles manufacturers as well as replacement side, rising raw material costs are squeezing their margins.

“There are two impacts; one is reduction in demand and other is reduction in margins of domestic sales. With this scenario we have to significantly alter our market mix,” said Arnab Banerjee, executive director - operations, Ceat.

He said Ceat has started exporting a larger proportion of its turnover. “Exports give us opportunity of earn more or equal margins in some categories. We are also pushing higher-margin passenger vehicle tyres where slowdown is there but not as drastic as commercial. We are also inching up our sales in two-wheeler tyres by investing in marketing,” he said.

JK Tyre & Industries is too deploying a similar strategy.

“We have started focusing on exports due to slow domestic demand. If one route gets slower, we will have to concentrate on other strategies. We are exploring possibility of increasing exports,” said A S Mehta, director marketing, JK Tyres.  
Bridgestone, which supplies to almost all major car manufacturers, is witnessing a similar situation.

“Our offtake has come down. The year-on-year growth is slow. However, it is difficult to estimate the fall in demand as we are waiting for September numbers. September and October will be critical to understand the demand going ahead,” said Ajay Sevekari, director, Bridgestone India.

Meanwhile, the tyre industry, which was expecting to grow
by 10-12% this fiscal, has reduced its expectation to single-digit growth. “We were expecting a healthy growth this year. However we are likely to witness single-digit growth given the market condition,” said Rajiv Buddharaja, president, Automotive Tyre Manufacturers’ Association (Atma).

He said car production has dropped this year, leading to fall in tyre offtake and drastically reducing the growth rate from the last year.
While medium and heavy commercial vehicle as well as passenger car segments have been affected, light commercial vehicles and two-wheelers are still going strong, he said.  

Banerjee from Ceat said there has been a significant slowdown in the replacement market since June-July, especially on the CV side.

“Government has implemented load capacity regulations. When this happens there is a temporary slowdown in demand because truck owners do not overload the vehicles and the tyres wear out slowly. So the replacement cycle increases. This is a temporary slowdown, but after 5-6 months demand comes back to normal,” said Banerjee.

Ceat is not affected with the fall in OEM demand as its reliance on the segment is limited to 15-20% of its sales, he said.

Other factors such as ban on mining have also impacted
sales.

Also, with the removal of anti dumping duty on Chinese tyres, companies see the competition getting tough and impacting revenues.

Prices of rubber, the main input, constituting around 43% of total raw material costs, witnessed a sharp rise in 2010-11, reaching a peak in April this year at Rs240 per kg.

However, they have started to soften around Rs215 per kg now. However, companies are finding it difficult to pass on the increase due to high competition.

The festival season also seems to be disappointing the tyre makers.

“Festive season normally perks up the demand. But there are no such signs emerging,” said Buddharaja.