Indian Tyre Market Remains a Closed Market

Since the “Dunlop Rubber Company (India)” was registered in 1926 as the first tyre manufacturer in India – when the country was still a British crown colony – the local tyre market has developed into an important but at the same time somewhat backward market. The sheer size of the market makes it internationally important, but Indian products are rarely sold in the most advanced Western markets. However, in the recent past some manufacturers have invested and continue to invest strongly into new technology in order to tackle problems such as low margins, growing competition from Western companies coming to India and increasing imports from low-cost countries such as China. This process of international adaptation and adjustment on the part of Indian tyre makers has already begun to bear fruit. Nevertheless, the Indian tyre market remains what it always has been: an almost completely closed market and an oligopoly whose future direction is difficult to foresee.

During the last financial year (April 2005-March 2006) about 66 million automotive tyres have been produced in Indian factories by 50 tyre companies. And for the past five years the Indian tyre industry has been winning over international observers with its average annual growth rates of about eleven per cent. What’s more, experts believe that in future the market will develop at an even stronger pace. The driving force behind these developments – measured in industry turnover – is and traditionally has been the truck tyre segment. Although Indian companies today produce more passenger car tyres than truck tyres (see table), about 70 per cent of the industry’s turnover is still generated through truck tyres. The importance of truck tyres is decreasing step by step because the motorisation of India is now also beginning to reach the masses, and over the previous five years the truck tyre segment has grown by an average of 8.9 per cent, a figure that is below market average. The passenger car tyre segment in turn has grown by an average of 16.1 per cent during the same period.

However, for the time being the Indian tyre market is still heavily dominated by the truck tyre segment. There are only two tyre manufacturers in the Top-10 list that do not produce any truck tyres locally and purely concentrate on other segments: Falcon Tyres (two-wheeler tyres) and Bridgestone India (PC tyres). The five leading tyre manufacturers – MRF Apollo Tyres, JK Industries, CEAT and Goodyear India can all be classified as truck tyre manufacturers, although it must be said that Goodyear India is no longer focusing on truck tyres, and instead is concentrating efforts at its two tyre factories upon passenger car tyres. Stated in percentage terms about 45 per cent of Goodyear India’s output (in tonnes) are truck tyres and 15 per cent passenger car tyres. The truck tyre market leader JK Industries in turn has a respective truck tyre/passenger car tyre ratio of 79 and 7 per cent. JK Industries is leading this market segment with its own radial tyre technology that is based upon long established technical cooperation with Germany’s Continental AG. Additionally, it must not be forgotten that Apollo Tyres is also currently trying to gain a foothold in the radial truck tyre market, a move that should be simpler now that the company has taken over Dunlop International from South Africa with their own existing radial truck tyre technology (Regal brand).

Although the Indian tyre market is dominated locally by the truck tyre segment, this does not mean that Indian truck tyres are equally important in export markets – in fact the opposite applies. For truck tyres the degree of radialisation is below five per cent, with some market sources even believing that it actually remains at a very low two per cent. With light truck tyres the situation is again slightly different. That particular market has developed over the years and has now reached a degree of radialisation of eleven per cent, whereas about seven years ago it also sat at a paltry two per cent. Although Indian bias-ply truck tyres are exported (export ratio 2005/06: 20 %) these tyres are rarely sold in Western Europe but inroads have been made into North America. Indian bias-ply truck tyres are mainly sold in neighbouring countries as well as in the rest of Asia and in Africa. Despite efforts from the tyre industry to introduce radial technology into the Indian truck tyre market, the market just does not seem ripe for this technology. As an example, for years there was no steel-cord manufacturer based in India that was able to supply the local industry with an adequate amount of this preliminary product at a quality sufficient for radial truck tyre production, according to criticisms from the Automotive Tyre Manufacturer’s Association, ATMA. In 2004 Bekaert commenced operations at its first steel-cord production facility in India, and it appears that this factory, according to the ATMA, should help to increase the degree of radialisation in the Indian truck tyre market. Another very important reason why the Indian truck tyre market has not really developed in a technological sense during the recent past is the nature of road traffic in India. On the one hand India’s road infrastructure often is very bad, while on the other hand trucks are usually overloaded with up to twice their maximum loading weight. Both these factors lead to a situation where tyre wear is relatively high, thus the advantages of radial tyres, such as better mileage and less rolling resistance (less fuel consumption), are minimised. And most importantly, because radial truck tyres in India cost 20-25 per cent more than comparable bias-ply tyres, radials barely have a fighting chance in the Indian truck tyre market, not even in the OE business.

Following the current ruling from India’s “Supreme Court,” overloading will soon become a bad habit consigned to the dustbin of history, market players hope. At first sight this ruling seems to be good for the development of the radial truck tyre segment because the advantages offered by radials will come into their own for the very first time. Furthermore, it is expected in the mid-term that demand for radial truck tyres will go up because fleet operators in India will have to begin running more multiple-axle trucks in order to accommodate cargo loads. According to Indian truck tyre makers – at least according to their announcements – all of them are eager to embrace radial truck tyre technology. However, the current degree of radialisation in the Indian truck tyre market remains at a very flat two to five per cent.

