A Look At The Major Players In The Tyre Industry

MRF Ltd has drawn up extensive plans to guard its position as the leading tyre company in the country. On the cards is a Rs 1,000 crore expansion and modernisation programme to be implemented over the next four years. And research and development efforts are receiving a new thrust with an almost 50 per cent increase in the budget allocation.

Unlike other tyre companies, MRF is not looking at foreign equity participation for growth. In fact, it survived a takeover bid by French tyre major and erstwhile technical collaborator, Michelin, in 1993-94. Michelin had a nine per cent stake in MRF, which was bought out by the promoters in 1995. It is now entering the country on its own.

 

Says Philip Eapen, executive director, marketing, "MRF has enough brand preference to be able to tide over the entry of multinationals and the slowdown in the economy."

So the focus is on leveraging its experience of local conditions. "Foreign tyre manufacturers have no ready technology for Indian roads," he says. On the other hand, he points out, MRF has spent 25 years adapting tyre technology from its collaborators to Indian conditions. "MRF has reached the threshold level where it can sustain itself through its own R&D efforts as it has assimilated technology from the best in the world," he adds R&D spend rose from Rs 7.92 crore in 1994-95 to Rs 11.45 crore in 1995-96.

The company has a 28 per cent share of the overall market. It has a presence in practically every segment from tractors to animal-drawn vehicles, and from cross-plies to radial tyres. Around 60 per cent of its turnover comes from the truck and bus segment, which accounts for 75 per cent of the total tyre market. A leading original equipment manufacturer (OEM), it is the exclusive supplier to Ford, General Motors and Fiat Uno.

MRLs manufacturing capacity of 91 lakh tyres per annum is spread over facilities located at Tiruvattiyur and Arkonam in Tamil Nadu, Kottayam in Kerala, Medak in Andhra Pradesh and at Goa. Now, a greenfield Rs 200 crore manufacturing unit is being set up at Pondicherry. This is the first phase of the expansion plan. The 1.5 million capacity plant will exclusively manufacture radial tyres for the truck and car segment. It is expected to commence operations by early 1998.

This multi-locational capability has been MRF's greatest competitive strength. It not only ensures optimum production levels but also enables it to quickly service different markets.

Apollo tyres

A fast-growing Apollo Tyres is giving tyre leader MRF a run for its money. In fact, the company has emerged as the market leader in the all-important truck and bus segment with a market share of over 23 per cent in 1995-96. Its share in 1994-95 was 18 per cent

Turnover in 1996-97 is expected to cross the Rs 1,400 crore mark from Rs 1,237 crore in 1995-96. Five years ago, its turnover was Rs 190 crore. And 14 years ago, it was written off with accumulated losses of Rs 27.8 crore in 1982. But net profits have not grown at the same rate. Profits fell from Rs 33 crore in 1991-92 to Rs 16 crore in 1993-94 but rose again to Rs 33 crore in 1995-96.

Nevertheless, Apollo has been rated as the fastest-growing tyre company in the country, and the seventh fastest in the world by the European Rubber Journal. "We are now looking at a minimum 20 per cent market share in every segment," says O S Kanwar, vice-chairman and managing director.

He plans to do so by optimising resources. "The company is the lowest cost producer and we are striving to go even lower. Coupled with this is a large distribution network, which will take us beyond the Rs 2,000 crore mark in two years," he says.

The countrywide network of 1,100 exclusive Apollo tyre dealers, 2,500 main dealers and 100 marketing offices is primarily responsible for the growth. So in the light commercial vehicles (LCV) and tractor segments, market share has gone up from seven per cent in 1995-96 to 18 per cent in 1996-97. But market share in cars is stagnating at around seven per cent. Explains Kanwar, "Passenger cars was not our focus area till now as there were only few cars. But now that there is enough demand, we will focus more on it."

Apollo has also tied up with Continental AG of Germany, the fourth-largest tyre company in the world, to make car radials. But the joint-venture is currently on hold.

Capacity at two million tyres per annum is actually not an issue for Apollo. Last December, for instance, it produced 1,43,400 tyres, the highest in a month by any company. Also, it had enhanced capacity by acquiring Kerala-based Premier Tyres with its six lakh tyres per annum plant in April 1995.

