Will Tyre Industry be in momentum for next 2-3 Years?

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(A) Overview of Indian Automotive Industry

Tyre Industry - logo

High input cost, shortage of semiconductor, supply chain disruption and the Russia-Ukraine conflict has curtailed the growth of the India Automotive Industry during the later part of FY22.

Total vehicle sales have witnessed a decline. Even though demand for passenger vehicles continues to be rising, commodity inflation prevents buyers from making their preferred purchase vehicles. Commercial vehicles continue to grow by double digits compared to last year. However, the near-term scenario of the India auto industry remains challenging and might impact the growth projections.

The lockdown relaxations with wedding season and re-opening of educational institutions and commercial offices have resulted in the pent-up demand coming in the 2-Wheeler segment. The PV segment for the entire year saw high demand with low supplies due to the shortage of semiconductor shortage.

(B) About Tyre Industry

One of the most important components of an automobile are the tyres. They help the vehicle stay balanced, dampen shock from the road, and change or maintain direction. The automobile sector is one of India's quickly growing industries.

India is currently the world's fifth-largest market for passenger cars, the largest market for motorcycles, and the third-largest market for commercial vehicles. Indian roadways are home to more than 250 million scooters, motorbikes, 40 million cars, and 10 million commercial vehicles.

According to Invest India, India is expected to become the world’s third-largest automotive market by 2026.

(C) Classification of Tyres

(i) Based on vehicle type

  • Passenger Cars
  • Light Commercial Vehicle
  • Medium and Heavy Commercial Vehicle
  • Two Wheelers and three wheelers
  • Off Road
  • Others
Tyre Industry - Revenue share

(ii) Based on the distribution channel

  • OEM
  • Replacement
Tyre Industry - segment wise share

Industry is dominant by share of replacement sales. Moreover replacement market accounted for ~60% of the domestic tyre demand in the last five years among which CV segment has the largest share.

Tyre Industry - Market share of Indian tyre Industry

MRF has the largest market share in CVs of 32% and 2-Wheelers segments of around 35%, while Bridgestone has the largest market share of 22% in PVs segment

(D) Exports Market

Farm/agri and OTR/industrial tyre have traditionally been India's most exported tyre categories.

In FY22 top five destination were- USA - 19%, Germany - 7%, Brazil - 6%, UK - 4% and France - 4%.

Meanwhile, Trucks and bus radial tyre export have accelerated in recent years, nearly from Rs 1,263 Cr in FY19 to Rs 3,095 Cr in FY22.

Tyre Industry - Export trend

Additionally, in FY21-22, India's tyre exports increased by 50% to all time high of Rs 21,178 Cr.

Tyre Industry - Tyre companies Export trend

Indian Tyres are exported to more than 170 countries including markets in north America & Europe.

(E) Tyre - Raw Material Composition Mix

Tyre Industry - raw material composition mix

Natural rubber accounts for ~30% of the RM (in volume terms), followed by carbon black (25%), SR (20%), and also fabric (10%) etc.

In value terms, in India the share of NR is ~30% while SR and carbon black is ~20%, ~25% respectively. In the global context, SR share is the highest due to product mix, road infrastructure, weather, etc.

Most of the RM are derivatives of crude and hence their prices move in the line with the oil prices.

(F) Top Key Players of Indian Tyre Industry

Tyre Industry - top key players of Indian tyre industry

(G) Outlook

India is among the fastest growing tyre markets globally, which plays a major role in the economy of the country. Moreover, the industry has stable growth projections and turnovers. The industry also provides various job opportunities in many fields ranges from agriculture sector to the manufacturing sectors of the Country

Meanwhile, according to ratings agency ICRA, the Indian tyre industry's demand is expected to increase this fiscal year by 13-15 % in the replacement market segment and 7-9 % in the OEM segment after two years of decline.

Based on projected demand growth, capital expenditure of over Rs 20,000 Cr is expected in the tyre industry between FY22- 25.

(H) Growth Opportunity of Tyre Industry

(i) Rising Income Levels

A study by the McKinsey Global Institute suggests that if India continues on its current high growth path, over the next two decades, the Indian market will also undergo a major transformation. Mean household income will also grow triple in the next 20 years and India will become globally, the fifth largest consumer economy by 2025.

(ii) Penetration Levels of Passenger Cars

Passenger car penetration levels in India are in a very nascent stage compares to the emerging and developed countries. India has only 10 cars per 1,000 population compared to the world average of 125. For China, this figure is 50 and for other emerging and developed countries it is more than 200. Coupled with the rise of the middle and upper middle classes in the coming years. Meanwhile, the penetration levels of passenger cars among the Indian population are expected to increase manifold.

This will be a key driving factor for the Indian tyre industry. India is also having an increasing rate of urbanization with large number of people moving to the cities for better livelihoods.

(iii) Favorable Government Schemes

Government schemes such as Atmanirbhar Bharat provides an economic and compressive package of Rs 51,000 Cr to promote manufacturing of the automotive in the country.

(iv) Indian Player Going Global

Due to a series of anti-dumping duties imposed by Europe and the US on Chinese tyres since past 3-4 years has opened a window of export opportunity for Indian tyre industry. With the increasing acceptance of Indian tyres in the overseas market Indian tyre export increased by 50% to all time high of Rs 21,178Cr.

According to ATMA the domestic industry has the potential of further doubling of export from India in next 3-4 years.

(I) Threats for Tyre Industry

(i) Volatility in Raw material Prices

Industry is a raw material intensive one. Raw materials account for nearly 72% of the total production cost. Natural rubber is the primary raw material in the production process of tyres and results in 44% of the total raw material cost.

Nevertheless, the Indian tyre industry has to depend on the imported natural rubber because of a mismatch between production and consumption of domestic natural rubber. India consumes more than 80,000 tons of natural rubber, out of which the tyre industry consumes about two-thirds of the natural rubber.

(ii) Inverted Duty Structure

The duty structure is a key challenge for the Indian tyre industry. Inverted duty structure is where the key raw material (natural rubber) attracts higher customs duty than its finished product (tyres).

Even when basic customs duty is 15% for tyres, it is actually much lower than that under various trade agreements for the duty (on tyres) when compared with the basic custom duty of its principal raw material, natural rubber.

Drop us your query at – info@pawealth.in or Visit pawealth.in

References:  Economic times Auto, Companies’ Annual reports, Media report, Automotive Tyre Manufacturers Association (ATMA), Crisil Rating, ICRA, Motilal Oswal, IBEF, Central Statistics Office (CSO), Database on Indian Economy, RBI, Office of Economic Adviser, PIB.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. The report & references mentioned are only for information of the readers about the industry stated.

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