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Tyre production up, prospects not so bright - Views on News from Equitymaster
 
 
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  • May 2, 2000

    Tyre production up, prospects not so bright

    The tyre production figures from April'99-January'2000 have shown an improvement of 7.1% YoY at 29.8m units as compared to 27.7m units for the same period of previous year. The truck and bus segment which accounts for 70% of sales reported a production growth of 11.9% YoY during this period. The other segments that contributed to a good growth in tyre production were passenger cars, tractors and motorcycles as demand from these segments was buoyant during the year.

    Besides the pick up in the OEM market, even the replacement market for tyres has picked up. As the replacement demand accounts for a major chunk of sales from the tyre industry the cyclical nature of the automobile industry does not affect the tyre industry to a large extent.

    Tyre production

    (million nos.) FY99* FY00* %change
    Trucks and buses 6.5 7.3 12%
    Passenger Cars 3.4 3.8 11%
    Utility Vehicles 1.0 1.0 -2%
    Light trucks 1.5 1.6 1%
    Tractor front 0.8 0.9 13%
    Tractor rear 0.7 0.8 11%
    Scooters 7.2 6.6 -8%
    Motorcycles 5.6 6.6 17%
    Others 0.9 1.1 29%
    Total 27.8 29.8 7%

    * figures from April-January

    Though the prospects of the tyre industry have improved as demand from automobile sector as a whole has picked up the industry continues to face pressure on account of increase in rubber prices due to shortage. As the demand for natural rubber is bound to increase with the growth in the passenger car segment, the industry will be faced with shortage of natural rubber. This will continue to put pressure on margins of tyre companies as natural rubber accounts for 40% of the total raw material cost.

    In terms of competition the major entry barrier for the tyre industry is the ability of companies to have a large distribution network and service centres. Also high advertisement expenditure in this industry acts as an entry barrier.Though the prospects of the tyre industry have improved as demand from automobile sector as a whole has picked up the industry continues to face pressure on account of increase in rubber prices due to shortage. As the demand for natural rubber is bound to increase with the growth in the passenger car segment, the industry will be faced with shortage of natural rubber. This will continue to put pressure on margins of tyre companies as natural rubber accounts for 40% of the total raw material cost.

     

     

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