Tyre firms are not cutting corners in NR (natural rubber) inventory, despite an inevitable slump in offtake from OEMs (original equipment manufacturers). This means that the Rubber Board’s projection of 8.99 lakh tonne of NR consumption (as against 8.6 lakh tonne in 2007-08) may more or less rule good in 2008-09. After RBI gave the credit squeeze jitters to automobile firms last week, it was obvious that OEMs would be impacted heavily. And OEMs constitute about one-fifth of the Indian tyre firms’ market.
“Fortunately, demand in other segments like truck radial tyres, is enough to keep our factories busy, tough-weathering the OEM segment crisis,” says AS Mehta, director (marketing), JK tyres, told FE. “But then, the cost of inputs like NR is a growing challenge,” he adds. Pushed by low margins, Indian tyre firms are eyeing production of off-the-road tyres, used in the construction and mining equipment industry, truck radials and manufacturing.
In fact, radial tyre export opportunities have set most tyre firms revving up “to prepone their capacity expansion plans, if possible,” say tyre company officials. While JK Tyres is putting its act together for its 100% capacity ramp-up in March 2009, Apollo Tyres is going ahead with its $306-million expansion in its Chennai and Baroda plants.
About 60% of the tyre industry’s revenue is from the replacement market. Betting on rapid truck radialisation in India, Ceat Tyres too is pacing up the setting up of a radial tyre plant at Vadodara.
At the same time, all tyre companies are keeping their fingers crossed that the long-term growth in the replacement market and truck radial segment would offset the short-term hit in OEMs’ demand and cover the escalation in raw material costs.
A disturbed ATMA (Automative Tyre Manufacturers’ Association) points out that tyre firms are “under attack from both sides of the value chain.” On the one hand, the domestic price of raw materials like NR is ruling at Rs 136 per kilo. “On the other, hardening interest rates are expected to result in the low offtake of vehicles, in turn, impacting the sale of tyres to OEMs,” says Rajiv Budhiraja, director-general, ATMA.
Meanwhile, the Rubber Board, which expects production in the current fiscal to make good its last year’s negative growth, has not guaranteed enough yield to match the growing demand. On the contrary, it had projected a production-consumption gap of 24,000 tonne in 2008-09.