Still another factor accounting for why the Indian tyre market seems so technologically incompatible with Western markets is the common use of tubes within tyres, also within radial tyres. Although tubeless tyres offer some obvious benefits such as less rolling resistance and thus less fuel consumption, tubeless tyres are not commonly used in India. According to market sources only 10 to 15 per cent of the Indian tyre market is made up of tubeless tyres. Consequently, OE customers are also not often mounting tubeless tyres.

India: The virtually closed oligopoly market

The Indian tyre market is still solely dominated by a small number of local tyre manufacturers. The six largest companies offering a full range of tyres – MRF, Apollo Tyres, JK Industries, CEAT, Birla Tyres and Goodyear India supply more than 80 per cent of the Indian tyre market. The ten largest tyre manufacturers produce a substantial 95 per cent of the tyres sold in India, according to the ATMA. This first tier of companies – the leading group – is followed by about 30 different tyre companies. This second tier makes up for only five per cent of the market. These tyre makers are usually very small but concentrate on their particular niche market. Very often these companies mainly produce two-wheeler tyres. Furthermore these manufacturers rarely participate in the Indian OE business.

Altogether, these 40 Indian tyre manufacturers are supplying about 98 per cent of domestic demand, including cars imported into India. Consequently, tyre imports have no real market share. In 2005/06, a year in which Indian companies produced about 66 million tyres, only 868,000 tyres were imported. This represents an import ratio of less than two per cent of the overall market. This is primarily because of the tariffs that make it difficult to profitably sell imported tyres in the Indian market, especially as the entire industry operates on wafer-thin margins. But it appears there is a growing issue with cheap imports coming in from China and Thailand. The Automotive Tyre Manufacturer’s Association complains that these tyres are sold at dumping prices in India. Last year about half a million “dumping truck tyres” were shipped to India, accounting for almost five per cent of the local truck tyre market, and these Chinese truck tyres are generally sold for about 6,000 rupees (£70), while comparable products from local manufacturers are sold for about 9,000 rupees (£100). As was reported earlier, India has already undertaken its first anti-dumping measures against cheap Chinese and Thai imports, and in spite of the increasing quantity of these imports it still seems that the Indian tyre market does not have a huge potential for imports.

Exports on the other hand are becoming more and more important to the Indian tyre industry. Today one out of five truck tyres (22.5 %) manufactured in India is sold abroad; with light truck tyres this ratio is one in three (31.1 %). The export ratio in the commercial tyre segment has remained relatively stable over the past five years. With passenger car tyres this is different: The export ratio in this segment has doubled during the same period. Currently about eight per cent of Indian passenger car tyre production output is sold in export markets. According to the ATMA, Indian companies are exporting to 65 different countries, with 17 per cent of India’s tyre exports sold in the very demanding US market, a feat the ATMA considers remarkable. In Europe and the UK Indian tyres have found their niche – in particular in the agricultural tyre segment. However, their share in the international market is obviously growing.

What do Western companies do in India?

Something that is immediately remarkable about the Indian tyre market is the fact that most of our well-established Western tyre manufacturers have no real standing in the emerging Indian market. The only exceptions so far are Goodyear and Bridgestone (see separate acticle). Michelin, for example, points out that it maintains a strong commitment to the Indian tyre market but that the construction of a Michelin factory relies on the degree of radialisation of the local truck tyre market. Herve Dub, the CEO of Michelin India Tyres Pvt. Ltd., is currently waiting for a “critical mass” to occur in India’s radial truck tyre market, an event that obviously hasn’t been reached yet. Michelin’s situation is particularly awkward because the French tyre giant had become involved in a joint venture with Apollo Tyres in order to jointly build a factory for radial truck tyres in India when all of a sudden Apollo Tyres quit in 2005 and then instead turned to Dunlop International, who already possessed well-established radial truck tyre technology. Now it seems that Michelin will keep India somewhere on the backburner for the time being, or at the very least market observers don’t have the impression that the emerging Indian market is a leading priority at the moment.

Pirelli at least has a small degree of market participation, with a long standing technical co-operation with Birla Tyres Ltd. Birla only began producing tyres in its factory in Balasore (Orissa) in 1992, and while equipping the factory the Indian company was able to rely on technology and know-how supplied by Pirelli Ltd., UK. Today, Pirelli has arranged for Birla Tyres to produce about 100,000 radial passenger car tyres under an offtake agreement. These tyres are mainly sold domestically. According to Pirelli publications it appears that there won’t be any major changes to this approach in the near future. The Indian market is considered to be a very interesting one, of course, but there are no detailed plans to enter India with a Pirelli factory. During the summer of 2005 Pirelli even has published a denial that there currently were any plans to this effect.
From Hanover in Germany there is also an absence of breaking news regarding the Indian tyre market, with the exception of Continental’s CEO and Chairman Manfred Wennemer recent statement that the German tyre manufacturer was also “actively looking for” a potential partner for whatever kind of co-operation in India. For several years Continental has co-operated with Metro Tyres Ltd., a specialist in motorcycle tyres and tubes. The Indian company, for example, produces motorcycle tyres under the “Continental-Metro” brand for domestic market sale.