1.

1 HISTORY & DEVELOPMENT OF TYRE INDUSTRY

The word tyre has been derived from the French word tyre
meaning 'to pull'. Prior to the invention of pneumatic or air filled
tyres, tires were made up of bands of leather or iron placed on
wooden wheels. This would protect the wheels of the carts and
wagons from rapid wear and tear. A craftsman, known as
Wheelwright was famously recognized as the pioneer of this
form of tyres.

Evolution of Rubber Tyres

The 1800's, Charles Macintosh experimented with sap from trees in Amazon area to create
rubber. Charles Goodyear discovered vulcanised rubber in 1839, by adding sulphur, making
it elastic and strong enough to be used as cushion tyres for cycles.

It was in 1845 that pneumatic or air-filled tyres were invented and patented by Robert
William Thomson, a Scottish inventor. His design had multiple thin tubes inside a leather
cover, so that the tyre could absorb shocks. But, it never really went into production due to its
severe limitations.

However, in 1888, John Boyd Dunlop

from Ireland came up with the first
practical pneumatic tyre which later
became Dunlop tyres. He also tested the
first pneumatic or air-filled tyres on a
tricycle and took it for a spin. Pneumatic
tyres gained their popularity due to the
growing use of bicycles in the late 18th
century.

The Michelin brothers, Andre and Edouard invented the detachable pneumatic tyre in 1891,
which could be used on automobiles. The tyre consisted of a tube bolted on to the rim.

The process of making pneumatic rubber tyre underwent tremendous engineering advances
for the next fifty years after its invention. During this period, automobiles were using
different forms of bias-ply tyres. The bias-ply tyre had an inner tube containing compressed

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pressure and an outer casing to protect the inner tube and offer traction. The outer casing was
reinforced with ply of rubberized fabric cords.

Indian Tyre Industry

In 1926, Dunlop Rubber Limited became the first company in India to set up a tyre company
in West Bengal. The MRF (Madras Rubber Factory Limited) entered the tyre manufacturing
market in 1946. Since then, the Indian tyre industry has grown rapidly.

In the pre-Independence period, the tyre manufacturers were mainly foreign companies. Raw
material in the form of natural rubber was easily available and labour was cheap. Sometime
in 1956, based on the recommendations of the Tariff Commission, the Government
encouraged domestic companies to set up their manufacturing facilities. A number of
companies set up their plants in India, usually with technical support from foreign companies.
After, the onset of liberalization a few foreign companies entered India. However, they were
not able to make a dent in the market share of Indian companies. Some foreign companies
like Michelin, Continental Tyres and Pirelli are planning to enter India in the near future.
Over the last few years, import of tyres into India from countries like China, South Korea and
Thailand has been on the rise. The tyre manufacturers feel that due to the inverted duty
structure foreign tyre manufacturers have an unfair advantage.

The Indian tyre industry has grown over the last ten years. The reasons for growth are the
robust growth of the economy and the automobile industry. Besides domestic growth, there
has been a smart growth in the export of tyres also. The future is likely to see more growth in
exports as the supply of natural rubber goes down. It is expected that the Indian tyre industry
will have a very bright future.

Demand for tyres is derived from demand for automobiles. Therefore, it is a derived demand
product and its fortunes are very closely linked to those of the auto segment. Within the tyre
industry the trucks and buses (T&B) segment accounts for more than 70% of sales. Though
scooters and motorcycle tyre demand also plays a vital role, in value terms, CVs gain
significance.

Tyre Industry turnover from 2004-2005 to 2009-2010 has been grown up from Rs.13500 Cr.
to Rs.25000 Cr. i.e. 85.18% growth has been observed. But in 2004-2005, there were 47 tyre
factories which got reduced to 36 in 2009-2010.Top seven large companies in India account
for 85% of total tyre production around globe.

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With an estimated revenue of $ 8.421 billion and with a production of 165.6 million tyres
from 167 operational plants in the country in financial year 2016-17, India is among the
fastest growing tyre markets globally. Indian tyre market reached a consumption volume of
184 million units in 2018. Today, the India tyre industry employs as many as one million
people including dealers, retarders, and growers of natural rubber.

1.2 OVERVIEW OF THE INDIAN TYRE INDUSTRY

With a production figure of 165.6 million tyres from 167 operational plants in the country,
India is among the fastest growing tyre markets globally. With an estimated revenue figure of
$8.421 billion in financial year 2016-17, the Indian tyre industry can be segmented into four
broad categories based on the tyres produced for various types of vehicles.

 Two and three-wheeler tyre segment

 Truck and bus tyre segment
 Passenger car segment
 Tractor and light commercial vehicle (LCV) segments

In terms of volume, two and three-wheeler tyres account for more than half of production, but
contribute only 13% of the industry revenues. In contrast, the truck and bus tyre segment
contribute approximately 13% to the total tyre production, but has the highest revenue share
of the industry at 54%. The passenger car segment at 14% in terms of revenue accounts for
23% of the tyre production in India. This segment is showing an increasing trend both in
numbers and revenue. Tractor and light commercial vehicle (LCV) segments’ total volume
share stands at approximately 9%, while its revenue share stands at about 17%.

Replacement market accounts for nearly 60% of the total tyre market by value. OEM (22%)
and export (18%) sales make up the rest. The major reason for high replacement share is due
to the fact that the ratio of annual sales to the number of registered vehicles remains at a ratio
of 1:10. There are about 203 million registered vehicles against approximately 21 million
annual vehicle sales.

According to the nine-month data (April 2016-Dec. 2016) from the Automotive Tyre
Manufacturers’ Association (ATMA), the overall industry showed a volume growth of 12%
led primarily by the passenger vehicle and two-wheeler segments, which cumulatively
account for nearly 77% of the total tyre volume production in the country. The industry
followed a similar growth graph for the commercial vehicle (CV) segment, which accounts

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for the highest value. While the tyre production for medium and heavy commercial vehicles
(M&HCV) slowed by 3%, the tyre production for the light commercial vehicle segment grew
by 7%.

Low-cost imports from China have been growing at a rapid pace and now account for a
significant share of the radial truck tyres in the replacement market. Given that the Chinese
radial truck tyres are often 25-30% cheaper than the Indian variants; this is resulting in faster
decline of the truck bus bias segment. The country has already witnessed closure of few tyre
plants and others operating at low capacity utilization because of this threat.

The spike in the raw material prices, along with low cost imports, gave a serious blow to the
Indian tyre industry. While the year saw a stable raw material regime for the first nine
months, there was a sharp increase in Q4 to the tune of 15%. Natural rubber, a key
component of the overall raw material basket, saw prices jump by 52% in Q4 fiscal year 2017
as compared to Q4 fiscal year 2016.

1.3 MAJOR PLAYERS OF TYRE INDUSTRY

Indian tyre industry is booming, especially in the last decade or so, a number of tyre
companies have started operating in the Indian tyre market. These include foreign stalwarts
like Goodyear, Michelin, etc. as well as trusted Indian giants such as Apollo, JK Tyres, MRF
to name a few.

1. Apollo Tyres

Established in 1972, Apollo is one of the

biggest companies in India having a market
share of 62.6% (tyre sales revenue) in India.
They have sold Rs. 117.1 billion in the financial
year 2016, having a net profit of Rs. 10.93 bn.
The year 2016 saw Apollo tyres maintain its
leadership position in Truck and Bus segments. The company’s robust and quality portfolio
ensured that it leads the market with over 25% market share. This year the company
introduced XT-7 Gold HD, a new bias truck tyre with improved durability for moderate to
high load applications. It has 4,900 dealers approx. across India.

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2. JK Tyres and Industries Ltd.
Based in Delhi, it was formed in 1974, and
soon market leader in Truck/Bus Radial
Tyre segment in India and is the only tyre
manufacturer offering the entire range of 4-
wheeler radials for trucks, buses and cars.
JK Tyres states itself as ‘The Bad shah of
radial tyres on Indian roads’ with more than 3-million truck and bus radial tyres on Indian
roads. It is also India’s No. 1 truck and bus radial tyres manufacturer. It has been awarded as
a Super brand for the year 2013-2014. The group also received the ‘Brand of the Year’
Award in 2015 at World Branding Awards held in London. It has exports of INR 581 crores
(2016).

3. MRF Tyres Ltd.

Madras Rubber Factory, was created in 1946, and is a
multi-national company and the largest manufacturer
of tyres currently in India. The company is advanced in
terms of technology with its world-class facilities. For
the 12th time in the last 16 years, it has been ranked as
India’s No 1 tyre manufacturer in the customer
satisfaction in the J D Power Asia Pacific 2016 India
Original Tyre Satisfaction Study for Passenger cars for
SUVs and Passenger cars.

4. CEAT Ltd.

Established in 1958, and a flagship company

of RPG Enterprises. It is one of the India’s
leading tyre makers with a capacity of rolling
out more than 95,000 tyres per day. Its major
market share is in the light truck and truck
tyre market segment. The company’s major share of its export sales comes from Middles East
(29%). In 2015 the Net Sales in INR was 5, 75,477 lacs (CEAT Annual Report 2014-15).

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5. Balkrishna Industries Ltd.

The company is currently an OEM vendor

for the heavy equipment manufacturers like
JCB Company, John Deere and CNH
Industrial. Balkrishna Industries Ltd has
developed into a global player and currently
enjoying 6% market share of the global “off
the road tyre segment”. In 2013, it was also
ranked as 41st among the world’s tyre makers. The company is known for its good services
and durable tyres.

6. TVS Srichakra Ltd.

The TVS group is one of India’s largest

industrial conglomerates and TVS Sundaram
Iyengar and Sons Ltd. (TVS & Sons) is its
parent and holding company. TVS Srichakra
is one of the leading two and three-wheeler
tyres manufacturing company. Set up in 1911,
the company has been rolling more than 11
million tyres a year. They are recognised as the largest manufacturer of industrial pneumatic
tyres, farm and implements tyres, multipurpose tyres. Gross income – INR 2,082 crores
(2016).

7. Goodyear India Limited

Parent organisation, Goodyear Tyre and

Rubber Company (Global Name) was founded
in 1898, with headquarters at Ohio (USA),
they went on achieving heights in tyre
manufacturing claiming World’s first
Detachable tyre and the Mass-produced Car
i.e. the Model T-Ford. They are also engaged
in manufacturing of tyres for different products such as Automobiles, Trucks, Racing Cars,
Airplanes, Farm Equipment and Heavy Earth-Mover Machinery. The company has facilities

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across 6 continents and annual sales of more than $16 bn. The sales performance during the
Financial Year 2015-2016 for tyres was INR 1, 78,223 Lakhs.

8. Govind Rubber Ltd.

It is a global name for a range of world-class

bicycle tyres. Founded by late Mr. M.P. Poddar
in 1964, their inception was laid with a motto of
creating durable and reliable tyres for the (then)
nascent Indian bicycle industry.

9. PTL Enterprises Ltd.

It was incorporated as a company in 1959. It became
an associate company of Apollo tyres ltd (ATL) in
1995. They have a plant in Kerala and are
manufacturing tyres since 1962, as of today that plant
is on lease to Apollo Tyres on a long-term basis. PTL
Enterprises is listed on Bombay and Cochin stock
exchanges and has over 7,000 shareholders.

