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Business News/ Companies / Tyre makers follow Chinese trail with cheap, no-warranty radials
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Tyre makers follow Chinese trail with cheap, no-warranty radials

Local makers of truck, bus radials pare prices, introduce tyres without warranty to counter the avalanche of imports

Truck and bus radial imports have more than doubled from 490,601 units in 2013-14 to 1,308,437 units during 2015-16, according to data from the Automotive Tyres Manufacturers Association. Photo: MintPremium
Truck and bus radial imports have more than doubled from 490,601 units in 2013-14 to 1,308,437 units during 2015-16, according to data from the Automotive Tyres Manufacturers Association. Photo: Mint

New Delhi: Tyre makers in India are trying to beat the Chinese at their own game.

Local manufacturers of truck and bus radials (TBRs) are cutting prices and introducing tyres without warranty to counter the avalanche of tyre imports, two people familiar with the matter said.

“While Bridgestone has already launched low-cost TBRs, Michelin would be doing so in the next few days. Indian leader MRF Tyres is also studying and finalizing its plans for the same," said one of the two people mentioned above. Like the Chinese tyres, these would also be sold without warranty, this person said.

Atsushi Okiyama, general manager (business planning and corporate communications) Bridgestone India confirmed the company has entered the low-cost, no-warranty tyre segment. Bridgestone has cut prices to compete with Chinese imports, he added.

“We are focusing on this segment with a strategic approach to cater (to) the market requirement," Okiyama said in response to a questionnaire. “We certainly have been affected by the Chinese tyres entering with lower price tyres... One of the reasons of TBR segment’s price adjustment was owing to competitive pricing from Chinese tyres."

Michelin India Pvt. Ltd and MRF did not respond to questions sent on Monday.

According to Nitesh Sharma, CFA, Institutional Equity Research (auto and auto ancilliary), Phillip Capital India Pvt. Ltd, the Indian tyre industry has cut TBR prices by 10-15%, mainly initiated by Chennai-based MRF.

“Bridgestone and Michelin launching low-cost tyres (without warranty) have only added to our worry," Sharma said. “Despite recent price cuts, tyre prices of incumbents in the TBR segment are still 20-25% more than their Chinese competitors."

According to Raghupati Singhania, chairman and managing director of New Delhi-based JK Tyre and Industries Ltd, which has cut prices, imports have begun to harm the sector.

“The Indian truck/bus radial tyres market is being flooded by these cheap tyres which are being ‘dumped’ into the Indian market. As a result, the capacity utilization of the tyre industry is coming down quarter over quarter and is impacting its working," Singhania said in an email interview.

Amid the clamour to check imports, however, commerce and industry minister Nirmala Sitharaman put the onus on the Indian industry.

“I cannot stop all imports... but India’s manufacturing companies have to capture this market and identify how they can link themselves to the global value chain," she said last week at the Make in India event in Mumbai.

To be sure, raw material costs of both Indian and imported tyres are the same. TBR imports have more than doubled from 490,601 units in 2013-14 to 1,308,437 units in 2015-16, according to data from the Automotive Tyres Manufacturers Association (ATMA). TBR imports as a percentage of replacement demand have grown 18% in 2013-14, 24% in 2014-15 and 39% during April-October this fiscal. According to ATMA, 90% of all TBR imports in India now come from China, sharply up from 40% two years ago. The other countries from where India imports tyres are Thailand, Spain and Japan.

Of the total Chinese imports, less than 30% is imported by vehicle manufacturers and tyre companies. Chinese TBRs have replaced the lower-end domestic truck bus bias (TBB) segment as they are 10-15% cheaper than the latter and at least 30% cheaper than domestic TBRs.

Chinese tyres are largely used in short distance, higher load transportation applications, in addition to rear-end dummy axles of multi-axled trucks, where the tyre is not as critical to the overall performance of the vehicle. In a heavy duty application, the tyres tend to heat up quickly. In such a scenario, TBB succumbs quickly as it emits higher heat. Since it has a thicker casing, it increases the time needed to cool down. Cheaper Chinese radials act as a quick substitute, removing the risk of overheating of the tyre. Radial tyres are far superior to bias tyres in terms of economy, safety and performance.

Singhania of JK Tyre ruled out the option of a low-cost tyre from his company being introduced.

“Low-cost tyres have serious issues of quality and JK Tyre does not want to compromise with the quality of tyres," he said.

Sharma of Phillip Capital said Apollo Tyres reduced the prices of its products by 2-3% in the December quarter and a further 5% in January.

An executive from Gurgaon-based Apollo Tyres on condition of anonymity clarified that the price reductions are being made due to the moderating raw material prices and competition from the Chinese tyre makers.

Gaurav Kumar, chief financial officer at Apollo Tyres, said that these truck-bus radials are being imported at costs which are lower than the domestic truck-bus bias tyres, resulting in the replacement customers choosing the imported radials over bias tyres.

A depreciating yuan will make Chinese imports even more competitive, which can be offset partially by a depreciating rupee, said Mahantesh Sabarad, deputy head of research, SBI Cap Securities Ltd.

“Chinese tyre makers will still have the option to drop prices further as the yuan depreciates," Sabarad said.

To be sure, traders of Chinese tyres typically pay in dollars. If rupee depreciates, it takes the large chunk of profits away from traders. The trader bears the depreciation risk.

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Published: 20 Feb 2016, 12:11 AM IST
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