Tyre companies like MRF and Ceat, which have diversified into categories like car radials, will face pressure both on account of lower realisation in the car tyre category as well as rising raw material prices. However, companies like Apollo, JK Tyres and Modi Rubber which are predominantly in the truck tyre category will not be affected to the same extent, despite commercial vehicles not performing well. According to the report, prices of natural rubber are expected to increase significantly in the period due to an expected decline in surplus rubber stocks. Increasing competition in the car tyre category, due to new car radial tyre capacities, would also result in a pressure on average price realisation.

The report forecasts demand for tyres by category till 2004-05. It also compares tyre companies in terms of cost structure, operational efficiency and market position.

Between 2000-01 and 2004-05, tyre industry is expected to grow at 6 per cent to 7 per cent. Demand for truck tyres is expected to grow at 5.7 per cent due to an expected increase in replacement demand. Demand for car tyres is projected to grow at 12.7 per cent based on the expected increase in car production. By 2003, the total industry capacity is expected to increase to approximately 60 million tyres.

The report also underlines that due to high capital cost and low expected radial penetration in truck tyres (about 5 per cent by 2005), not more than two to three tyre producers are expected to set up truck radial tyres capacity. However, in car radials, large capacity additions are expected by tyre producers due to high demand growth. Car radials are projected to grow at 24 per cent to 10 million tyres in 2004-05. Cris Infac also studied the likelihood of divestment or acquisition for each tyre producer, by analysing the state of competition and past trends in acquisition activity in the tyre industry and company specific factors like financial capability, cost structure, operational efficiency and investment strategy.

However, mergers and acquisitions activity in the tyre industry during the 2000-01 to 2004-05 period is not expected to be significant. Expect for car tyre category, the intensity of competition is not expected to be high enough to result in divestment by existing producers. The importance of cash flows from tyre business to group companies is expected to be an exit barrier.