10. Falken Tyre India Private Ltd.

It is a joint venture of Japan-based Sumitomo

Rubber Asia Pvt. Ltd. and Singapore-based
Stamford Tyres Corporation Ltd. Launched in
Japan in 1983, and later introduced itself in
North America; the headquarters of Falken are
based out of California. Now after 34-years,
Falken has globally become a well-known
brand that focuses on Ultra. High-Performance products as well as valued lines in Light
Truck, Commercial Medium Truck and Bus Radial Tyres while utilizing professional
motorsports to further develop and improve products for worldwide distribution. Sumitomo,
the parent unit of Falken, is the world’s 6th largest tyre maker, and the product range of
Falken matches very well with the company’s global standards. In India, the company sells
passenger car and SUV radial tyres.

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 1.4 STRUCTURE OF TYRE INDUSTRY
The Indian Tyre Industry is an integral part of the Auto Sector, contributes to 3% of the
manufacturing GDP of India and 0.5% of the total GDP directly. Indian tyre industry has
almost doubled from Rs 30,000 crores in 2010-11 to Rs 59,500 crores in 2017-18 of which
90-95% came from the domestic markets. The top three companies – MRF, Apollo Tyres and
JK Tyres have 60% of the market share in terms of revenue. In terms of segmentation tyres
can be divided in two ways.

1. Based on End Market

Graph 1.1 Based on End Market

Indian tyre market is clearly skewed towards the replacement segment which contributes
~70% of total revenues. Whereas in volume (tonnage) terms the replacement segment
contributes ~60% indicating realizations in the after-market are clearly higher than OEMs
(Original Equipment Manufacturer) market

2. Based on Products

Graph 1.2 Based on products

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T&B tyres in India generates the major revenue i.e. 55% of total revenue whereas globally
it’s the PCR (Passenger Car Radials) contribute the largest portion of the revenue. This is
mainly because of very low penetration of passenger vehicles in India – below 20 per 1,000
people whereas in China the number is ~69 per 1,000 people and 786 per 1,000 people in US.
In terms of volume (tonnage) T&B contributes around ~50% of the total volume.

1.5 PRODUCT APPLICATION

Tires may be classified according to the type of vehicle they serve. They may be
distinguished by the load they carry and by their application, e.g. to a motor vehicle, aircraft
or bicycle.

1. Light–medium duty:

Light-duty tires for passenger vehicles carry loads in the range of 550 to 1,100 pounds (250
to 500 kg) on the drive wheel. Light-to-medium duty trucks and vans carry loads in the range
of 1,100 to 3,300 pounds (50 to 1,500 kg) on the drive wheel. They are differentiated
by speed rating for different vehicles, including (starting from the lowest speed to the
highest): winter tires, light truck tires, entry-level car tires, sedans and vans, sport sedans, and
high-performance cars. Apart from road tires, special categories include:
 Winter
Snow tires are designed for use on snow and ice.
They have a tread design with larger gaps than those
on summer tires, increasing traction on snow and
ice. Such tires that have passed a specific winter
traction performance test are entitled to display a
"Three-Peak Mountain Snow Flake" symbol on
their sidewalls. Tires designed for winter conditions
are optimized to drive at temperatures below 7 °C
(45 °F). Some snow tires have metal or ceramic studs that protrude from the tire to increase
traction on hard-packed snow or ice. Studs abrade dry pavement, causing dust and creating
wear in the wheel path. Regulations that require the use of snow tires or permit the use of
studs vary by country in Asia and Europe, and by state or province in North America.

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 All-season
Related to snow tires are those with an M+S rating, which denotes an "all-season" capability,
quieter on clear roads, but less capable on snow or ice than a winter tire. These tires have
tread gaps that are smaller than snow tires and larger than summer tires.
 All-terrain
All-terrain tires are designed to have adequate traction off road, yet have benign handling
and noise characteristics for highway driving. Such tires are rated better on snow and rain
than street tires and "good" on ice, rock and sand.
 Mud-terrain
Mud-terrain tires have a deeper, more open tread for good grip in mud, than all-terrain tires,
but perform less well on pavement.
 High-performance
High-performance tires are rated for speeds up
to 168 miles per hour (270 km/h) and ultra-
high-performance tires are rated for speeds up
to 186 miles per hour (299 km/h), but have
harsher ride characteristics and durability.
Other types of light-duty automotive tires
include run-flat tires and race car tires.
 Run-flat tires
Run-flat tires obviate the need for a spare tire, because they can be travelled on at a reduced
speed in the event of a puncture, using a stiff sidewall to prevent damage to the tire
rim. Vehicles without run-flat tires rely on a spare tire, which may be a compact tire, to
replace a damaged tire.
 Race-car tires
Race car tires come in three main categories, DOT (street-legal), slick, and rain. Race car
tires are designed to maximize cornering and acceleration friction at the expense of longevity.
Racing slicks have no tread to maximize contact with the pavement and rain tires have
channels to eject water to avoid hydroplaning.
2. Heavy duty:

Heavy duty tires for large trucks and buses come in a variety of profiles and carry loads in the
range of 4,000 to 5,500 pounds (1,800 to 2,500 kg) on the drive wheel. These are typically
being mounted in tandem on the drive axle. Truck tires—Truck tires come in a variety of

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profiles that include "low profile" with a section height that is 70 to 45% of the tread width,
"wide-base" for heavy vehicles, and a "super-single" tire that has the same total contact
pressure as a dual-mounted tire combination.
 Off road
Off-road tires are used on construction vehicles,
agricultural and forestry equipment and other
applications that take place on soft terrain. The
category also includes machinery that travels
over hardened surfaces at industrial sites, ports
and airports. Tires designed for soft terrain have
A deep, wide tread to provide traction in loose
dirt, mud, sand or gravel.
3. Other:
Aircraft, bicycle and a variety of industrial applications have distinct design requirements.
 Aircraft
Most aircraft tires are designed for landing on paved
surfaces and rely on their landing gear to absorb the
shock of landing. To conserve weight and space required,
they are typically small in proportion to the vehicle that
they support. Most are radial-ply construction. They are
designed for a peak load when the aircraft is stationary,
although side loads upon landing are an important factor. Although hydroplaning is a concern
for aircraft tires, they typically have radial grooves and no lateral grooves or sipes. Some
light aircraft employ large-diameter, low-pressure "tundra tires" for landing on unprepared
surfaces in wilderness areas.
 Bicycle
Bicycle tires may be designed for riding on roads or over unimproved terrain and may be
mounted on vehicles with more than two wheels. There are three main
types: clincher, wired and tubular. Most bicycle tires are clincher and have a bead that presses
against the wheel rim. An inner tube provides the air pressure and the contact pressure
between bead and wheel rim.

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 Industrial
Industrial tires support such vehicles as forklifts, tractors, excavators, road rollers, and bucket
loaders. Those used on smooth surfaces have a smooth tread, whereas those used on soft
surfaces typically have large tread features. Some industrial tires are solid or filled with foam.

 Motorcycle
Motorcycle tires provide traction, resisting wear, absorbing surface irregularities, and allow
the motorcycle to turn via counter steering. The two tires' contact with the ground affects
safety, braking, fuel economy, noise, and rider comfort.

1.6 TECHNOLOGY INVOLVED

The technology evolved from solid wheel to spooked wheel to pneumatic tyre by 1847. The
first practical pneumatic tyre came in 1888 in cross ply fabric technology. Further
improvement happened in ply material as it moved from cotton to stronger and lighter
synthetic fibbers such as nylon and polyester.

Next milestone in tyre technology was the radial technology and the first steel belted radials
were introduced in 1946 by Michelin. But a lot is happening in the world of tire technology
because innovations spurred by customer demand and regulations for greater fuel economy
filter down to tire makers.

Tires are part of a push to use technology to increase car safety. A system known as “Contact
Area Information Sensing,” or CAIS, includes a sensor attached to the interior wall of the tire
that monitors how it interacts with the road’s surface. The system checks road conditions to
distinguish among dry, wet, slush, fresh snow or ice, and sends that real-time information to
the driver via a digital screen.

Low tire pressure is bad for tires and gas mileage. A potential remedy would be self-inflating
tires, which use sensors to measure tire pressure and automatically add or decrease air if the
pressure is too high or low. This technology is being used in heavy machinery and military
vehicles, and may be coming soon to passenger cars, including a low-tech version with just
two parts.

Easily the most visually striking trend to emerge of late is the airless tire. Impervious to
punctures, airless tires have an outer tread supported by flexible polyurethane spokes that
absorb the force of the road. They use less rubber, potentially last up to three times longer

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than traditional tires, and have high lateral strength and resistance to hydroplaning. Since then
along with the improvements in automobiles, tyre technology also improved in terms of
performance such as speed capability, load bearing capability, durability, mileage and fuel
consumption in rolling.

As far as performance of tyres is concerned, inflation pressure still plays the most vital role
and this very fact has made the tyre inflation the potential source of problems also. This
realisation has led to further research on preserving right inflation or even running the tyres
without it. Equipment such as TPMS are to ensure right inflation in tyres whereas technology
such as Run-flat support the tyre to run without inflation.

As Herman Vereecken, the Manager of Communication Strategy and Deployment at the

Goodyear Innovation Centre suggests, “for 100 years tyres have been material and
mechanical, but now we’re getting an electrical dimension’, in other words, ‘electrical
components in tyres is the future’.

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 2.1 TYRE INDUSTRY AT INTERNATIONAL LEVEL

Automotive Tyre is a ring-shaped vehicle component that covers the wheel’s rim to protect it
and enable better vehicle performance. In 2014, the global production of the Tyre reaches
over 115666 (10K Units); the growth margin is around 25% during the last five
years. Automotive Tyre are mainly produced by Bridgestone, Michelin, Good Year,
Continental, Sumitomo, Pirelli, Hankook, Yokohama, Cheng Shin Rubber (Maxis),
Hangzhou Zhongce Rubber, and these companies occupied about 58.23% market share in
2014.

International tyre brands like Michelin, Bridgestone, Goodyear are Yokohama are amongst
the more widely used tyres in the international markets and some of these are also OEM
suppliers for various car manufacturers. Along with higher price tags these tyres offer a lot
more in terms of performance, ride comfort and specific applications due to the years of
experience and R & D which goes into their development. With international car
manufacturers bringing in their models in to market, the demand for these tyres has grown
substantially over the years, especially in the premium segments.

The global tire market size was worth 3.1 Billion Units in 2018, growing at a CAGR of 4.3%
during 2011-2018. A tire surrounds a wheel’s rim to transfer the vehicle’s load on the surface
and offers a strong grip between the road and the vehicle. It is a flexible and robust structure
that is manufactured using various materials such as wire, fabric, natural rubber, carbon black
and synthetic rubber. Tires are strong and flexible and help absorb vibrations. Since they
improve the overall performance of the vehicle, they are widely utilized in buses, cars, trucks,
bikes, bicycles, wheelchairs, lawn mowers, forklifts, shopping carts and airplanes.

Various factors such as rapid urbanization, changing lifestyles, mounting income levels and
rising population have led to an increase in the sales of both commercial and passenger
vehicles. Strong growth in the automotive industry is directly influencing the sales of tires
across the globe. Moreover, increasing investments in the construction sector, the thriving
tourism industry and rising vehicle motorization rates are positively impacting the production
of commercial vehicles, thereby boosting the growth of the market.

Apart from this, manufacturers are now engaging in the development of products such as
ecological tires, flat run tires and nitrogen-based tires that are environment-friendly. For

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instance, they are employing orange peel extracts in the production to diminish petroleum
usage. According to IMARC Group, the market is anticipated to reach a volume of 3.9
Billion Units by 2024.

