MRF Considers China Operations

India’s largest tyre manufacturer, MRF Ltd, has achieved a fiscal milestone and, at the same time, spoken afresh of plans to circumvent the country’s ‘inverted’ duty structure for tyres and raw materials.

The company’s chairman, K.M. Mammen, told media in Chennai on October 5 that MRF had, in the 2006-7 financial year, become a Rs 50 billion (£620.4 million) company, with turnover in the recently closed financial year up from Rs 42.6 billion (£528.6 million) during the previous year. The company added that profit is expected to be about 1.8 per cent of turnover, some Rs 900 million (£11.2 million).

Almost 20 per cent of turnover reportedly came from OEM sales. A further 10 per cent was garnered from exports and 2 per cent from sales to India’s military. The remainder came from the Indian replacement market, a £2.4 billion market of which Mr. Mammen claims MRF holds a 26 per cent share.

Company plans for offshore production were also revisited. With tyre imports underselling their Indian made equivalents and duties upon raw materials currently at 20 per cent – double that for finished tyres – MRF now concedes that the establishment of a factory in China may be the best way to remain competitive. “We will have to go to China because of [the] import threat,” commented K.M. Mammen. “If the present duty structure continues, tyre companies could start operations in other parts of the world and then import to India.”

The MRF chairman added that today’s high rubber price of US$91 a kilogram, when combined with the 20 per cent duty, meant that the importation of rubber was not a viable option, and has led to Chinese manufacturers capturing 10 per cent of India’s replacement tyre market with their lower-taxed finished products.

Plans for China aside, MRF is currently working on a 500-acre greenfield factory and test track in Tamil Nadu; this facility is scheduled to enter operation in 2009. The company is also considering two further greenfield projects within India, and MRF officials have spoken of talks the company has held with the Indian Air Force, with a view to establishing an Rs 1.5 billion (£18.6 million) factory for producing aero tyres for the military client.