Apart from increasing its presence in the domestic market, the company aims to become a global player. So exports are a thrust area. Export earnings have already insulated Apollo from slowdowns in the domestic economy. It was the largest tyre exporter in 1995-96 with earnings of Rs 170 crore, up from Rs 84 crore in 1994-95. Says Kanwar, "We have taken a decision that no matter what, we will export 25 per cent of our production so that we have a steady market."

Ceat Ltd

The last four years have seen this RPG group flagship hive off and shut down unrelated activities. These included electronics: Murphy which was shut down; blades: Wiltech which was sold to Gilette; photocopiers, hived off as a joint venture with Ricoh; the Hyderabad-based fibre glass division, made into a separate company, FGP. Perhaps the most renowned amputation was the nylon tyre cord division acquired by Arun Bharat Ram's SRF for a princely Rs 355 crore. Reason: to focus on its mainline business, tyres.

Today, the Rs 4,769 crore group has just finished a restructuring exercise doctored by Mckinsey & Co. And flagship Ceat aims to touch the Rs 5,000 crore mark by 2001. As per its Vision 2001 strategy, it aims to be a market leader with a 29 per cent share. Its current market share is 17 per cent.

For now, however, it is grappling with falling profits. For the 18-month period ending March 1996, net profits fell to Rs 17.72 crore from Rs 26.45 crore in September 1994.

The thrust now is on the truck and bus segment, where Ceat has a 13 per cent market share. J B Khodaiji, executive director, marketing, believes that the new entrants will target the radial tyres segment. "But the chunk of the market is made up of truck cross-plies. Since Ceat has expertise here, it is targetting this segment for growth," he says. The company will also focus on the replacement segment, which accounts for 55 per cent of the turnover.

It is also looking at joint-ventures to spur growth. Last year, it entered a 50:50 joint venture with Goodyear Tire Co, USA, to form South Asia Tyre Ltd (SATL). Ceats Aurangabad plant was transferred to SATL. Devoted to radial tyres for cars and jeeps, it has a capacity of 7.20 lakh tyres per annum. The production is equally shared by the partners. Ceat's own capacity of 50.7 lakh tyres a year is spread over its Bhandup and Nashik units.

The tie-up also enables Ceat to access the latest technology. For instance, it can now manufacture steel-belted radials with polyester plies, which are superior to the nylon plies used by other manufacturers. Its latest brand, Maestro, was produced by SATL.

Ceat has also been focusing on brand-building. Marketing and advertisement costs went up from Rs 18 crore in 1994 to Rs 51 crore in 1996.

Exports account for 12 per cent of the turnover. Ceat exports to over 30 countries. It is among the biggest cross-ply exporters to USA.. But it is not looking for future growth here.

However, it has been quick to tap overseas opportunities. In 1993, it promoted a joint venture in Sri Lanka with Associated Motorways called Associated Ceat Pvt Ltd. This has cornered 40 per cent of that market. Now Ceat is studying the Vietnam market.

Modi Rubber Ltd

The merger of Modi Rubber Ltd* (MRL) and the loss-making Modistone Ltd is all but complete. Effected operationally from August 13, 1996, the legal knot will be tied by mid-1997. Says B K Modi, chairman and president of the Rs 2,000 crore Modicorp, "The merger will result in synergies leading to operational economies in manufacturing, raw material procurement, marketing and human resource optimisation."

But the merger is also an attempt to patch up family differences and present a united front to the financial institutions who have a 42 per cent stake. The FIs were threatening to offload their shares in the market, which would have jeopardised the Modis's control over the company. The patch-up has effected a distribution of responsibilities as well. While V K Modi will look after commercial operations, B K Modi, who recently relinquished the managing director's post in all group companies except MRL, will be responsible for production.

The merger will also enable Modistone to turn around its fortunes. Although Modistone has come out of the BIFR net, it remains a potentially sick company. Its turnover in 1995-96 was Rs 268.1 crore with losses of Rs 10.8 crore. Accumulated losses were Rs 23.04 crore. MRL, on the other hand, posted a healthy turnover of Rs 1,019.80 crore in 1995-96, a 17 per cent rise over the previous year's turnover of Rs 869.98 crore. Profit after tax jumped up from Rs 1.81 crore in 1994-95 to Rs 15.66 crore in 1995-96.