2.2 DEMAND & SUPPLY SCENARIO

World demand to rise 4.1% annually through 2019

World demand for tires is projected to rise 4.1 percent per year to 3.0 billion units in 2019. In
value terms, sales of tires are forecast to advance 7.0 percent per annum to $258 billion.
Rising incomes in developing regions will spur growth in the number of vehicles in use,
fuelling demand for tires. Higher income levels and expanding economic activity will also
contribute to increases in average annual vehicle mileage, boosting replacement rates.
However, the increase in miles driven will be offset by rising tire quality, which will exert
downward pressure on replacement rates.

Motorcycle/other tires to outpace motor vehicle tires

The motor vehicle market will remain the largest outlet for tire demand, accounting for two-
thirds of the total in 2019. Demand for tires in this market will rise 3.3 percent per year to 2.0
billion units. Growth in demand for light vehicle tires will be driven by the expansion of the
middle class in industrializing countries, which will contribute to increased vehicle
ownership. Gains in sales of medium and heavy vehicle tires will be fuelled by increased
commercial trucking activity.

Demand for tires in motorcycle and other applications are projected to advance 5.8 percent
per year to 990 million units in 2019. Tire sales in this market are concentrated in fast
growing developing regions, where motorcycles see heavy use as a low-cost substitute for
motor vehicles. Sales of tires in other applications, such as aircraft, tractors, and industrial
vehicles, will also grow at a healthy pace as manufacturing and usage of these vehicles
increase.

Dominant Asia/Pacific market to also lead gains

More than half of all tires are sold in the Asia/Pacific region, and this region is forecast to
post the fastest growth in demand through 2019. China, which accounted for almost one-
fourth of global tire demand in 2014, will remain one of the fastest growing national markets
for tires. Several other countries in the Asia/Pacific region are also projected to achieve rapid
gains in tire demand, particularly India, Indonesia, and Thailand. Japan, which holds the
world’s fourth largest market for tires, will post disappointing sales and actually experience a
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contraction in demand over the forecast period. The developing Africa/Mideast region and
Central and South America will post above average gains in tire sales, although each of these
regions will remain below six percent of the global total in 2019. Growth in demand for tires
in North America and Western Europe will post merger gains of about one percent annually
through 2019. Replacement tire markets in these regions are mature, as vehicle ownership
rates are already very high.

The global tire market size was worth 3.1 Billion Units in 2018, growing at a CAGR
of 4.3% during 2011-2018.Europe and U.S. the largest market of auto tyres. Japan is also a
major supplier of auto tyres, with its mature auto tyre industry and developed manufacturing
industry.

2.3 MAJOR PLAYERS OF TYRE INDUSTRY

1. Bridgestone
This is a Tokyo based multinational tyre
manufacture company that is named after its
founder Shojiro Ishibani, a name that literally
means bridge stone. Bridgestone is arguably
the number one tyre manufacturing company
in the world. It manufactures different types
of automobile tyres for almost all the different
types of vehicles around.

As its marketing strategy, Bridgestone sponsors an array of sporting activities and events
such as formula racing, sports car racing as well as motorcycling among others. Other than
tyre manufacturer, Bridgestone also deals in golf products, journalism, bicycle brands as well
as commercial services etc. Bridgestone offers their Potenza, Turanza, S, and B series tyres
retailing for Rs. 3,000 – Rs. 9,200 with the Dueler series catering to SUVs ranging from Rs.
6,700 – Rs. 13800.

2. Michelin

A French-based tyre manufacturing company,

Michelin has over time been able to cut a niche
for itself on the market, not just through
advertisement but also by the fact that they
offer exactly what they advertise. Michelin is a

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top tyre manufacturing company not only for car tyres but also for bicycles among other
commercial vehicles.

The company also manufactures tyres for heavy vehicles that include airplanes, space shuttles
as well as aircrafts etc. The company was the pioneer radial tire producer and other
technologies. The exceptional quality of tyres it produces has made it possible for the
company to stand the test of times, with formidable existence for about 130 years, and with
revenue of about 20 billion Euros annually. Michelin offers models like Energy MXV8,
Energy XM1+, Energy XM2, Primacy, Latitude and their Pilot range of tyres ranging from
Rs. 2,800 – Rs. 13,300 per tyre.

3. Goodyear

In the world, it comes third, but in the North

American continent, Goodyear is the best seller.
An Akron, Ohio based tyre manufacturer, the
company has been in existence since 1898,
supplying the market with some original and
superior replacement tyres for a wide range of
applications.

Goodyear owns 75% of Dunlop tires and 100% of Kelly-Springfield. For years, Goodyear
and its subsidiary Dunlop have often been pacesetters and leaders in the quality production of
tyres among their competitors. You will hardly go wrong with their much sought after tyres.

Goodyear has a wide range, namely Assurance, Ducaro, Duraplus, Eagle, Excellence, GPS2,
GT3 ranging from Rs. 2,300 – Rs. 11,500 per tyre. They also have the Wrangler series for
SUVs retailing for Rs. 5,000 – Rs. 14,100.

4. Pirelli

Headquartered in Milan, Italy, the company

also has its manufacturing branches in Rome
and Georgia USA. The company targets the
high-end market with its tyres commonly being
sought for by luxury and sports automobiles. In
the company’s business solution are also found
real estate investments, broadband solutions

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together with environmental technologies.

The company’s products are designed to fit an array of light trucks and cars. The main selling
factor of Pirelli is its good name when it comes to handling wet and dry grips. You are not
going to be disappointed with Pirelli.

5. Apollo Tyres

Apollo is a top Indian tyre manufacturer that has

slowly but steadily been gaining acceptance in the
global platform. Altogether, Apollo, a company that
was founded in 1972, brags of five manufacturing
plants, four of which are in India with the fifth one
having been established in the Netherlands.

Annually, Apollo Tyres enjoys the total revenue of about a billion dollars, with 70% of this
being generated within the Indian market. Apollo is known for the quality tyre production. In
addition, its products are relatively more affordable as compared to other brands.

6. MRF Tyres

Madras Rubber Foundation or MRF is yet

another Indian company that has become
considerably popular on the global market. It is
the number one tyre manufacturing company in
India. Nearly all the two-wheelers manufactured
in India will hit the market equipped with MRF
tyres.

On the global platform, the MRF tyres are among the most trusted due to the combination of
comfort offered and the extreme toughness offered. MRF has won a number of awards such
as the JD Power Award that it has scooped a record eleven times. The reason for these awards
indisputably lies in the product’s supreme quality.

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7. Continental Tire
This is a Germany based tyre manufacturing company
that’s headquartered in Hanover. Continental is the
fourth most popular tyre brand in North America and
around the seventh in the world. The company has been
able to make a name for itself as a leading producer of
replacement and original tyres.

Together with tyres, Continental also produces and supplies various vehicle components such
as top-quality brake systems etc. In the USA, Continental rid able name on the market for its
high-quality light-truck tyres.

8. Dunlop

Like mother, like daughter. Dunlop has

gained considerable popularity on the
market, courtesy of the quality products
manufactured, just as is the case with its
parent company: Goodyear Tyre and
Rubber Company.

Dunlop manufactures tyres that are

characterized by some top-notch features including the Hydro-Paddle system, the Traction
Web, the Dunlop self-supporting and the Silicarbon Matrix TM technologies among others.
These are technologies that enhance for great and durable performances in all terrains. If you
love fancy things, the Dunlop manufactures sporty tyres for you to explore.

9. Yokohama

Yokohama is a Japanese company with its

headquarters in Tokyo. The company has a solid
global presence, thanks to its goal
of targeting performance enthusiasts in its
design. Yokohama places much emphasis on
handling of wet as well as dry grips. If you do
drive in areas where winter driving isn’t a
significant factor, then probably, the choice of Yokohama tyres would be a prudent choice for
you.

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Yokohama mostly supplies tyres to premium car brands but also offers a wide variety for
other regular cars. Their models include: A Drive, C Drive, S Drive, Advan, Aspec and ES
series of tyres ranging from Rs.2,900 – Rs. 12,000. For SUVs, they offer the Geolander
series ranging from Rs. 5,600 – Rs. 10,000.

10. Hankook

As far as technological advancements are

concerned, South Korea is not left behind.
Headquarters in Seoul, Hankook has a global
presence, with the North American
headquarters having been established in
Wayne, New Jersey. Many original types of
equipment land on the market equipped with
Hankook tyres.

Hankook offers a complete line of tyres that fit a wide range of domestic automobiles and
light trucks. As far as price to good quality ratio is concerned, Hankook arguably scoops the
top position.

2.4 IMPORTANT FACTOR FOR

INTERNATIONALIZATION GROWTH
The global tire market size was worth 3.1 Billion Units in 2018, growing at a CAGR of 4.3%
during 2011-2018. A tire surrounds a wheel’s rim to transfer the vehicle’s load on the surface
and offers a strong grip between the road and the vehicle. It is a flexible and robust structure
that is manufactured using various materials such as wire, fabric, natural rubber, carbon black
and synthetic rubber. Tires are strong and flexible and help absorb vibrations.

Various factors such as rapid urbanization, changing lifestyles, mounting income levels and
rising population have led to an increase in the sales of both commercial and passenger
vehicles. Strong growth in the automotive industry is directly influencing the sales of tires
across the globe. Moreover, increasing investments in the construction sector, the thriving
tourism industry and rising vehicle motorization rates are positively impacting the production
of commercial vehicles, thereby boosting the growth of the market. Apart from this,
manufacturers are now engaging in the development of products such as ecological tires, flat
run tires and nitrogen-based tires that are environment-friendly. For instance, they are

Page | 20
employing orange peel extracts in the production to diminish petroleum usage. The market is
anticipated to reach a volume of 3.9 Billion Units by 2024.

The tyre makers are gearing up to intensify its role in the modernisation phase. Besides, with
increasing focus on corporate average fuel efficiency (CAFE) norms to curb the alarming
levels of pollution, companies have immense pressure to build products which have minimal
friction and offers higher fuel efficiency.

Tyre industry include finer tolerances in the manufacturing process, inclusion of more radials
which consume less fuel, low rolling resistance and focus on better traction and on road
performance, overload control which increases mileage, fuel efficiency.

The companies are stepping up the manufacturing facilities with technologies that improve
heat development in tyres with effort towards less usage of carbon black, which in turn
contributes in lowering emissions. The Industry is adopting the latest trend which calls for
lower usage of carbon black and more silica content do increase the fuel efficiency and
reduce pollution. In the manufacturing of tyres include usage of higher component of 'silica'
which helps in the manufacturing process and in improving tyre performance by lowering the
rolling resistance as well as improving cut and chip resistance.

Page | 21
 3.1 DEMAND - SUPPLY SCENARIO
The Indian tyre industry is ancillary to the automobile industry. Thus, growth in the
automobile industry tends to support demand, supply and growth in the tyre sector as well. In
fact, during FY19 the auto industry registered a growth of 5% y-o-y on the back of rising
urbanisation, increasing disposable income, interest rate cuts leading to better finance
availability and improved road infrastructure, which supported the growth for the tyre
industry. Tyres can also be classified as cross-ply and radial based on the technology used.

