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Commentary

Raising Expectations

Poised for quantum leap, Indian tiremakers prepare to tackle their global ambition

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The Indian tire industry is on a roll. The crash in the prices of natural rubber (India is the world’s fifth largest natural rubber producer) has boosted the bottom lines of most Indian tire companies. However, the industry believes the country’s regional tariff agreements under preferential trade pacts are undermining its profitability potential.

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The Automotive Tyre Manufacturers Association (ATMA) says the basic cus­toms duty on tires is 10%, but under trade agreements the duty ranges are actually between 0% to 8.6%. This has led to an uncompetitive market environment that encourages dumping.

The industry association says the low tariffs have resulted in massive imports despite higher domestic manufacturing capacity created by substantial invest­ments in capacity expansion and up­- grades. ATMA wants the government to up customs duty from 10% to 20%, as on rubber.

The industry is expecting robust growth on the back of rising demand for automobiles as the country’s GDP growth is steadily climbing to 5.5% this fiscal year. There is an upward tra­jectory that could see it cruise toward becoming a $6 trillion economy by 2024, representing three times its present size. Rid­- ing the growth wave is the Indian tire industry.

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“Indian tire companies have under­gone a transformation of sorts in the last few years,” says Rajiv Budhraja, director general of the ATMA. “Not only are they competitive on the domestic turf against stiff competition from international majors, many of them have gone ahead and set up bases on foreign shores in some of the most discerning markets in the world.”

General Manager of Exports at BKT Tyres Sandesh Jain says export pro­spects for India tire companies are expected to be favorable, buoyed by cost competi­tiveness and demand recovery in the North American markets. “Demand for OTR tires is likely to remain strong, in line with the last few years,” he says.

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He says exports to North America have been on an ever-increasing mode (BKT is the largest India-based tire ex­porter to the U.S.). “In order to service the rising demand from our clients and also to garner a higher share of this huge market, BKT has opened a new office at Tennessee, specifically for the const­ruction and mining tires. This office will complement the already existing office in Akron, which is focusing on the agri­cultural, industrial and smaller cons­truction tire range.”

According to an analyst with a top Indian credit rating agency the com­petitiveness of the Indian tire man­ufacturers has gone up during the last decade. This is reflected in their ability to sustain the marketshare in the domestic market amid the entry of international players.

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Indian tiremakers have also made successful entry into the overseas mar­ket, both in terms of setting up of capacities and gaining marketshare. They also have reported stable profit margins supported by better-cost structure, relative to other global tire companies, the analyst says.

ATMA’s Budhraja is upbeat at the surge in Indian tire exports, particularly to the North American markets. “The process of casting the export net wider is on,” he says, adding that more offshore destinations are being explored.

As tire manufacturing shifts further to Asia, Indian companies are at the fore­front to seize this opportunity. As a result, their sales turnover has doubled in the last five years.

Eyes on the Globe

Tire-Exports-India-World

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In the years to come, Indian tire manufacturers will be leaving their mark on the global tire map, Budhraja asserts. “Americas and Europe have been accounting for 20%-30% of total tire exports from India,” he notes.

When asked whether Indian tire­makers can benchmark against the best in the world in terms of quality and technology, Budhraja made a compar­ison with China. “Compared to China, India is a forerunner in tire technology because in the past, Indian companies have been collaborating with well-known multinationals like Continental, General Tire, Pirelli, Yokohama and Mansfield.”

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Years of association and diligently assimilated technology and practices have set research-based high standards by Indian companies, and hence the quality-level of tires produced by Indian companies is comparable to any in­ternational brands.

Commenting on the near- and longer-term export prospects of the Indian tire industry, the ATMA official says that Indian exports have been con­sistently increasing during the years.
“Exports have been accounting for a significant part of revenues of Indian companies for the last several de­cades. In 2013-14, tire exports were close to $2 billion. However, India is not an export-led economy.”

Explaining the reason for this, Bud­hraja says unlike China there is a huge domestic demand for tires to be met. The automobile revolution wit­nessed in India in the last few years has sent de­mand for tires spiralling up.

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An investment to the tune of $3.5 billion is lined up both in greenfield tire plants and expansion of existing manu­facturing facilities. At the same time, export prospects continue to be bright in view of the quality of Indian tires, which has been accepted globally.

Today there is no Indian tire major that is dependent on sourcing tech­nology from the collaborators. Indian companies have gone for their own research and development activities and their products are benchmarked against the best in the world.

Leveraging OE Opportunities

It is significant to note that almost all the Indian and global auto majors have rolled out their international automobile models in India on tires manufactured by Indian companies. “Even models meant for exports are increasingly being fitted with India-made tires. This lends cre­dence to the quality and competi­tiveness of Indian tires,” the ATMA official explains.

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Jain of BKT agrees with Budhraja to say that the emphasis on technology and quality are driving the growth of Indian tire companies. The continuous upgra­dation of the quality and tech­nology has made the tires one of the best in terms of reliability and trust­worthiness.
“India-made tires are directly bench­marked against the world giants, be it Michelin in agricultural tires or Bridge­stone in OTR products. The Indian products may lack brand per­ception, but are comparable in terms of performance as well as cost of oper­ations, which are the key factors in purchase decisions by a majority of off-the-road end-users,” Jain says.

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Referring to the near and longer-term export prospects of the Indian OTR and agricultural tires, the BKT official says that in the case of off-the-road tires, the country is emerging as a major prod­uction hub for all the agricultural, OTR, industrial, construction and other speciality tires.

The production capacities of the companies offering these tires have been on an increasing trail. However, as far as BKT is concerned, being a leader in offering the off-the-road tires from India, the question of capacity expansion is the most critical one.

“The ever increasing demand of consistent quality products from BKT has been the reason for a large capacity built-up by BKT,” Jain says.

The latest in the series is the fourth tire manufacturing plant at Bhuj in west­ern India, just 60 kilometers from the Mundra port, one of the busiest and key ports in India. The total land area avail­able for this new plant is around 300 acres and it would be one of the finest plants in the world for off-the-road tires, he asserts.

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Because of economic liberation and opening up of the economy, tiremakers have access to the latest technology and modern manufacturing machines that could be procured from top suppliers in Japan, U.S., etc. With their access to modern man­ufacturing systems and lower prod­uction costs, Indian tire companies are giving them a run for their money in the global market.

BKT’s Jain says, “with the world economy picking-up growth fast, there are brighter chances for Indian tire companies, especially BKT, which are well-prepared for a quantum leap.”

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