The merged unit is expected to have a turnover of over Rs 1,200 crore. MRLs has a 14 per cent market share in the truck segment and 15 per cent share in the non-truck one. Post-merger, this will go up to 20 per cent, claims Modi. And by 2000, he expects MRL to gross Rs 1,500 crore from the existing cross-ply tyre business alone. Further, to consolidate its position in the truck segment, it is tying up with Continental AG. The modalities of the partnership are still to being worked out, however.

MRL has not gone in for any capacity expansion in three years. But the combined capacity of 40 lakh tyres per annum is adequate, feels Modi. In fact, due to the sluggish demand, the company cut production by 10 per cent this February

There has also been some rationalisation to ensure optimum capacity utilisation. It has adopted a "one product on one location" policy. So export production was shifted to the Modistone factory in Mumbai last year to take advantage of the port.

This is expected to boost exports, which account for 10 per cent of total sales or Rs 106 crore in 1995-96. The main markets are USA, Sri Lanka, Brazil, Dubai and Singapore. This thrust will not only help MRL to optimise capacity utilisation but also reduce the impact of demand fluctuations in the domestic market.

* Modistone Ltd has been omitted from the rankings as it has merged with Modi Rubber Ltd.

J K Industries

Mercedes Benz, Cielo, Maruti Zen, Tata Estate, Tata Sierra, the Armada. The list goes on. A leading original equipment manufacturer with a significant present in the passenger cars segment, JK Tyres, a division of JK Industries,

has a 32 per cent share of the total radial market.

JK Tyres accounts for almost 90 per cent of the over Rs 1,000 crore JK Industries group. It reported a net profit of Rs 25.58 crore in 1995-96 on a turnover of Rs 1,002 crore. The turnover witnessed a 26 per cent increase over the Rs 797 crore turnover in 1994-95. It went up in spite of the four-month labour unrest at its

Jakayram plant in Rajasthan. OE sales account for 15 per cent of the turnover.

But the attention is currently focused on its takeover of the joint-sector Vikrant Tyres. It will spend Rs 6.84 to acquire 90 lakh fresh shares of Vikrant Tyres at Rs 76 each. It is also acquiring 20 per cent of the expanded equity base through open market purchases. The acquisition will enable it to tap the 1.03 lakh tyres per annum capacity of Vikrant Tyres. Besides, JK plans to invest Rs 260 crore over the next few years in capacity expansion and modernisation at Vikrant Tyres.

JK also has plans to augement its own capacity to 30 lakh tyres per annum in stages. So far, additional capacity of 1.65 lakh tyres per annum was added in 1995 at a cost of Rs 400 crore. The current capacity is 21.26 lakh tyres per annum.

Most of the expanded capacity will be used for exports. JK was the first Indian company to export radials to Europe. Exports to over 30 countries account for nearly 17 per cent of the turnover. In fact, the exports models of the Maruti 1000, Esteem, Zen, Tata Sierra, Tata Estate and Armada are fitted with JK steel radials.

Now, it plans to tap the radial segment in light commercial vehicles through a tie-up with the fourth-largest tyre company in the world, Continental AG of Germany. The 50:50 joint-venture, to be set up at a cost of Rs 400 crore, will instal a capacity of 15,000 tyres per day. Continental will reportedly buy back 80 per cent of the production of the joint-venture. However, like the Apollo and Modi Rubbers joint-ventures with Continental, this one too is on the backburner owing to the sluggish growth in the automobile and tyre sectors.

Dunlop India Ltd

Controversy continues to dog the Manohar Rajaram Chhabria-controlled Dunlop India. On the one hand, there has been trouble among the top ranks. On the other, a crippling cash crunch is hindering operations.

Only last week, former executive director Kalyan Chattopadhyay made a comeback as a wholetime director on the board. He is expected to take over as managing director. The vacancy resulted after former managing director M D Shukla resigned earlier this year. Prior to him, finance chief Anju Madeka had resigned. That in turn was preceded by the resignation of three senior executives after they were summoned by the non-resident Chhabria to Dubai and reportedly ill-treated.

Following Shukla's resignation, a three-member interim committee, headed by P J Rao, executive director, Shaw Wallace & Co, has been handling the company's daily affairs. It includes T S Shettigar, finance director of the Dubai-based Jumbo International Holdings, and Chabbria's daughter, Komal Chabbria Wazir.