Tyre demand originates from three end-user categories which are the original equipment
manufacturers, replacement demand and exports. The replacement demand is less cyclical
than OEM’s and is generally a higher margin business for tyre manufacturers. Tyre volume is
expected to record a growth of 7% y-o-y in FY19 at 18.9 crore units primarily due to higher
demand by OEM’s and T&B replacement market demand. Exports on the other hand
registered 14% y-o-y growth in FY19 led by revival in demand across all segments.

Replacement demand for tyres typically depends on road conditions, vehicle scrap page rules,
overloading norms, re-treading intensity and miles driven. Despite undergoing destocking by
several dealers in FY18 owing to the GST rollout, demand picked up FY19 indicating
uptrend in the market. Going ahead as well, notwithstanding tepid growth in the auto sales,
the demand from the replacement market is likely to continue and would be the key growth
driver for the sector. Current high density of vehicles on the roads coupled with steady OEM
sales is likely to drive demand.

Indian tyre industry has almost doubled from ~Rs 30,000 crores in 2010-11 to ~Rs 59,500
crores in 2017-18 of which 90-95% came from the domestic markets. The top three
companies – MRF, Apollo Tyres and JK Tyres have ~60% of the market share in terms of
revenue. Moreover, In India, the commercial tyre segment is dominated by cross ply tyres
due to road conditions and the high initial cost of radials. Currently, radicalisation is highest
in passenger cars (~100%) followed by CV’s (~45-50%). However, with rising awareness of
its favourable cost-benefit ratio and improved fuel efficiency has led to expansion in radial
tyre capacities by tyre companies.

Tyre exports have been steadily increasing in the last one year with recovery in tyre demand
from overseas markets and rising competitiveness of Indian tyre makers, both in terms of
quality and pricing. The tyre industry in the country has witnessed large capacity additions in

Page | 22
the last decade with a cumulative spend of around Rs 27,800 crore, of which about 70 per
cent was spent in the last six years.

Consumption of natural rubber (NR) rose 12 per cent crossing 10.2 lakh tonne in the period
between April 2018 to January 2019, increasing the demand and domestic supply gap to 45
per cent. Alarmed by the shortage of domestic supply, tyre manufacturers have asked the
government to reduce the import duty for rubber to less than 10 per cent. Production stood at
just 5.6 lakh tonne during April 2018 to January 2019, compared to 5.97 lakh tonne in the
same period last year.

3.2 MARKET DYNAMICS

Tyre demand originates from two categories – OEM and replacement segment. Demand from
replacement segment dominates the Indian market contributing about 70% of total revenue,
whereas OEM and Export accounts for balance 30%. In volume terms Replacement segment
contributes 60% and the balance 40% is contributed by Export and OEM. Consumption of
OEM depends on the new sales of automobiles while the replacement segment is dependent
upon usage pattern and cycles.

In the overall sales of tyres in unit terms, the commercial segment contributes about 21 per
cent while the remaining comes from sales of personal vehicles which include passenger
vehicles, two and three wheelers. Under personal segment, two and three wheelers constitute
about 55 per cent sales while the passenger cars made up for the balance sales.

Graph 3.1 Market Dynamics

Page | 23
T&B (Trucks & Buses) dominates overall commercial usage segment with followed by LCV
segment. Tractor front and rear tyre segment constitute the remaining. Top 10 companies
account for about 80 per cent of the market share. Top three companies likes MRF, Apollo
Tyres and JK Tyres have 55 per cent of the market share of the Indian tyre industry and
figure among the top 25 global companies in terms of revenue.

The rise in the automotive demand and the production in recent years is fuelling the demand
for tires. The large fleet size is expected to be replaced with new automotive tires, which in
turn will spur the global demand for automotive tires. Further, increasing demands for better
durability & mileage, high-quality production and growing demand for eco-friendly tires, are
also estimated to fuel the demand for the global automotive tires market.

As truck bus radial (TBR) has emerged as the growth driver for the industry. The industry
has witnessed a tune investment of US $ 5.4 billion in TBR capacity in last few years.
Unfortunately, indiscriminate import has queered the pitch for domestic tire sector. With
expansion in capacity for TBR, the capacity utilization levels have come down to 60-65 per
cent from 80-85 per cent three years ago.

Import of cheap tyres from china is a serious threat for the Indian tire industry. Already, in
case of truck & bus radials, Chinese tires are accounting for over 40% of the replacement
market while the Indian capacities investments in recent years, re lying underutilized.

3.3 INVESTMENTS RELATED ASPECTS

Over the next three years, ICRA expects the tyre demand in the Indian market to report a 6-
7% volume growth, supported by a broad-based revival in Automotive OE demand. Pick up
in rural expenditure with good monsoon would translate into higher OEM demand for the
rural centric two-wheeler (2W) and tractor segments. Growing fleet on ground and higher
miles driven/freight moved would drive replacement sales.

Domestic tyre makers have invested significant amounts in new capacities in Truck & Bus
Radial (TBR) and 2W segments, over the last several years. As a result, between FY2010 and
FY2016, the industry witnessed the completion of investments worth over Rs. 200 billion.
However, with increasing influx of cheaper Chinese tyres and uncertain input price trends,
the industry is now looking to consolidate operations and optimally utilize the recently
installed capacities. Therefore, no major new capacity addition plans have been announced by

Page | 24
tyre majors over the past few months. Projects worth over Rs. 80 billion (apex undertaken 2-3
years back) are expected to be completed over the next 12 months which should help tyre
makers gear up to meet the likely rise in demand.

“The Truck & Bus Radial segment has seen Rs. 350 billion worth capacities over the last five
to six years – this segment may get impacted if imports from China increases further”, says
ICRA Ratings.

Largely in line with ICRA research estimates, revenues in the domestic tyre industry de-grew
by 2%, led by a 6%-8% fall in realizations although volumes grew by 4%-5%. The industry
benefited significantly from the fall in input costs; Natural Rubber prices fell by 15% during
FY 2016 leading to a 470-bps operating margin expansion to 19.1%. This was despite the
increase in employee expenses.

Capital investment has grown by over 25% to 36,000 crore in 2015-16 from 12,000 crore in
2010-11, making it one of the most invested industries by private business in India. By 2018-
19, the industry is expected to complete projects worth 7,000 crore, contributing an additional
12 million units in capacity. Such investments in capacity create better economies of scale,
employment and value addition for the economy.

“While industry wide revenues are expected to grow by 9% during FY2017, supported by
around 6-7% growth in volumes, operating margins are expected to contract by 250-300 bps
with a modest increase in raw material (RM) prices, hike in wage costs and increased fixed
costs (with large capacities getting commissioned)”.

“Following an outlay of Rs. 39 billion in FY2016, the tyre industry is expected to witness a
cumulative spends of Rs. 86 billion in the next three years (FY17-19). However, given the
large cash balances, net debt position is expected to be moderate and the capitalization and
coverage indicators are expected to remain healthy. Overall, the credit profile of the tyre
industry is expected to remain stable; key headwinds however include slower than expected
demand growth, any sharp increase in raw material prices and intensifying competition.
Capacity creation for tyre industry will in turn increase capacity of rubber and tyre sector as
well.

Icra expects the domestic tyre demand to grow by 7-9 over the next five years (2018-19 to
2022-23). With a stable demand outlook and strong credit profile, the domestic tyre makers
will continue to invest in capacities. The industry is likely to witness a capacity addition of
over 20,000 crores in the next three years. The revenue growth for tyre industry is pegged at
14-15 % for 2018-19, with operating margin and net margin of 14 % and 7 %, respectively,
Page | 25
almost in line with 2017-18. 2019-20 to 2021-22, revenue growth is projected at 9-10 % with
operating and net margins at 14-15 % and 6-7 %, respectively.

3.4 GROWTH

The Indian tyre industry is ancillary to the automobile industry. Thus, growth in the
automobile (auto) industry tends to support growth in the tyre sector as well. The revenue
growth for tyre industry is pegged at 14-15 per cent for 2018-19, with operating margin and
net margin of 14 per cent and 7 per cent, respectively, almost in line with 2017-18. The
Indian Tyre Industry is an integral part of the Auto Sector – It contributes to ~3% of the
manufacturing GDP of India and ~0.5% of the total GDP directly.

Tyre volumes are expected to record a growth of 7% y-o-y in FY19 at 18.9 crore units
primarily due to higher demand by OEM’s and T&B replacement market demand. Exports on
the other hand registered 14% y-o-y growth in FY19 led by revival in demand across all
segments.

The tyre industry on a standalone basis contributes 3% of the manufacturing GDP of India
and 0.5% of the total GDP. However, its estimated output multiplier effect is 2.47 due to
linkages with other sectors of the economy including rubber plantations, petroleum, chemical,
capital goods and packaging materials, etc. resulting in a total economic contribution of 1.5%
of the GDP when direct, indirect and induced impacts are considered. The growth of the tyre
industry, represented by turnover, has doubled in five years from 25,000 crore in 2009-10 to
53,000 crore in 2015-16, which is faster (9.3%) than the growth of the mother industry, i.e.
the automobile industry (5.3%), in the same period.

Replacement demand for tyres typically depends on road conditions, vehicle scrap page rules,
overloading norms, re-treading intensity and miles driven. Despite undergoing destocking by
several dealers in FY18 owing to the GST rollout, demand picked up FY19 indicating
uptrend in the market. Going ahead as well, notwithstanding tepid growth in the auto sales,
the demand from the replacement market is likely to continue and would be the key growth
driver for the sector. Current high density of vehicles on the roads coupled with steady OEM
sales is likely to drive demand.

The production of natural rubber for 2015-16 is projected at 7.50 lakh tonnes with a growth
rate of 16.28% and the consumption is projected at 10.56 lakh tonnes with a growth of

Page | 26
3.44%. The imports of bus and truck radials into India increased 57% (280,000 units) during
April and May month of 2016. Besides, vast income growth is also expected at 4-6% for the
Financial Year 2017 as against an expected negative rise of 2-4% for Financial Year 2016. It
likewise includes that the overall revenues are supposed to stay at hoisted levels with bearish
standpoint towards rubber and unrefined petroleum costs, yet current levels are unrealistic to
be supported throughout the following 2 years.

In India, radicalization is highest in passenger cars (~100%) followed by CV’s (~45-50%).

However, with rising awareness of its favourable cost-benefit ratio and improved fuel
efficiency has led to expansion in radial tyre capacities by tyre companies. Indian players are
undertaking large capacity additions to tap low penetration of radial tyres in the country and
compete with low-priced imported tyres.

Icra expects the domestic tyre demand to grow by 7-9 over the next five years (2018-19 to
2022-23). With a stable demand outlook and strong credit profile, the domestic tyre makers
will continue to invest in capacities. The industry is likely to witness a capacity addition of
over 20,000 crores in the next three years.

3.5 KEY DRIVERS

The factors responsible for the exponential growth in 21st century are vast internal market,
rapid industrialisation, on-going economic reforms, and improved living standards of the
masses. Export front of the industry has seen tremendous growth in the last few years along
with covering all kinds of domestic demands.

Industrial and freight activity: Every truck/bus manufactured generates a demand for seven
tyres. In addition, the price of a truck tyre is significantly higher than that of a passenger car
tyre (roughly 10 times) thus the demand multiple emanating from the commercial vehicle
segment is highest in value terms.

Personal purchasing power: As the economy booms and disposable incomes in the hands of
the Indian middle-class burgeon, the sale of passenger cars has been witnessing an upward
swing over the past decade. Since tyre sales are directly linked to car sales, both through
OEMS and the replacement market, the tyre industry has witnessed a corresponding increase
in its sales figures.

