India Ratings and Research (Ind-Ra) said an increase in tyre imports in India could result in a revenue decline for Indian tyre companies with downward pressure on both volume and pricing in the key segment of truck & bus (T&B).
According to the research report, the increase in imports from China is likely to continue, driven by reduced demand in China as well as the imposition of high countervailing and anti-dumping duties by the US on Chinese tyres.
The report said imported truck & bus radials (TBR) are priced 25% lower than domestically produced ones. The lower price is attracting price-sensitive customers which have generally low vehicle utilisation and thus were using bias tyres. This trend has accelerated radialisation in the T&B segment to around 33% at 2014-15 estimate, up from 26% in the previous year.
Major domestic players have announced capacity expansion in the TBR segment to capture increasing radialisation. But a majority of these capacities are likely to come onstream during 2015-17. Increasing imports could result in a significant part of the domestic market, particularly the replacement T&B segment, being captured by low-cost imports.
The decline in revenues for Indian tyre companies could be attributed to a higher-than-expected decline in the T&B bias (TBB) segment as a result of increasing imports of TBR.
The import volume of tyres in truck & bus segment and two-wheeler segment has gone up 25.3% and 120.5%, respectively in the first quarter (April-June) year on year. Out of the above, of the particular concern is the increase in imports in the T&B segment which accounts for around 60% of domestic tyre industry's revenue.
Chinese imports in the T&B segment increased 138% year on year in the first quarter to Rs 230 crore, now accounting for around 80% of the total segment imports. Ind-Ra's analysis has indicated that growth in the TBR imports was 80% in April-June, with import volumes reaching 0.3 million tyres, which is around 22% of the domestic TBR production on an annualised basis. This could be attributed to higher imports from China.
At present, the Chinese TBR tyres are not cost-effective on per km usage basis in relation to domestic branded TBR tyres and have minimal acceptability among large fleet operators as well as original equipment manufacturers. Tyres from domestic players score over Chinese tyres on parameters such as branding, warranty, after-sales service and distribution network. Thus, domestic players' investments in TBR capacity are protected from Chinese threat as long as large domestic consumers do not accept low-cost TBR imports.
A spike in the radialisation due to imports could also lead to a higher-than-expected decline in volumes in the TBB segment.
Tyre companies continue to see healthy profitability levels and are likely to sustain margins, driven by the low prices of rubber and crude oil. However, increasing imports particularly in the T&B segment could lead to a sustained loss of market share by domestic players in this key segment, the report said.
Source: http://www.dnaindia.com/