Indian tyre industry growth slowdown for 2012 and 2013: Demand strong but operating margins decline

Indian tyre manufacturing companies are expected to see a rise in sales in the coming fiscal year 2013 even though there is a decline in export growth. Domestic growth of the industry has been recorded at a modest 8%. A moderate demand slowdown and decline in prices of rubber have led to the increase in tyre prices. These increases in tyre prices are quite low and have been recorded at 4.5% for Q4FY2012.

The operating margins of these tyre companies are lower considering the changes in the prices of cost/selling price. Demand for automobile tyres is increasing, but with fluctuating prices of raw materials increase in growth can’t be seen as of now. Rates of tyres for heavy vehicles and buses are higher than those of passenger vehicles. This difference in price is due to exports of tyres for passengers vehicles. Demands for tyres by major sectors are classified as follows, OEM’s 47%, replacement 47%, and exports 6%.

Demand for tyres has seen a drastic slowdown in 2012 due to lower demand growth for tyres original equipment manufacturers (OEMs)/automotive manufacturers. There are 43 Indian tyre manufacturers of which only 10 of them constitute 90-92% of tyre production. Keeping this in mind, it should be noticed that the share of imports has been increasing at a steady rate due to demand by commercial vehicles, and passenger vehicles.

Read the press release below for more information.

Auto News Release

Slowdown in domestic auto production contributing to tepid growth for Tyre Industry for FY13: IMaCS

Mumbai, August 06, 2012: India’s automotive tyre production is expected to clock 7% growth in FY2013 despite the decline in export growth but supported by improved domestic demand  by a modest 8 per cent, says a report by IMaCS. The domestic tyre industry may also feel heat because of increasing threat from the OEM and replacement market, especially for the passenger cars and CV markets.

Dwelling on the price trends of the tyre industry, the IMaCS report says that moderate demand slowdown and decline in prices of rubber contributed to increase in tyre prices at sequentially lower rates to 4.5% in Q4FY2012.

However, the Tyre prices have increased at higher rates for truck/bus and motorcycles, but at lower rates for four wheeler (4W) tyres primarily because of higher imports in this segment.

Operating margins have been declining from 2010 because of higher increases in raw material/selling costs vis-à-vis prices. While the outlook on the demand growth for tyres continues to be positive, volatility in prices of rubber continues to be a concern, the IMaCS report states.

The demand for tyres by major sectors stands at OEMs (47%), replacement demand (47%), and exports (6%). While OEM demand growth moderated from 28% in FY2011 to 14% in FY2012, replacement market demand declined 4% in FY2012 primarily of declines in two major markets—commercial vehicles (CVs) and two wheelers (2Ws).

India’s tyre production increased 5.2% during FY2012 to 125 million. Production growth peaked at 29.9% in Q4FY2010, but has thereafter declined substantially. The recent slowdown has been primarily because of substantial slowdown in CV and 4W tyre demand growth.

India’s automotive tyre demand has increased at a three year annual average of 18% to 131 million in FY2012. Demand growth has slowed down from 30% in FY2011 to 5% in FY2012 because of lower demand growth from original equipment manufacturers (OEMs)/automotive manufacturers.

The Indian tyre industry has around 43 companies, out of which the top 10 companies account for around 90-92% of total production. Although imports constitute only 8% of total tyre production, the share of imports has been increasing, driven by increased imports of tyres for passenger cars and CVs.