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Automobile sales: The demand from the OEM segment is a derived one and directly
correlated to the level of automotive production. The recent high-growth in automotive
industry and global economic in general positively impacted the Indian tyre industry in 2019.
The industry growth is 14-15 % during 2018-19.

Graph 3.2 Key Drivers

Growth in Automobile Sector and Exports: Despite the slowdown, the two wheelers
market has grown at more than 16% in the last 6 years. Demand is expected to surge in
passenger car segment due to revival in global growth. There is a trend of increasing exports
of bus and truck tyres from India to developing countries. The products focus of tyre exports
from India has been Traditional Truck Tyres.

Increasing Radicalisation: While radial tyres have completely penetrated the passenger car
segment, commercial vehicles is taking time. Demand from Radicalisation levels in trucks,
buses and LCVS are 20-25% in India, vis-à-vis an average of 68% world-wide.

Vast Distribution Growth: Though the OEM segment is highly organized, the replacement
sector still sources supplies from local and unorganized players.

Cost and Population Advantage: Both auto and tyre markets are competitive markets with
low manufacturing costs, making them attractive assembly bases. The population growth and
rising living standards are key drivers.

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Technology Driven Growth: The industry has been adopting the latest technology trends
through foreign collaborations. Manufacturers are investing in development of green tyres.
Innovative technology self-inflation and run flat tyres are gaining popularity.

Robust Capacity Expansion: Due to robust demand, major manufacturers have recently
invested in capacity. Industry PAT margins are already on a rise.

3.6 STRATEGIES ADOPTED BY

VARIOUS PLAYERS

Strategies of Apollo Tyres:

It will adopt dual brand strategy in India in both passenger and commercial vehicle segments
by bringing in brands such as Vredestein for PV and Regal for CV segment. The company
has also decided to double its TBR (truck, bus radial) tyre capacity at its Chennai plant to
12,000 units a day from 6,000 units a day over next 24 months to consolidate its position.
 Apollo Tyres, said: “With 17% market share in passenger vehicle segment through
Apollo branded tyres, the company will introduce Vredestein (European subsidiary)
premium radial tyres for passenger vehicles above executive sedan segment in India,
including luxury vehicles. MRF, Bridgestone are leaders in PV segment at present.
 “To consolidate their leadership further as well to increase market share to 35% from
current 27% in the truck-bus radial tyre segment (CV), they will also play dual brand
strategy with regal range of radial tyres from their South African subsidiary in India,” The
demand for radial tyres is on the rise in CV segment.

Strategies of MRF:

A Complete range: MRF is the only tyre company in India which makes a complete range of
tyres - TBR, TBB, Motorcycle, PCR, LTR etc. Retailers sell it at a premium, and the demand
always outstrips the supply.

MRF’s own sales channel: MRF doesn’t depend on multi brand tyre outlets to retail their
tyres. They have their own MRF exclusive stores.MRF gets to pick prime locations for their
stores.

Dealers are happy: MRF dealers tend to be a happier lot. They sell a brand which has a
market pull, a complete range and prices which customers do not negotiate. MRF also first

Page | 29
feeds its own exclusive stores before supplying to any other multi brand outlet. MRF
exclusive store also tends to get better purchase prices than a non-exclusive multi brand store.

Strong brand connect: MRF has carefully nurtured and grown its brand. Its association with
cricket icons like Brian Lara, Sachin Tendulkar and Steve Waugh through branding of their
bats with MRF logo made them a known commodity among the Indian youth. Their strong
focus on brand still continues through mass media campaigns including TV and newspapers.

Strategies of JK Tyres Ltd:

JK Tyres Ltd has targeted heavy-equipment as well as consumer vehicle companies as its
potential customers. The company is mainly in B2B marketing and has gone with several tie-
ups with leading companies in auto-sector. JK Tyres Ltd is the leader in the production of
Radial tyres for bus and truck in India.

Best quality, latest technology and consistent innovation have been the mantra of JK Tyres
Ltd. The company has a good understanding of customer requirements and are regularly
improving their own efficiency levels. JK Tyres Ltd was the first brand to introduce radials
for passenger cars. Its tyres are for an entire spectrum of SUVs and cars ranging from
Nano, Audi, Mercedes and BMW. The brand has introduced Challenger Tyre Series for
scooters, motorcycles, trucks and buses. Truck and bus tyres account for 19% of total tyres in
India.

JK Tyre & Industries Ltd has begun to rely more on the replacement segment to gain market
share. They expect the replacement market to pick up on the back of a good monsoon and the
country expecting good agricultural production.

Strategies of CEAT:

CEAT has set up six parameters for self-evaluation and these include trustworthiness, quality,
credible image, innovation, value and understanding. Brand Ceat has been rated as Most
Trusted Brand by its loyal customers. Improved infrastructure has resulted in
heavy demands for tyres and these have been met successfully through superior and high-
quality products.

Their distribution network is very extensive. The company has also followed a competitive
pricing policy. Its promotional activities include running contests by engaging consumers and
giving away interesting gifts or coupons. For the international market, the company has tie-
ups with distribution channel of other companies.

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 3.7 KEY PERFORMANCE

Absolute Key Performance Indicator:

This graph illustrates the overall

evolution of the different manufacturing
environmental KPIs with regards to the
variations of the production level. The
production level strongly increased at the
beginning of the period, peaked in 2011
and slightly increased from 2012
onwards, reaching a second peak in 2016.
Graph 3.3 Absolute Key Performance Indicators

Globally, the KPIs followed the same trends as the production level through 2013 from 2014,
while energy consumption continuously followed the production's variations, CO2 emissions
began to slightly decrease, and water intake significantly decreased.

The sector's CO2 emissions were strongly correlated to its energy consumption until 2014,
showing the absence of any major change in terms of energy sources used or carbon mix over
the studied period. From 2014 onwards, the industry successfully dissociated the CO2
emissions from the energy consumption. It results from an improvement (decrease) of the
countries' emission factors where companies operate and from a change in the companies'
energy mix and finally translates the efforts put into the TIP members' CO2 action plans into
visible results.

Significant water intake reductions were recorded, in particular over the last four years (14%
decrease between 2013 and 2017), reflecting the efficiency of water reduction programs
implemented by the industry.

Intensive Key Performance Indicator:

All intensive indicators decreased during the
reporting period 2009-2017 in comparison with
the 2009-levels. It is interesting to note that the
energy intensity seems to stabilize during the
last 4 years of the reporting period when the
Graph 3.4 Intensive Key Performance Indicator

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CO2 intensity continuously decreased. It means that the CO2 emissions are not directly
linked to the energy consumption but mainly to the emissions factors and energy mix.

The almost continuous decrease of the water intensity over the period is due to reductions in
the absolute volumes, due to investments in water reuse and leaks detection.

Energy:
Total energy consumption increased
significantly between 2009 and 2010 (+11%)
and appears to have stabilized after this date,
with no more than a 3% absolute variation
from year to year.

Energy intensity significantly decreased

between 2009 and 2010 benefiting from the

Graph 3.5 Energy

Capacity optimisation effect related to production increase. Since 2013, the global energy
intensity slightly decreased.

This decrease of the industry energy intensity results from important efforts. The industry has
been actively engaged in energy efficiency initiatives such as: installation of new efficient
facilities, heat recovery, predictive maintenance activities and LED lighting.

This performance is all the more remarkable as at the same time more energy intensive
processes have been deployed as the market gradually switched to higher performance
products which require more complex, small batch manufacturing processes. Other factors
such as increased production line automation and deployment of environmental pollution
prevention technologies can also lead to an increase in energy consumption.

CO2 Emissions:
The sector's CO2 emissions are
strongly correlated to its energy
consumption. However, CO2 intensity
levels decreased by 12% between 2015
and 2017.

Graph 3.6 CO2 Emissions

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Three key factors drove this decrease:

 An evolution in the energy mix: over this period, the sector switched from coal and fuel
oil to natural gas and purchased electricity;
 Lower Scope 2 emissions factors, with regards to purchased electricity: most of the
countries where companies operate have changed their own energy mix over the years,
positively impacting the sector's overall performance;
 Energy efficiency measures were implemented, including harnessing steam power from
renewable fuels and increasing natural gas consumption.

Water intake:

The total water intake slightly decreased

over the reporting period 2009-2017. The
weighted average water intensity
decreased significantly: - 19% between
2013 and 2017.

Almost all tire manufacturers managed to

improve their performance by efficiency
Graph 3.7 Water intake
improvement projects at their production facilities including: closed-loop systems, new
design of machinery, internal plumbing refurbishment to reduce leaks or accept grey water or
digitalization actions. Such resource optimization practices are largely implemented as they
generate significant return on investment.
While most companies have worked or are working on their water intake, a broader work on
water management has begun. Water reuse and water recycling are indeed being
mainstreamed: specific actions plans were introduced that had notable impact, as
demonstrated by data on these past years' performances. More than half of TIP companies
have set water use reduction or water recycling rates targets for 2020.

Page | 33
ISO 14001 compliance:

The percentage of ISO-certified sites

among the total number of sites remained
almost stable and stabilized over the past 3
years (weighted average).

Certifications are a privileged means of

meeting customers' increasing
requirements. Certification rates further
illustrate the fact most of the TIP members
Graph 3.8 ISO 14001 compliance
already have or are developing Environmental Management Systems and policies to certify
all their sites. Notably, a smaller set of companies has opted to comply with further
international certifications such as ISO 50001 on energy - to support their energy
management systems and regulatory requirements where necessary.

Page | 34
 4.1 PORTER’S FIVE FORCE MODEL
Michael E Porter's five forces model is any day a best tool to analyze any business industry.

1) Bargaining Power of Supplier

Bargaining power of suppliers can be segregated in two parts according to the demand of
industry.

Rubber:

There are two reasons behind this being low first one is most of the tyre firm’s get150 days
credit for buying the rubber from international market which is not the case if they buy it
from domestic rubber growers. And the second reason is, this credit is being offered at
LIBOR, which is the London Inter- bank Offered Rate. It is the rate of interest at which banks
borrow funds from other banks.

Other Petro chemical based material:

The power of suppliers is high in this category as India is limping back in case of Petro based
raw materials like carbon black and chemicals which account low in quantity terms but are

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high cost generators. Also, the price of NTC fluctuates in line with the prices of Caprolactam
it is main raw material. The prices of these materials are beyond control of tyre industry.

2) Bargaining Power of Buyers

When customers cherish particular products, they end up paying more for that one product.
This positively affects tyre industry this can be segregated into two parts as follows
OEM's:
The OEMS are always in strong position when the bargaining power of buyers is concerned.
The reason behind this is most of them are having contract with their relative tyre
manufacturer under which the prices of tyre remains stable for this OEM irrespective of
market price. The benefits are given to them as they are buying in bulk and the relation gives
the tyre firms something called brand association.
Replacement:
The scene in replacement segment is quite reverse as the bargaining power for the
replacement segment is moderate due to the fact that the buyers are not that strong as
compared to OEMS. The demand in buses and truck segment is always high because of
Indian poor road conditions apart from this the purchase is made in small units.

3) Threat of Substitute
It is moderate or as the industry is facing opposition from rereading sector all over the globe.
This cheaper option, around 20-25% of the original tyre cost, is present in developed
countries since some decade back. And this is heading towards strong position here in India
too.

