Tyre wars looming in twowheeler market
The high volume low margin two-wheeler tyre market in India is preparing for a big competition. Industry analysts are speaking about a looming turf war as many of the major tyre companies, that were not in the two-wheeler market so far, are entering the market. The tyre wars will begin in the aftermarket and gradually spread to the Original Equipment Manufacturer (OEM) now dominated by MRF, TVS Srichakra, Ceat, and a few other small players.
When one of the tyre majors, JK Tyre, announced its plan to enter the two-wheeler market, it was considered as a strategic diversification. When it was followed by India’s second largest tyre company, the Apollo Tyres, market watchers sensed the impending war.
Within weeks, the global player of off-road tyre product manufacturing company, Balkrishna Industries (BKT) unveiled its plans for manufacturing two-wheeler tyres. The latest to announce entry to this market is the Indian arm of the world’s largest tyre company, Bridgestone.
Booming market
The main factor that spurred this sudden change in production and marketing strategies of the tyre companies is the expectation that the two-wheeler tyre market will grow at a faster pace than the current 8.5%. The fortification is to garner a good share in the increasing two-wheeler tyre market of over 15 million units a year.
Tyre industry observers say that many players who had decided not to enter two -wheeler tyre market are thinking differently owing to the growing margins. The fall in the price of basic raw materials like natural and synthetic rubber is another driving force of this diversification.
The rating agency ICRA has reported that the projected pick-up in rural expenditure with good monsoon would translate into higher OEM demand for the rural centric two-wheeler and tractor segments. Growing fleet on ground and higher miles driven/freight moved would drive replacement sales. The entry of more players and the expansion of capacities by the existing players may create surplus in the market leading to a real price war.
New entrants
JK Tyre, India’s third largest tyre manufacturer plans to produce 6 lakh two-wheeler tyres a month. Its President, Vivek Kamra, told AutoComponentsIndia recently,
“We know how to make tyres and we will manufacture them on our own. We will come up with very good two-wheeler tyres. We are planning to make more than half a million tyres every month.”
With this plan, JK has lined up tyres for motorcycles and scooters, and 3-4 products in each segment. JK is very optimistic about the two-wheeler tyre market and plans to sell through the OE and aftermarket route. Commenting on the market demand, the President said that “the two-wheeler tyres used to be a losing segment. However, we do not foresee any major problem as there is a big market. We have a good product and there will be something unique in our product which will stand out among the rest.” Apollo Tyres which has been manufacturing only truck, bus and car and other heavy duty tyres has forayed into the two-wheeler tyre market by launching the Acti series for motorcycles and scooters. The tyres were designed and developed at its global R&D centre in Chennai. Aftermarket is its immediate target. According to Apollo Tyres’s Vice-Chairman and Managing Director Neeraj Kanwar, “This is part of our strategy to be a fullrange player. We have been segment leader in truck and bus tyres and a strong player in the passenger vehicles market. It is natural to migrate into the high volume two-wheeler market.” The company’s plan is to target 2.20 lakh units a month and gradually ramp up to 5 lakh units in the next 2 years to serve both the aftermarket and OEMs. BKT Tires also will be vying for a share in the expanding twowheeler tyre market both in the OEM segment and aftermarket. Rajiv Poddar, Joint Managing Director, BKT Tires said, “Considering the tremendous potential of the two-wheeler tyre market and its reach in rural India, we plan to introduce our flagship tyres at sizes that permeate more than 70% of the total market scope. We also plan to introduce tyres in other sizes to provide complete services to our buyers and gather at least 10% market share of the Indian agricultural transportation market within the next few years.”
BKT Tires plans to make significant headway in rural transportation through the rapid proliferation of the highest quality two-wheeler tyres across the remote areas in the country.
Bridgestone India, a group company of Bridgestone Corporation, the world’s leading rubber and tyre company, has entered the two-wheeler tyre market for motorcycles and scooters in India under the brand name ‘Neurun’.
Kazuhiko Mimura, Managing Director, Bridgestone India said, “Bridgestone globally is one of the leading two-wheeler tyre manufacturers, a major OE tyre supplier to major motorcycle companies in the world. It was a former sole tyre supplier to ‘Moto GP’, the world’s highest motorcycle racing category with ultra-high performance twowheeler tyre.”
Neurun tyres are made available in 5 sizes and are named as Dart, Gemini F, Gemini RX and Spur. “The launch of Neurun is a big leap for us towards achieving our strategic expansion plan of catering to a high volume market and a wider customer reach. Our entry into the ever growing two-wheeler market in India will help us provide a wider product range and services to our customers. We are looking forward to this exciting new phase and hope to expand with the subsequent growth in the market,” Mimura said.
Tyre demand set to grow
The rating agency, ICRA, has reported that the tyre demand
in India is likely to have 6-7% volume growth over the next 3 years, supported by a broad based revival in automotive OE demand.
The domestic tyre makers have invested significant amounts in new capacities in Truck and Bus Radial (TBR) and two-wheeler segments, over the last several years. As a result, between FY2010 and FY2016, the industry witnessed the completion of investments worth over Rs 200 billion. However, with increasing influx of cheaper Chinese tyres and uncertain input price trends, the industry is now looking to consolidate operations and optimally utilise the recently installed capacities. Projects worth over Rs 80 billion (capex undertaken 2-3 years ago) are expected to be completed over the next 12 months which should help tyre makers gear up to meet the likely rise in demand.
“The Truck and Bus Radial segment has seen Rs 350 billion worth capacities over the last 5 to 6 years – this segment may get impacted if imports from China increases further,” says Subrata Ray, Senior Vice President, ICRA Ratings.
Largely in line with ICRA research estimates, revenues in the domestic tyre industry (ICRA’s sample of 7 major tyre companies) de-grew by 2%, led by a 6-8% fall in realisations although volumes grew by 4-5%. The industry benefited significantly from the fall in input costs. Natural Rubber prices fell by 15% during FY 2016 leading to a 470 bps operating margin expansion to 19.1%. This was despite the increase in employee expenses.
“While industry wide revenues are expected to grow by 9% during FY2017, supported by around 6-7% growth in volumes, operating margins are expected to contract by 250-300 bps with a modest increase in raw material (RM) prices, hike in wage costs and increased fixed costs (with large capacities getting commissioned),” Ray said.