Mumbai: Anticipating new truck and bus launches, most of which will be fitted with radial tyres, manufacturers in India are starting to install capacity to meet the demand.
According to Automotive Tyre Manufacturers’ Association (ATMA), an estimated Rs2,615 crore will be invested by 2011, which will cumulatively create an extra capacity of 3.77 million truck and bus radials. The expansion comes at a time when the recovery in sales of truck and bus is only just beginning to pick up.
Sales of such commercial vehicles had shrunk by 22% to 384,122 units in the fiscal ended March, compared with the previous fiscal.
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Industry experts, however, say the investments by tyre makers is justified. Abdul Majeed, an analyst with PriceWaterhouse Coopers, said completion of government’s road infrastructure projects and a likely policy on phasing out ageing vehicles will spur demand for commercial vehicles. “The new truck and bus sales will give an impetus to the replacement demand for the radial tyres,” he said.
Greater volumes, said Mahantesh Sabarad, an analyst at Centrum Broking Pvt. Ltd, will also help tyre makers price radials competitively.
Radial tyres typically offer better fuel efficiency and last longer than regular tyres. Currently, only about 8-12% of trucks and buses in India run on radial tyres.
In contrast, almost 97% of passenger cars use radial tyres. The domestic tyre industry produced 42.35 million tyres for the fiscal ended March, across vehicle segments, up 8% from previous fiscal.
However, a majority of tyre sales in the commercial vehicle section are replacements. The market for replacement tyres contributes around 75% of total sales for tyre makers. In fiscal 2009, of the total 12.83 million truck and bus radial tyres produced in India, 8.99 million tyres were sold in the replacement segment.
Sunam Sarkar, chief financial officer at Apollo Tyres Ltd, which holds 22% of the market share, whose company is also investing Rs1,100 crore in a new radial tyre unit, says all the current investments are being made keeping in mind the future needs.
The plant will go into commercial production by the end of the year and enable the company to produce four times its current volumes, said Sarkar.
JK Tyres Ltd, the country’s third largest tyre maker by revenues, has outlined an investment of Rs250 crore to increase capacity to 1.2 million units from the current 370,000 units.
Neeraj Bhatia, senior general manager, strategic planning at JK Tyres said, “All the developed nations are heavily radialized in the commercial vehicles. (We) too will move very fast. In the next three-four years, it could be anywhere upwards of 25-30%,”
Rajiv Budhraja, director general of ATMA, said radialization at the current level of 10-12% is an inflection point beyond which the growth will get accelerated. “The first spurt comes around at this level, then accelerates and stabilizes at 30%.” Subsequently, the second inflection takes the numbers beyond that, he added.
However, Koshy K. Varghese, executive vice-president, marketing at MRF Ltd, the largest tyre maker by revenues, said while there will be rapid growth in the expansion in the existing radial tyre units and investment in the greenfield ones, demand for regular cross-ply tyres will also exist.
“For an average Indian truck operator, the cost of operation is the most important motivator. It doesn’t matter to him whether it’s a radial or a cross ply,” he said.
In May 2008, the Chennai-based firm announced a Rs900 crore greenfield unit in Perambulur in Tamil Nadu to make radials for both passenger and commercial vehicles. It is expected to become operational by the end of the year.
Budhraja said the demand for radial tyre is also being driven by cheap imports from China, which are helping to seed the market. “Whatever we may hold against the Chinese, I think the sheer numbers they have brought has made a difference,” he said.
Sabarad of Centrum Broking pointed out that when Chinese imports, which are about 30-35% cheaper than domestic tyres, are due for replacement, the user opts for the radial tyres made by registered companies.
Graphics by Ahmed Raza Khan / Mint