4) Threat of New Entrants

The threat of new entrant is moderate or can be described as low because the industry is
highly capital intensive and the level of technological expertise required is also highly
specific.

But if we see from domestic (Indian) industry's point of view, this better can be defined as
high. The reason being, global tyre industry is already seeing mergers and acquisitions in
order to restructure. And as of now India and China going to be the hub of activities as far as
tyre industry is concerned due to low production cost as well as other relevant benefits. So,
for any of the global big shot Indian company will be a good option to go for.

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5) Industry rivalry

High, because gradually the overseas players are expanding their wings over Indian tyre
industry and also a limited and every player is moving towards automated technology, like
ERP and SCM.

Apart from the aforementioned reason, the industry is seeing high competitive scenario at
present because of various reasons like rising input costs, low realizations from growing
OEM segment where the vehicle manufacturers are not ready to share the burden of tyre
firms, the portion of replacement pie continuously taken away by the re-treading sector which
is slowly but firmly rising its head and that to in high realization segment of Bus-Truck tyres
and last but not the least the unorganized sector is always there to give head ache to these
established players like CEAT, JK, Apollo and MRF etc.

4.2 PESTEL ANALYSIS

Political
Factors

Legal Economic
Factors Factors

PESTEL
Analysis
Environm
Social
ental Factors
Factors

Technical
Factors

Page | 37
1. Political Factors

The peak rate of Customs Duty on all non-agricultural products were progressively reduced
in the Union Budgets during the last few years, but in the case of Natural Rubber the rate of
20% has remained unchanged for over a decade. This has resulted in a serious anomaly of
Customs Duty on raw-material (Natural Rubber 20%) being higher than the Customs Duty on
finished product (Tyres 10%).

FICCI has also given the following recommendations for the tyre industry:

 FICCI would request for waiver of Customs Duty on all raw materials not manufactured
domestically.
 To overcome problem with respect to exports of tubes / flaps, it is suggested to include
Tyre Manufacturer as a class of Exporters under Rule 20 of Central Excise Rules to allow
them procure tubes and fops without payment of duty for exports.

2. Economic Factors:

There is a hike in the tyre prices due to the devaluation in rupee. Around 15 % decline in
rupee in the month of May and June has put pressure on the margins of tyre companies as the
raw material costs have gone up. Growth in M&HCV replacement demand is affected by a
slower economic growth. Since there is a slowdown in demand the tyre giants are evaluating
how much of the increase in cost can be passed on to the customers.

Raw materials comprise almost 85% of the cost of the tyre and with the devaluation of rupee,
the import cost has gone up. The tyre makers are still importing rubber, a key raw material as
it is cheaper. The OE tyre market is sluggish while the replacement tyre market is stable. The
car sales are expected to pick up in the second half of the year provided the interest rates
come down. In the current situation exports have become viable for the tyre companies. The
economic turmoil in Europe has not affected exports as the region is not a big buyer. Indian
exports are made to South America and Africa for exports in a big way.

3. Social Factors:

As the joint-family system crumbles and the number of nuclear families explodes, more small
families seem to be demanding a two/four-wheeler for themselves. This has directly resulted
in higher sales of tyres in the past decade.

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Higher car density per family: The number of upper-class and upper-middle class families
is more than one car per family, seems to be increasing exponentially. This is especially true
in cities where working members of same family find it difficult to survive without more than
one car for transportation. With higher disposable incomes, these families are finally able to
afford this need.

Shifting Savings to EMI culture: Another notable trend that seems to be fuelling car sakes
(and therefore tyre sales) is the shift in the middle-class consumer saving habits. The Indian
middle- class family has long been known for its saving frenzy. But with a younger
workforce, higher disposable incomes, lower unemployment and the influence of
globalization, the average Indian middle-class family is slowly warming up the idea of EMI
and buying on credit. This has helped in furthering the sales of passenger cars significantly.

Rubber has helped the farmers to get a steady income, and they are able to get good money
for their produce almost throughout the year. The best part about rubber is that it can yield
almost throughout the year, only except for a brief gap in summer and here in winter. If the
economic growth improves, then consumption of rubber will also go up.

4. Technical Factors:

The Indian tyre market has attracted global manufacturers on account of encouraging growth
figures. These manufacturers are expected to invest huge amounts into the industry over the
next few years, with a major proportion of this investment directed towards the Truck & Bus
(T&B) radial tyre capacity expansion. As per the study, several "Greenfield" plants are in
pipeline to include new capacities. The implementation of brown-field projects is executed to
cater to the growing demand. Greenfield units are expected to go on-stream in the coming
years, just by the time when there will be an urgent need to bridge an increasing demand-
supply gap in T&B radial tyre segment.

5. Environmental Factors:

Scrap tyres are about to become the latest headache for a government still smarting from the
debacle over its mountain. New ways will have to be found to dispose the tyres that are
stockpiled or put in landfills every year. The problem is huge. The number of tyres in use is
forecast to increase by up to 60% by 2021, as the number of vehicles rises. Every day,
100,000 are taken off cars, vans, trucks, buses and bicycles. It is widely estimated that there
are now more than 200m lying around.

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By their very nature, tyres are difficult to dispose of. They are designed not to fall apart while
you're driving along the motorway, so they are one of the more intractable issues. Although
tyres remain substantially intact for decades, some of their components can break down and
leach Environmental condemn centres on the highly toxic additives used in their
manufacture, such as zinc, chromium, lead, copper, cadmium and sulphur.

The environment agency is launching a campaign later this month to alert the public and
industry to the need to prolong the life of existing tyres and find new recycling methods. The
best use of tyres is probably to retreat them, but this is now expensive, and fewer than ever
are recycled in this way. Around 48,500 tonnes are converted into "crumb rubber", used in
carpet underlay and to make surfaces such as those on running tracks and children’ splay
grounds.

More controversially, a further 18% are burnt as a "replacement fuel" in the manufacture of
cement. This is fast becoming the most popular way of disposing of them but it is of
increasing concern to environmentnatalists and scientists. Tyre burning emits ultra-fine
particles that have a toxicity all of their own. The toxicity is even stronger if this contains
metals such as nickel and tin, which you get when you throw the whole tyre into the furnace.
If the metal content of the paretic les goes up, then there is going to be an increasing impact
on health.

6. Legal Factors:
Incidence of excise duty on tyres continues to be high around 24%, the same as on luxury
products like air-conditioners etc. In addition, there are several local taxes and levies imposed
on tyres. Ultimate burden of high taxes falls on the consumer. Apart from high Excise Duty,
various embedded taxes take the total tax incidence on tyres to an even higher-level. Truck
and Bus tyres are used in vehicles for transportation of common man and goods.

In February, 1988, as per a directive of the Ministry of Industry. Embossing of MRP on truck
and bus tyres was started. This was based on the recommendations of the Committee on Tyre
Industry. In the last over 15 years, the economic scenario has undergone a sea change with
liberalization, removal of controls and free global trade in most items.

Tyre Industry is also deli censed. Major raw-materials of tyre industry undergo wide
fluctuations in prices. In such a dynamic scenario, it is a not practical to emboss the price on
tyres due to market dynamics.

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 4.3 OT Analysis

Opportunities:

 There are huge opportunities if company is able to implement better processes and
technologies like, Increasing OEM demand Subsequent rise in replacement demand and
Steady increase in radial Tyres as it won’t have high profit-making objective.
 India coming up as Automobile manufacturing hub which provides huge opportunities.
 Robust economic growth, particularly vehicle production growth resulting in healthy
demand growth for tyres in the future.
 Export culture inculcated enabling participation in world tyre markets. Excellent brand
equity of Indian cross ply/bias truck tyres in the world market can open market
opportunities for export of truck and passenger car radial tyres.
 Improved road infrastructure especially on the Golden Quadrilateral and North-South
East-West national highway project- will result in significant increase in movement of
goods and passenger traffic through roads with resultant growth in demand for tyres.

Threats:

 Volatility in prices and availability of raw material as India’s rubber production is less
than its demand. Continuous increase in prices of natural rubber, which accounts for
nearly one third of total raw material costs.
 Government Policies like, export duties, import duties, tax levied on automobile
industries and economic condition of nation as it determines the sale of automobiles.
 Introduction of other transport facilities like metro, monorails and local trains keeping
pollution hazards caused by combustion of automobile fuels.
 Cheaper imports of Tyres, especially from China, selling at very low prices, have been
posing a challenge. The landed price is approximately 25% lower than that of the
corresponding Indian Truck/ LCV tyres.
 Faster pace of opening up of the economy will increase import of tyres. Reduction in
import duties will lead to higher volume of tyre imports. Concessional import tariffs for
countries like China and South Korea under Regional Trade Agreements will lead to
additional imports.

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 4.4 4 P’S ANALYSIS

1. Product:
Apollo Tyres ltd:

The products made by Apollo tyres ltd are tyres, tubes, and flaps for passenger cars, trucks,
buses, farm, motor bikes, industrial and earthmover.

 Passenger car: Apollo offers passenger car tyres for cars, SUV and vans. This includes
Radial, Cross ply and SUV tyres.

 Farm or Agriculture: Apollo offers tyres for tractors, harvesters, Trailer implement, and
small equipment.

 Industrial: Apollo offers tyres used in construction industry for different vehicle type like
Backhoe, compactor, Loader, Excavator, Grader etc.

 Trucks and buses: Apollo offers different products under this category demanding on
things you transport and depending on terrain like urban, regional, long haul, mixed,
speciality. This includes Radial and bias type of tyre construction.

 Motor bike: Apollo offers tyre for different bike models like Suzuki slingshot, pulsar,
Honda etc.

 Earthmover: Apollo offers tyres to be used by vehicle operated in mining industry as a

loader, ADT, RDT.

JK Tyres:

JK Tyres being primarily a tyre manufacturer has a wide product portfolio in its marketing
mix which consists of Passenger car tyres, two / three-wheeler tyres, commercial tyres, farm
tyres and off the road tyres.

 Passenger car: JK Tyres provides tyres for the entire range of SUVs running on Indian
roads.

 Motor bike: From a 3-kg two-wheeler to a 3.5-ton OTR tyre, it manufactures all types of
tyre for the two and three-wheeler market.

 Industrial: Implementing the Truck Bias Technology, JK Tyres manufactures tyres for all
types of trucks and is also involved in advanced tyre testing and polymer research. Radial
tyres, LCV tyres and SCV tyres are also available from them.

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 Farm or Agriculture: Farming being the biggest source of income for rural India, JK
Tyres manufactures tyres for tractors which are widely used for farming in India.

 Off the road tyres comprises of tyres for high capacity vehicles primarily working in
mines.

CEAT:

Ceat is a leading tyre manufacturer from India. With products ranging from Ceat Grip, Ceat
Zoom, Ceat Little Master, Ceat Secura Sport, Ceat Vertigo Sport and several high mileage
tyres for application in the heavy commercial industry. All these are the product strategy in
the marketing mix of Ceat tyres. Ceat manufactures a variety of tyres for Truck and Light
commercial vehicles, solid and pneumatic vehicles, farm and industrial applications, cars and
SUVs, motorcycles and scooters etc. With a manufacturing capacity of close to a lakh tyre
per day, Ceat also caters to the flap and tube markets. Flaps are used by almost all modern
passenger cars and tubes by many motorcycles and scooters.