But human resources is not the sum of Dunlop's troubles. It is facing a severe working capital shortage. The banks are yet to review an increase in working capital limit from Rs 32 crore to Rs 90 crore. This has affected the fate of many projects. For instance, the proposed Rs 800 crore radial tyre plant to be set up with Italian major Pirelli in Gujarat has been shelved for now.

Yet, Dunlop recently bagged a $4.5 million order for steel-cord belting from Queensland Port Authority, Australia defeating Goodyear of US and Bando of Japan. The mega order was picked up through a global tendering process.

With factories in Sahagunj in West Bengal and Ambattur in Tamil Nadu, Dunlop has one of the widest range in tyres and industrial rubber products. This includes radial tyres, aero tyres, off the road (OTR) tyres, steel-cord beltings and heavy duty hoses.

But there have been problems on this front too. To combat rising raw materials costs and dipping capacity utilisation, the Shukla-led management tried to streamline operations and realign the product mix. As part of a cost reduction exercise, the company consciously pulled out of high-volume segments like truck tyres, focusing instead on the industrial rubber segment, value-added aero tyres and the low-volume but high margin radial car tyres.

The company has also been emphasising on sectors that allow a quicker turnaround of working capital like original equipment and exports. At the Sahagunj plant, capacity was doubled in speciality products like aero and OTR tyres, steel-cord belting and metalastiks. But the replacement market share has gone down from 12 per cent to eight per cent. Dunlop's average exports are around Rs 40 crore per annum.

Turnover for the 15-month period ending March 1996 was Rs 824.03 crore with a net profit of Rs 39 crore. It recorded remarkable results for the first half of 1996 with a sales turnover of Rs 336.37. This was a 22 per cent growth over the previous period. Also, net profits in September 1996 grew by a phenomenal 206 per cent to Rs 18.52 crore. It is believed that the lending banks have demanded an auditors' certified copy challenging the half-yearly performance in spite of the credit squeeze and downturn in the economy. And with a working capital shortage still bogging it down, it seems the company's troubles are far from over.

Goodyear India

Last July, Samir F Gibara, CEO, Goodyear Tire and Rubber Company, USA, launched the tyre majors international brand GPS 2 in India. Just six months before that, chairman Stanley C Gault had visited India. This only underlies the growing importance of India in Goodyears scheme of things.

Yet, Goodyear is no stranger to India. It has been around for 74 years even though it has only a seven per cent market share. With a low installed capacity of 1.17 million tyres, Goodyear's turnover growth has been restricted in this high-volumes business. Its turnover in 1995 was Rs 495.79 crore with profits falling to Rs 5.09 crore from Rs 5.69 crore in 1994.

According to E Krishnaiah, director, sales and marketing, "The company did not grow in India because of FERA restrictions, the high cost of raw materials and the low returns as compared to other developing countries like Thailand and Malaysia."

But this is about to change. The Goodyear Tire and Rubber Company, USA, is planning to increase its stake from 59.93 per cent to 74 per cent. It will infuse Rs 70 crore. Institutions currently have a 13.13 per cent stake while the rest is held by the public.

Besides, Goodyear set up a 50:50 joint venture with Ceat, South Asia Tyres Limited (SATL), last year. A Rs 367 crore plant for radial tyres in Aurangabad began operations last year. While the partners have an equal share in SATL's production, Goodyear is also augmenting capacity at its own Ballabhgarh plant from the current 420 tyres a day to 900 tyres a day in three years.

The increased capacity will enable it to increase its brands from 20 to 28. Last year, it introduced two brands, GPS 2, a steel-belted radial for passenger cars, and Wranglar, a radial for utility vehicles. This year, it will introduce eight brands primarily in the passenger car and light commercial vehicle (LCV) segments. It hopes to increase its nine per cent share in the car segment to 14 per cent in three years. In the truck and bus segment, Goodyear has a seven per cent market share, while in tractors, its share is 9.1 per cent.

Already, profitability has improved. At Rs 268 crore, Goodyear recorded a 22 per cent growth in turnover in the first half of 1996. Profits at Rs 4.15 crore too rose by 300 per cent during the same period. The strategy now is to avail of the latest technology offered by its parent. "Ever since liberalisation, our strategy has been to add capacity in areas where our products will command a sizeable market share in future. These are mainly radial tyres, particularly in the passenger and LCV categories," says Krishnaiah.

