By Sharad Matade
Anticipating good demand growth for tyres, the Indian tyre majors are planning to invest about Rs 250 billion in capacity expansion within the country and abroad
Braving out the adverse effects of growing cheap tyre imports, mainly of TBR tyres from China, and falling production, the Indian tyre majors have embarked on massive capacity expansion in India as well as abroad, keeping an eye on the projected growth in tyre demand.
According to a rough industry estimate, total investments in capacity expansion planned by tyre companies based in India runs to around Rs 250 billion. They are opting for both organic or inorganic routes for expansion and growth.
After experiencing a tough time last fiscal, the Indian tyre industry is expected to have a better growth this fiscal. According to rating agency ICRA, the country’s tyre industry is expected to have a strong revenue growth of 4%-6% in FY ‘17 on domestic tyre demand in the original equipment (OE) and replacement markets, which are estimated to grow 2%-2.5% and 1%-1.25% respectively.
Apollo’s expansion drive
The Indian tyre major Apollo Tyres is focusing on both domestic and international markets with equal seriousness. In an interview during the recently concluded Reifen show, Neeraj Kanwar, MD, Apollo Tyres said: “ Right now, there is organic growth happening in Apollo Tyres. We have earmarked a capex of over Rs 32 billion for the current fiscal for our domestic as well as European operations, of which Rs 17 billion will go for domestic operations and the rest for the European operations. We are doubling our truck bus radial tyre capacity at Chennai plant to 12,000 tyres a day from the current 6,000 tyres per day.”
The company’s greenfield facility in Hungary is expected to start early next year. According to the company, the facility, which will produce both Apollo and Vredestein brands of tyres and complement its existing facility in the Netherlands, will have a capacity of 5.5 million passenger car and light truck tyres and 675,000 heavy commercial vehicle tyres.
The company is also expanding its network in Europe. It acquired Reifencom GmbH, Germany-based leading tyre distributor with both online and offline presence. The takeover will help Apollo Tyres improve its mix of distribution channels in Germany and Europe. Reifencom has 37 outlets in Germany and has an online presence in six European countries, Austria, Switzerland, France, Italy and Denmark. “We are always open for such acquisitions. We look into these, but it has to have synergy with our operations,” Kanwar said.
According to media reports, tyre major MRF is planning to set up a Greenfield plant in Gujarat. The company has been in talks with the State Government and the plant is most likely to be set up in Bharuch. The plant will entail an investment of around Rs 40 billion and will have a production capacity of one million tyres per month.
MRF is already investing Rs 45 billion to expand its production capacity in its three plants in Tamil Nadu. Currently MRF has a total manufacturing capacity of 120,000 tyres per day across its plants in Tamil Nadu.
Off -the-road tyre giant BKT opened a new facility at a cost of $500 million in Bhuj, Gujrat, at the end of last year. Once the plant is run on full capacity in 2017, BKT’s production capacity will double from the current 150,000 metric tonnes of tyres to 3 million metric tonnes of tyres per annum. The company has off-highway tyre plants in Aurangabad, Bhiwadi and Chopanki in India. With the doubling of capacity, the company expects its sales revenue to increase from $700 million to over $1 billion in two to three years.
TBR major JK Tyre completed capacity expansion worth of Rs14 billion at its Chennai plant, India, during 2015-16. The company has also completed expansion of its Mexico plant at a cost of US$ 22 million which has raised its production capacity from 3.5 million to 5 million tyres. In April this year, JK Tyre also acquired three plants owned by Cavendish Industries, with 10 million tyres per year capacity, at Rs 22 billion.
With this acquisition, the Raghupati Singhania-led company’s capacity will improve by 27% to 25.4 million tyres per year and help to expand in the truck and bus radials segment where JK Tyre is a leader in the Indian market. JK Tyre will also get an opportunity to enter into the two-three wheeler tyre market.
“With the completion of acquisition of Cavendish Industries Ltd., JK Tyre further consolidates its leadership position in the tyre market, more so in Truck & Bus radial segment. With its strong Research & Development facilities, strategically located 12 manufacturing plants in India and abroad, JK Tyre is well positioned for a sustainable growth in the years ahead and continue to meet changing needs of its Customers,” says Singhania.
Two-wheeler tyre production
Two-wheeler tyre maker TVS Srichakra is also ramping production in phases. To meet the growing demand, the Chennai-headquartered company is planning to scale up production to 2.5 million units per month at its plants in Madurai and Pantnagar. “This year we increased our production of tyres from 2.3 million units per month to the current level of 2.4 million units per month, which will increase to 2.5 million units per month by the end of this year,” says P Vijayaraghavan, Director, TVS Srichakra.
To scale up production capacity of its plants, TVS Tyres invested in a capex of Rs.1,600 million this year. The company’s 88% revenue comes from two-and-three wheeler tyre sales, while the rest comes from fork, construction, multipurpose and farm tyres, which are sold under TVS Eurogrip brand across over 90 countries. “OTR business has been a value addition and we will keep adding range in that segment too,” Vijayaraghavan adds.
Ceat has a routine capex plan of Rs 1 billion every year, which goes into products and enhancement or upgrading of existing plants. Besides, the company has Rs 15 billion for fresh capex of capacity expansion, out of which Rs 6 billion will go into its Halol plant, while Rs 9 billion will be invested in its Nagpur, Baroda and Ambernath plants. The company aims at increasing its market share in the two-wheeler tyre segment with the commissioning of its new Rs 4-billion plant in Nagpur early this year. The plant will almost double the capacity from 1.3 million tyres to about 2.5 million tyres once it reaches the full capacity.
There is increasing competition in the two-wheeler tyre segment as more and more companies, both domestic and international, are entering the segment. In a short span Bridgestone India, Apollo Tyres, JK Tyre and BKT, with strong financial backing, global experience and vast distribution networks, have successfully launched their two-wheeler tyres.
Though capacity expansion by tyre majors is underway, the tyre industry is facing challenges from imports of cheap tyres. While the import of Passenger Car Radials (PCR) has gone up by 20%, that of Truck & Bus radial (TBR) tyres has surged by a staggering 57% in the first two months of current financial year against year-ago period, states Automotive Tyre Manufacturers Association (ATMA).
China accounts for the largest share of tyres imported into India. China’s share in total TBR import was 40% in 2013-14, 70% in 2014-15 and 90% in 2015-16.
“The Indian tyre industry continues to be at the receiving end of indiscriminate import of radial tyres especially Truck & Bus radials. There has been no let-up in dumping of tyres from China. Such indiscriminate import and dumping is hurting capacity utilisaton levels in the industry which have come down significantly over the last two years,” says ATMA Chairman K.M.Mammen.