2. Price:
Apollo Tyres ltd:

Apollo uses penetrative pricing strategy to gain more market share by offering low price for
new product as an initial offer to lure customer from competitors. There are some other
brands like JK tyres, Goodyear etc that also that use the same pricing strategy but it is the
quality and service provided by the Apollo Company that sets it apart from its competitors. A
typical car tubeless tyre from Apollo would cost around Rs. 4000-4200 and a HCV tyre
would cost around price range of Rs. 17000-17500. Apollo Tyres ltd has got good B2B
connect with automobile companies like Mercedec, Volkswagen etc and it sells its product at
competitive price.

JK Tyres:

JK Tyres offers tyres to customers at a competitive price. JK Tyres faces tough competition
from other tyre manufacturers like MRF, Bridgestone, Michelin, Dunlop and Goodyear; so,
in order to counter it they price their products in the same range as of their competitors, also
giving sporadic benefits to its customers depending upon festive seasons. Primarily tuning
their services for the economy class people, JK Tyres are able to penetrate the retail market
and offer products at a fair price and of the best quality. By providing attractive offers and
bundling their products helps them to play the price discrimination thus helping them earns

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greater profits. The cheapest car tyre offered by JK is at Rs. 1659. The most expensive car
tyre in the JK is at Rs. 14500.

CEAT:

Ceat is a leading tyre manufacturer and has a competitive pricing. Annual turnover of Ceat is
Rs 3500 crore and an employee strength of Ceat are more than 5000. With an ISP/TS 1649
2002 certification, Ceat can however command a higher price from the market for similar
products because its superior quality products easily match those of internationals standards.
With a strong brand image and R and D initiatives like tubeless rubber, and various off-road
applications tyres for SUVs and trucks. Several specialized tyres are priced slightly higher
because they can be sued for traversing such difficult terrains as snow, mud, grass, muck and
rocks. Of all the pricing strategies used by other tyre manufacturers in the country. Ceat
utilizes the perceived value and target pricing strategies. The cheapest car tyre offered by
Ceat is at Rs. 2245. The most expensive car tyre in the Ceat is at Rs. 9655.

3. Place:
Apollo Tyres ltd.:
Apollo Tyres ltd. has got an extensive distribution network across India and Europe. Apollo
Tyres ltd. distribution channels include factories, regional distribution centres, dealers and
carrying and forwarding agents. In 2016, the company had around 4900 retail dealers of
which nearly 1700 are exclusive retail dealers of Apollo in India and around 3550 dealer
outlet in Europe. Apollo tyre ltd. sells its product to more than 100 countries globally. Apollo
Tyres Ltd. has got four manufacturing units in India and one in Netherlands. The company
also plans to build one more manufacturing unit in Hungary which will commence its
operation in early 2017. The company has also 19 state office, 150 sales and service offices
across India, 17 regional distribution centres across India.

JK Tyres:
JK Tyres has got a good strong availability in the Indian market. Apart from the domestic
market, JK Tyres is also present in the international market, with presence of over 100
countries spread across 6 continents. JK Tyres distributes its products primarily by retail
chain. Its products are available easily at any retail automobile shop. It also has exclusive
outlets which sells only JK Tyres and accessories at their outlet. JK Tyres primary and
tertiary distribution network forms the base of their retail strategy. It has a good rural

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outreach, and it is highly integrated. It pays fair margin to its distributors, which helps them
to maintain a strong network of retail chain.

CEAT:
Ceat is a recognized local as well as global tyre company. Ceat exports its tyres to more than
110 companies. With its mission to become the most profitable tyre company in 2016 in
India, it is relying on high GDP growth, increased local demand as well as an increased
international demand. One of the most important aspects of Marketing is the ‘place’. With a
wide distribution network in India, Ceat clearly has its mission of total customer satisfaction
clearly in sight. Its wide network of distributors, dealers and retailers that Ceat tyres for all
applications are available in each state and even in remote rural places.

4. Promotion:
Apollo tyre Ltd.:

Apollo tyre has become a big brand in tyre industry with the help of innovative marketing
strategies. It also engages in strategies like running tyre loyalty programs, better contact with
its customers to encourage them for better driving habits. The advertisements of its product
strike a chord with its customer as it emphasizes on durability and long life of product.
Apollo company public relation strategy ‘Adopt a pothole’ won Cannes silver lion award.
Apollo Tyres ltd. brand Vredestein social media campaign “Rock the Road” won Global
Dolphin Award at Cannes in integrated communication category. Apollo also promotes
Indian tennis players and sponsoring tennis competition which brings brand awareness
among youngsters to the company.

JK Tyres:

JK Tyres is involved in extensive advertisement and promotional activities. Their primary

mode of promotion involves advertisements for Television, print media and billboards are
few of the many techniques used by them. JK Tyres promotes its products as being under
“Total Control”, it helps them to play in the mind of the customers that their tyres are good
for safety on roads thus it gives them an extra benefit that earns them easy brand recall. With
wide range of CSR and promotional activities JK Tyres gains a good amount of goodwill
among customers. This completes the JK Tyres marketing mix.

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CEAT:

Ceat focuses a lot on marketing its products, and has managed to do that quite effectively in
its promotional strategy. It is one of the most challenging tasks to get the message of high
quality Ceat tyres across to customers, given the number of competitors in the market.
Promotion helps in convincing buyers that they are getting their money’s worth and that their
product is the best in the segment. With an average speed of around 40-50 lakhs on marketing
of which 2/3 is spent on BTL and the rest is spent on ATL promotions. One famous Ceat bike
tyre advertisement was very successful in driving home the point of road safety, wherein a
biker encounters a couple of idiots on the road who make riding unsafe and also jeopardise
their own safety. Apart from these they also mark their visibility in shopping complexes,
markets, local bazaars, highways, near mechanic shops and often near petrol pumps.

4.5 Product Life Cycle

A tire is a strong, flexible rubber casing attached to the rim of a wheel. Tires provide a
gripping surface for traction and serve as a cushion for the wheels of a moving vehicle. Tires
are found on automobiles, trucks, buses, aircraft landing gear, tractors and other farm
equipment, industrial vehicles such as forklifts, and common conveyances such as baby
carriages, shopping carts, wheel chairs, bicycles, and motorcycles. Large, efficient factories
staffed with skilled workers produce more than 250 million new tires a year.

Raw Materials:

Rubber is the main raw material used in manufacturing tires, and both natural and synthetic
rubbers are used. Natural rubber is found as a milky liquid in the bark of the rubber
tree, Heave Brasiliense. To produce the raw rubber used in tire manufacturing, the liquid
latex is mixed with acids that cause the rubber to solidify. Presses squeeze out excess water
and form the rubber into sheets, and then the sheets are dried in tall smokehouses, pressed
into enormous bales, and shipped to tire factories around the world. Synthetic rubber is
produced from the polymers found in crude oil.

The other primary ingredient in tire rubber is carbon black. Carbon black is a fine, soft
powder created when crude oil or natural gas is burned with a limited amount of oxygen,
causing incomplete and creating a large amount of fine soot. So much carbon black is
required for manufacturing tires that rail cars transport it and huge silos store the carbon
black at the tire factory until it is needed. Sulfur and other chemicals are also used in tires.

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Design:

The main features of a passenger car tire are the tread, the body with sidewalls, and the beads.
The body supports the tread and gives the tire its specific shape. The beads are rubber-
covered, metal-wire bundles that hold the tire on the wheel.

Computer systems now play a major role in tire design. Complex analysis software acting on
years of test data allows tire engineers to simulate the performance of tread design and other
design parameters. The software creates a three-dimensional colour image of a possible tire
design and calculates the effects of different stresses on the proposed tire design. Computer
simulations save money for tire manufacturers because many design limitations can be
discovered before a proto-type tire is actually assembled and tested.

In addition to tests of tread design and tire body construction, computers can simulate the
effects of different types of rubber compounds. In a modern passenger car tire, as many as
twenty different types of rubber may be used in different parts of the tire. One rubber
compound may be used in the tread for good traction in cold weather; another compound is
used to give increased rigidity in the tire sidewalls.

The Manufacturing Process:

The different components of the tire are carried to the forming machine, where a skilled
assembler cuts and positions the strips to form the different parts of the tyre is called a "green
tire."

When a green tire is finished, the metal drum

collapses, allowing the tire assembler to remove
the tire. The green tire is then taken to a meld for
curing.

1. The first step in the tire manufacturing

process is the mixing of raw materials to form the
rubber compound. Railcars deliver large quantities of natural and synthetic rubber, carbon
black, sulfur, and other chemicals and oils, all of which are stored until needed. Gigantic
mixers, hanging like vertical cement mixers, stir the rubber and chemicals together in
batches weighing up to 1,100 pounds.

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2. Each mix is then refilled with additional heating to soften the batch and mix the
chemicals. In a third step, the batch goes through a mixer again, where additional
chemicals are added to form what is known as the final mix.

Body, beads, and tread

Once a batch of rubber has been mixed, it goes through powerful rolling mills that squeeze
the batch into thick sheets. These sheets are then used to make the specific parts of the tire.
The tire body consists of strips of cloth-like fabric that are covered with rubber.

For the beads of a tire, wire bundles are formed on a wire wrapping machine. The bundles are
then formed into rings, and the rings are covered with rubber.

The rubber for the tire tread and sidewalls travels from the batch mixer to another type of
processing machine called an extruder. Sidewall rubber is covered with a protective plastic
sheet and rolled. Tread rubber is sliced into strips and loaded into large, flat metal cases
called books.

Tire-building machine

The rolls of sidewall rubber, the books

containing tread rubber, and the racks
of beads are all delivered to a skilled
assembler at a tire-building machine. At
the centre of the machine is a collapsible
rotating drum that holds the tire parts. The
tire assembler starts building a tire by
wrapping the rubber-covered fabric plies of the body around the machine drum. After the
ends of these plies are joined with glue, the beads are added and locked into place with
additional tire body plies laid over the beads. Next, the assembler uses special power tools
to shape the edges of the tire plies. Finally, the extruded rubber layers for the sidewalls
and tread are glued into place, and the assembled tire the green tire is removed from the
tire-building machine.

Curing

A green tire is placed inside a large meld for the curing process. A tire meld is shaped like a
monstrous metal clam which opens to reveal a large, flexible balloon called a bladder. The

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green tire is placed over the bladder and, as the clamshell meld closes, the bladder fills with
steam and expands to shape the tire and force the blank tread rubber against the raised interior
of the meld. During this curing process, the steam heats the green tire up to 280 degrees.

After curing is complete, the tire is removed from the meld for cooling and then testing. Each
tire is thoroughly inspected for flaws such as bubbles or voids in the rubber of the tread,
sidewall, and interior of the tire. Then, the tire is placed on a test wheel, inflated, and spun.
Sensors in the test wheel measure the balance of the tire and determine if the tire runs in a
straight line.

Quality Control:

Quality control begins with the suppliers of the raw materials. Today, a tire manufacturer
seeks suppliers who test the raw materials before they are delivered to the tire plant.
To insure the certification of suppliers, tire company chemists make random tests of the raw
materials as they are delivered.

Throughout the batch mixing process, samples of the rubber are drawn and tested to confirm
different properties such as tensile strength and density. Each tire assembler is responsible for
the tire components used. Code numbers and a comprehensive computer record-keeping
system allow plant managers to trace batches of rubber and specific tire components. When a
new tire design is being manufactured for the first time, hundreds of tires are taken from the
end of the assembly line for destructive testing.

In addition to internal testing, feedback from consumers and tire dealers is also correlated
with the manufacturing process to identify process improvements.

