Tyre-makers shine as car owners replace bald rubber

MUMBAI Mon Apr 7, 2014 7:59am IST

A worker retreads a used rubber tyre at a workshop on the outskirts of Jammu October 29, 2013. REUTERS/Mukesh Gupta/Files

A worker retreads a used rubber tyre at a workshop on the outskirts of Jammu October 29, 2013.

Credit: Reuters/Mukesh Gupta/Files

Stocks

   

MUMBAI (Reuters) - Replacement tyres are buoying Indian tyre companies as a sputtering domestic economy hits vehicle sales, crimping orders from automakers.

India's top six tyre-makers by value are forecast to see average revenue growth of 11.8 percent in the fiscal year that started this month, according to Thomson Reuters SmartEstimates. That would be the fastest expansion in three years.

Tyre-makers including Apollo Tyres Ltd (APLO.NS), India's biggest by revenue, are leaning on car and truck owners replacing worn-out tyres on vehicles bought during the 2009-2011 boom to insulate them from slower demand for original tyres. The margins for replacement tyres are up to 10 percentage points higher than those for originals, analysts say.

"Even if you were to make less number of tyres or sell less number of tyres, if you sell more in the replacement (segment), then your balance sheet gets stronger," said Satish Sharma, president for Asia Pacific, Middle East and North Africa at Apollo Tyres, declining to elaborate on the company's margins.

The automakers are stuck in the slow lane as the industry suffers its second consecutive year of weak sales, hurt by high interest rates and rising fuel prices. While a prolonged downturn in new vehicle sales would eventually cut tyre replacement demand, for now it is proving a boon.

Replacement tyres accounted for 67 percent of Apollo's India revenue in the nine months through December. In the fiscal year ended in March 2012, which marked the end of car sales boom, replacement tyres made up 56 percent of its revenue.

Demand for replacements in recent months has also been lifted by the general elections, said Rajiv Budhraja, director-general of Automotive Tyre Manufacturers Association (ATMA), as political campaigning spurs orders for roadworthy wheels in the country's vast rural areas.

Favourable monsoon rains last year, which put more money into farmers' hands, have also helped boost tyre replacement sales.

Mumbai-based Angel Broking expects tyre replacement demand will grow 10 percent over fiscal years 2013 to 2015, assuming a vehicle life of 10 years and that tyres are replaced every three years. It said demand from automakers will be subdued for the same period.

Shares in Apollo have jumped 56 percent in 2014, while CEAT Ltd (CEAT.NS) is up 23 percent and MRF Ltd (MRF.NS) has risen 16 percent, outpacing a 6 percent gain in the main index.

GRAPHIC: link.reuters.com/kyc38v

Local manufacturers sell $8 billion worth of tyres a year and compete with global players such as Continental AG (CONG.DE) and Bridgestone Corp.

Apollo's $2.5 billion bid to join the global big leagues by buying U.S.-based Cooper Tire & Rubber Co (CTB.N) last year fell through when labour troubles scuppered the deal, which would have made it the world's seventh-largest producer.

India is the world's 10th-largest market for light vehicle tyres and is on track to be the fifth-biggest by 2020, estimates LMC International's World Tyre Forecast Service.

The automotive industry is hoping that a stable government after the elections ending mid-May will boost economic growth and lead to a recovery in vehicle demand.

Passenger vehicle sales fell 6 percent, while those of commercial vehicles dropped nearly 20 percent in the April-February period, the latest data from the Society of Indian Automobile Manufacturers shows.

A protracted economic slowdown would eventually harm replacement demand.

"If the downturn continues to go on and on and on, then obviously that phased lag would also hit the replacement market," Apollo's Sharma said.

(Additional reporting by Patturaja Murugaboopathy in BANGALORE; Editing by Tony Munroe and Ryan Woo)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Press Event

Press Event

Modi takes tea, but no questions, in first press event as PM.  Full Article 

School Shooting

School Shooting

Two killed, four wounded in Washington state school shooting.  Full Article 

Sundar Pichai Elevated

Sundar Pichai Elevated

Google's Pichai to oversee major products and services.  Full Article 

Need For Reforms

Need For Reforms

Euro zone risks "relapse into recession" without structural reforms - Draghi.  Full Article 

Diwali Sales

Diwali Sales

Gold sales jump about 20 pct for Diwali - trade body  Full Article 

World Bank Rival

World Bank Rival

Three major nations absent as China launches W.Bank rival in Asia  Full Article 

Wal-Mart India

Wal-Mart India

Murali Lanka appointed as Wal-Mart India operations chief  Full Article 

Health Of Lenders

Health Of Lenders

25 European banks set to fail health checks - sources.  Full Article 

India Insight

India Insight

Kalki Koechlin on her role as a disabled girl in “Margarita, With a Straw”  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage