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MANAGEMENT DISCUSSION
AND ANALYSIS
GLOBAL ECONOMIC REVIEW
The fnancial year 2011-12 was a challenging year for
the global economy. In Europe the sovereign debt
burdens of some nations and the apprehension that the
contagion may spread to other countries across the wider
Eurozone triggered widespread loss of market confdence.
Governments and Central banks have moved with alacrity
to stabilise the situation. However, the situation still remains
fragile. The US economy, on the other hand, witnessed
slow recovery and concerns arose over the capacity of the
US government to effectively reduce its debt burden. The
emerging economies have, however, put up a better show
as compared to their developed counterparts.
Impacted by global headwinds, Indias growth estimates
moderated to 6.9 per cent in 2011-12 (Source: CSO
estimates). Besides, India had its own set of challenges
to grapple with like slowdown in infrastructure creation,
persistent infation, monetary tightening, weakening rupee
and policy inertia etc. However, the long-term prospects
continue to inspire optimism. It is expected that GDP
growth may touch 7.6 per cent in FY 2013 and 8.6 per cent
in FY 2014, on the strength of policy reforms and focus on
inclusive growth.
(Source: Reviving the India Growth Story, Union Budget 2012
by PricewaterhouseCoopers)
GLOBAL TYRE INDUSTRY
The global tyre demand is expected to touch 3.3 billion
units by 2015, to register a 4.7 per cent annual growth. In
value terms, it is expected to touch USD 220 billion, with an
annual growth of 6.5 per cent. The Asia Pacifc region, which
is by far the largest market for tyres, also projects signifcant
demand growth in the coming years. The tyre markets
in North America and Western Europe are expected to
perform better as compared to the declines recorded
during the 2005 to 2010 period. With increased levels of
income in the emerging economies, the global demand
for vehicles is expected to rise further, thus leading to an
accelerated tyre demand.
(Source: World Tyre Report)
INDIAN TYRE INDUSTRY
Overview
Indias tyre industry is primarily organised (barring the bicycle
tyre industry) and dominated by cross ply tyres. Commercial
Vehicle (CV) tyres remain the major contributor to overall
size of the industry, followed by Passenger Vehicle (PV) tyres.
Tyres for two and three wheelers, tractors, construction
equipment and Off-The-Road (OTR) tyres and export
constitute the remaining market share.
In 2011-12, the size of the Indian tyre industry is estimated
to be around ` 389 billion, and is expected to reach ` 443
billion by 2012-13, registering a growth of 14 per cent.
Snapshot of the Indian tyre industry
` 389 billion Total turnover
` 14.88 lacs MT Tyre Production (Tonnage)
Tyre Production All Categories (Nos.) - 1,192 lacs
` 3,000 crores Exports
39 Number of companies
Top 10 companies Account for over 95 per cent of the
total production
(Source: Automotive Tyre Manufacturers Association)
Indian tyre industry
Commercial Vehicle 71%
Medium and Heavy Commercial Vehicle
(MHCV) 55%
Passenger Car and MUV 12%
Passenger Vehicle 22% Others 7%
Off-The-Road
Industrial Motorcycle 7%
Tractor 8% Scooter 3%
Light Commercial Vehicle 8%
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35
CEAT Limited Annual Report 2011-12
T&B TYRE
PRODUCTION
(` lacs)
P. CAR* TYRE
PRODUCTION
(` lacs)
T&B TYRE
EXPORT
(` lacs)
ALL TYRE
CATEGORIES
EXPORT (` lacs)
11
1
1
6
.
9
2
12
1
1
9
.
5
2
11
4
6
.
1
3
5
8
.
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3
12 12 11
2
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4
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8
7
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7
9
11 12
1
4
.
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4
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6
.
8
1
Industry composition
Replacement market
The replacement market dominates the Indian tyre
industry. This segment is margin accretive, compared to
other segments. In fscal 2011-12, the replacement market
contributed to 63 per cent of the total industry turnover, vis-
a-vis 71 per cent in the previous fscal.
Original Equipment Manufacturers (OEM)
The OEM segment contributed to 26 per cent of the total
turnover in 2011-12 and is expected to register a modest
growth of 11-13 per cent in 2012-13.
Exports
In 2011-12, the industry turnover from the exports market
increased phenomenally, capturing 11 per cent of the total
tyre sales. Export of tyres is expected to witness a higher
CAGR of 12-14 per cent over the next fve years i.e. during
the 2012-2017 period, as compared to a growth of 8.9 per
cent registered during the last fve years. The Indian tyres are
exported to more than 50 countries, mainly in Asia, Africa
and the Middle East. CV tyres dominate the export pie, for
which the primary export destinations are Latin America,
UAE, Bangladesh, Iran, Philippines and Vietnam.
Sluggish automobile industry growth
The recurring hikes in interest rates, petrol prices and high
infation have impacted the growth of the Indian automobile
industry. Against the backdrop of a 30 per cent growth
witnessed in 2010-11, the industry grew at a single-digit
level of approximately 2 per cent in 2011-12 (Source: The
Economic Times, January 2012).
This sluggish growth impacted the entire tyre industry,
resulting in considerable slowdown in tyre production.
However, the export market grew signifcantly, primarily
leveraging the increased demand from the Truck and Bus
(T&B) segment.
(Source: Automotive Tyre Manufacturers Association)
Key raw material price movement
Raw material cost accounts for approximately 70 per cent
of the industrys turnover with Natural Rubber being the key
raw material. Although India is the fourth largest Natural
Rubber producer in the world, there is a signifcant demand-
supply gap in the country. This leads to volatile price
movement impacting margins and overall proftability of
the entire industry. The frst half of 2011 witnessed all-time-
high levels of Natural Rubber prices. However, the prices
stabilised in the later part of the current fnancial year owing
to lower demand from the automobile segment.
Price Composition of Indian tyres
Natural Rubber 43%
Nylon Tyre Cord Fabric 18%
Carbon Black 11%
Rubber Chemicals 5%
Butyl Rubber 4%
PBR (Polybutadiene Rubber) 5%
SBR (Styrene Butadiene Rubber ) 5%
Others 9%
(Source: Automotive Tyre Manufacturers Association)
Natural Rubber price movement
300
250
200
150
100
50
0