The Future:

Constant improvements in rubber chemistry and tire design are creating exciting new tires
that offer greater mileage and improved performance in extreme weather conditions.
Manufacturers now offer tires estimated to last up to 80,000 miles. Treads, designed and
tested by computer, now feature unique asymmetrical bands for improved traction and safety
on wet or snowy roads. Such a tire offers lower rolling resistance for greater fuel economy
and superior handling because of a greater area of contact between tread and road.

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 4.6 Value Chain Analysis
1. Raw Materials:

The main raw material groups in tyre manufacturing are synthetic rubber, fillers, chemicals,
reinforcing materials and natural rubber, which makes up for approximately one fourth of a
tyre’s raw materials. The raw materials for tyres come all of suppliers are committed to our
Supplier Code of Conduct, which requires compliance with international human rights,
labour rights and anti-corruption measures. All raw material suppliers must, at a minimum,
have an ISO 9001-certified quality management system in place.

The cultivation of natural rubber, which mostly takes place on small farms, and its complex
path to becoming a raw material for tyres have a significant role in terms of the producing
countries’ social structure.

2. Rubber Production:

Natural rubber forms one fourth of a tyre’s raw materials. As an agricultural product, its
production differs from the other raw materials. Natural rubber is cultivated in forests, often
on small farms. Most of India’s natural rubber is produced on farms smaller than two hectares
in size whose daily output may be just a couple of kilogram’s of crude rubber. The crude
rubber that Tyres purchases from traders comes from family farms and some larger
plantations.

3. Wholesaler:

Family farms sell crude rubber to local wholesalers. Rubber is produced on a day-to-day
basis: wholesalers go around small farms to buy their daily production. To get an idea of the
number of these small streams, consider that natural rubber production in Indonesia exceeded
3 million tonnes in 2016. Wholesalers, in turn, sell the crude rubber to processors.

4. Processors:

Processing plants purify the natural rubber, process it as specified and pack it for further use.
Even family farms are using their mobile phones to check the daily market rate.

5. Transportation:

Most of the raw materials for tyres are transported to farm from company. The requirements
of the market and expansion of the chain have led to change tyre logistics and consumer
insight. They used to deliver tyres to large wholesalers but, nowadays, distribution is divided

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more so into smaller product lots and smaller warehouses. As the number of individual
transport operations grows, logistics planning becomes increasingly important.

6. Dealers:

Tyres products are sold their branded distribution network as well as through dealerships and
tyre stores. Their branded distribution network covers the demand of tyre network. Tyre is
building a foundation for the permanent market share of the group’s products and it
spearheads the group’s growth along with tyre partner network. The business model drives
entrepreneurship and affects society in all areas.

7. Consumer:

Consumers – the users of tyres – are the most important link in our value chain. The purpose
of the safety, premium quality and unique innovations of our tyres is to ensure consumers
trouble-free and safe trips under all conditions. More than 85% of a tyre’s carbon footprint is
generated during its use, which means that our product development efforts for improving the
tyres’ safety and reducing their environmental impacts are measured during their use by
consumers.

8. Recycling:

A part of recycled tyres is utilised for their material; they are shredded or granulated to
replace rock materials in various road construction and civil engineering applications. Rubber
chips are light, insulate moisture and maintain their form. They support the road surface and
make asphalt quieter. The flexible properties of rubber are put to use once more when it is
reused as a base material for sports venues, including horse riding arenas.

Re-treading is one of the best recycling methods. If the tyre is undamaged, it can be re-
treaded – bus and truck tyres can be re-treaded up to two or even four times.

Another way to utilise recycled tyres is to combust them for energy, as the heating value of
tyres is close to that of oil. The use of recycled tyres as an energy source has been growing
for years and, today, approximately half of the tyres recycled are used in waste-to-energy
applications. They are constantly looking for new ways to recycle and utilise tyres.

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 4.7 Financial Analysis

The Indian tyre industry may log 7-9 per cent growth over the next five year backed by
favourable outlook for the domestic automotive industry. In the note also forecast the
industry to see a capital expenditure of around Rs 20,000 crore during this period.

There is a financial analysis of top 5 Indian tyre companies.

Particular APOLLO JK MRF CEAT BKT

Total Income 12,526.71 7,871.71 16,863.07 7,031.42 5,497.23

Total
11,136.12 7,062.39 14,200.12 6,388.02 3,971.88
Expenses
Operating
1,479.12 731.2 2,245.48 637.53 1,311.14
Profit
PBDIT 1,390.59 809.32 2,662.95 643.4 1,525.35
Interest 137.86 316.28 247.79 64.52 9.79
PBDT 1,252.73 493.04 2,415.16 578.88 1,515.56

Depreciation 446.33 188.36 806.27 174.3 332.55

PBT 806.4 304.68 1,608.89 404.58 1,183.01

Tax 214.28 100.28 512.02 120.86 401.01

Net Profit 592.11 204.4 1,096.87 288.91 782

Table 4.1 Financial Analysis

Besides, the domestic tyre industry margins, which declined by 120 bps year-on-year in the
September quarter, are expected to improve in the second half of the current fiscal due to the
falling crude prices and stable prices of the natural rubber. "Tyre demand is estimated to
grow by 7-9 per cent over the next five years (FY2019-23) supported by favourable outlook
for the domestic automotive industry,"

According to an industry report, the domestic automobile industry, which is currently the
fourth largest in the world, is expected to become the third largest by 2021. The industry is
expected to grow at a compounded annual growth rate of 5.9 per cent and reach USD 251.4-

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282.8 billion by 2026, thereby becoming the fastest growing industry in the country, as per
the report.

The domestic tyre industry has benefited from strong growth in both original equipment (OE)
and replacement segments in the ongoing fiscal. The tyre industry in the country has
witnessed large capacity additions in the last decade with a cumulative spend of around Rs
27,800 crore, of which about 70 per cent was spent in the last six years.

Tyre volume demand was expected to grow by seven to eight per cent during FY18' and
FY19' on the back of higher OEM demand and stable replacement demand. "Tyre volume
demand is expected to grow by seven to eight per cent during FY18 and FY19 boosted by
higher OEM demand and stable replacement demand. Carbon black companies were also on
expansion mode based on the growth projections for the tyre demand.

Country's largest carbon black producer, Phillips Carbon Black will pump Rs 300 crore for
brown field expansion and evaluating green field unit in south India, where new tyre capacity
is likely to come up. Replacement demand for the truck and buses (T&B) is likely to pick up
to five per cent in FY18' following the 0-3 per cent decline witnessed in FY17.

The Indian auto-components industry has experienced healthy growth over the last few years.
The auto-component industry of India has expanded by 18.3 per cent to reach at a level of
US$ 51.2 billion in FY 2017-18.

The auto-components industry accounts for 2.3 per cent of India’s Gross Domestic Product
and employs as many as 1.5 million people directly and indirectly each. A stable government
framework, increased purchasing power, large domestic market, and an ever-increasing
development in infrastructure have made India a favourable destination for investment.

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Market Size:

The Indian auto-components industry can be broadly classified into the organised and
unorganised sectors. The organised sector caters to the Original Equipment Manufacturers
and consists of high-value precision instruments while the unorganised sector comprises low-
valued products and caters mostly to the aftermarket category.

The total value of India’s automotive exports stood at US$ 13.5 billion in 2017-18 as
compared US$ 10.9 billion in the year 2016-17. This has been driven by strong growth in the
domestic market and increasing globalisation of several Indian suppliers. Growth is further
expected to accelerate to 8-10 per cent in FY19 due to pick up in global scenario.

According to the Automotive Component Manufacturers Association of India (ACMA), the

Indian auto-components industry is expected to register a turnover of US$ 100 billion by
2020 backed by strong exports ranging between US$ 80- US$ 100 billion by 2026.

Investments:

The Foreign Direct Investment (FDI) inflows into the Indian automotive* industry during the
period April 2000 – March 2019 were recorded at US$ 21.38 billion, as per data by the
Department for Promotion of Industry and Internal Trade (DPIIT)).

Some of the recent investments made/planned in the Indian auto components sector are as
follows:

 Schaeffer India, the Indian arm of Germany’s automotive and industrial parts maker, is
planning to invest Rs 300 crore (US$ 46.66 million) per annum over FY18-19.
 As of December 2018, German automotive major Continental has planned investments of
Rs 180 crore (US$ 25.65 million) for setting up a premium surface materials facility in
Pune. The facility will have an initial capacity of five million square metres and is
expected to start production in 2020.
 In October 2018, IMI Precision Engineering inaugurated its second largest manufacturing
facility in the Asia Pacific region. The company is planning to expand its product and
technical offerings over the course of the next few years.
 As of September 2018, air-compressor manufacturer Elgin Equipment’s is going to invest
Rs 18 crore (US$ 2.56 million) for setting up of a motor production facility in India. The
facility is expected to be commissioned in Q1 FY20.

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Government Initiatives:
The Government of India’s Automotive Mission Plan (AMP) 2006–2016 has come a long
way in ensuring growth for the sector. Indian Automobile industry is expected to achieve a
turnover of $300 billion by the year 2026 and will grow at a rate of CAGR 15 per cent from
its current revenue of $74 billion.

Government has come out with Automotive Mission Plan (AMP) 2016-26 which will help
the automotive industry to grow and will benefit Indian economy in the following ways: -

 Contribution of auto industry in the country’s GDP will rise to over 12 per cent
 Around 65 million incremental number of direct and indirect jobs will be created
 End of life Policy will be implemented for old vehicles

The Indian auto-components industry is set to become the third largest in the world by 2025.
Indian auto-component makers are well positioned to benefit from the globalisation of the
sector as exports potential could be increased by up to US$ 30 billion by 2021E.

Exchange Rate Used: INR 1 = US$ 0.0139 as of Q3 FY19.

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Amongst the Indian Tyre Manufacturers, Apollo tyres and Ceat Tyres Ltd, are undervalued
whereas MRF Tyres Ltd. is overvalued. The biggest threat, however, is yet to fully
materialise. It will be from global majors like Bridgestone and Michelin, which control 36 per
cent of the global tyre market. These players have set up their bases in Southeast Asia and the
slump of the markets in this region, coupled with the vast growth potential of the Indian
market, is beckoning them towards India.

Two years ago, the industry estimated the growth in the passenger car radial demand at 20per
cent per annum. However, the auto recession has hit them hardly. Another threat to the
industry is the price of its raw materials, most of which are petroleum by products. Carbon,
synthetic rubber and nylon tyre cord are offshoots of petrochemicals. Thus, the future of the
industry will swing with the supply of crude oil.

The industry is definitely set to grow, with an estimated volume growth of 12-14 % in 2009-
10. Both, OEM and Replacement demand would drive growth, with exports also adding-in.
The growing economy and the infrastructure sectors provide the much-needed impetus.
However, tyre companies face immense competition, together with price and cost pressures.
Pricing pressure, from OEMs because of their high bargaining power and in the replacement
market due to huge competition, is a substantial dampener. Companies are now giving
emphasis to innovation in product and process technology and to operational efficiencies.
However, the continuously rising trend witnessed in the prices of raw materials remains an
area of concern.

The industry is definitely set to grow, but the huge competition, huge buyer power, pricing
inflexibility and cost pressures prove as detriments. Tyre companies are operating at very thin
margins and their return ratios are also not attractive. One can look at tyre stocks but only
from a trading perspective.

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