Vikrant Tyres

It is only a matter of time before Vikrant Tyres is taken over by JK Industries. The takeover, scheduled to be completed in April, has been delayed as all pending takeovers must now follow the new Substanatial Acquisition of Shares and Takeover Regulation, notified in February 1997. So Vikrant will have to hold another extraordinary general meeting to seek shareholder approval for a transfer of controlling stake to JK.

JK, now labelled as a Strategic Alliance Partner, is

picking up 51 stake in the company. It will spend Rs 3.66 crore to pick up 16 per cent of the equity from majority share-

holder, the Karnataka State Industries and Investment Development Corporation (KSIDC). KSIDC currently has a 42 per cent stake, which post-takeover, will come down to 26 per cent. It is also picking up 20 per cent stake from the

secondary market.

And Vikrant will issue shares worth Rs 9 crore to

J K. This will take Vikrant's equity base from Rs 16.63 crore to Rs 25.63 crore. JK plans to invest Rs 260 crore, including takeover costs, to turn around the ailing tyre company.

Most of the investments will be in modernising and

marketing efforts.

A pioneer in truck and bus radials, Vikrant has been burdened with mounting losses in recent years. From Rs 3.60 core in 1993-94, losses went up to Rs 9.21 crore in 1994-95.

According to industry sources, one of the main causes of the sickness was its undue focus on radial tyres. Vikrant has a capacity of one million truck radials in a segment where 99 per cent of the market uses cross-ply tyres.

Accumulated losses in 1994-95 at Rs 9.69 crore

were brought down marginally by profits of Rs 3.64 crore

in 1995-96. Outstanding losses in 1995-96 stood at

Rs 6.05 crore.

Vikrant has now identified exports as an avenue for

growth. Export turnover in 1995-96 rose by eight per cent to touch Rs 64.46 crore. The company exports to countries in South-East Asia, USA, the Middle East and Africa. It has

been scouting for export orders for radial tyres, including tubeless tyres.

But given the obsolete plant and machinery, poor product mix and a huge workforce of 3,000, industry sources

are sceptical whether JK Industries will be able to turnaround the company.

Srichakra Tyres

Continuous expansion and upgradation has been the mantra at Srichakra Tyres, part of the Rs 1,480 crore TVS group. The company is a leading player in the two- and three-wheeler tyre segment with a 28.56 per cent market share. And it is determined to further consolidate this. The future focus will also be on this segment, especially the replacement market, as well as on exports.

From a start-up capacity of four lakh tyres per annum in 1984, Srichakra now has a 33 lakh tyres per annum capacity. Plans are afoot at the sole manufacturing unit in Vellaripatti village in Madurai district of Tamil Nadu to further augment this to 40 lakh tyres per annum.

Turnover in 1995-96 grew by 36 per cent from Rs 76.12 crore the previous year to Rs 103.66 crore. Profit after tax rose by 90 per cent from Rs 193.34 lakh in 1994-95 to Rs 366.77 lakh in 1995-96. Around 65 per cent of the turnover comes from the original equipment (OE) segment. It is OE supplier to Bajaj Auto, Hero Honda, Escorts, Yamaha and, group company TVS Suzuki, which accounts for nine per cent of OE sales.

Although Srichakra has focused on its core business, there have been some diversifications. Last year, it entered a 50:50 joint-venture with Reichle De Massari AG of Switzerland to manufacture and market electronic connectors. Then there is a 49:51 joint-venture with Dupont, entered in 1992, to manufacture and market stefflon coating and tymex bristles, and a 50:50 joint-venture with Cherry Corporation, USA, since 1993 to manufacture electronic switches.

Srichakra also manufactures a range of industrial tyres and tubes, primarily for exports to USA and Europe. Exports turnover has grown nearly ten-fold from a mere Rs 1.24 lakh in 1991-92 to Rs 12.74 in 1995-96. "The future plan includes setting up an exclusive facility for exports markets with or without a strategic alliance with certain preferred overseas buyers," says P Ramesh, company secretary.

Srichakra has also invested Rs 3.15 crore in setting up non-conventional energy sources for captive consumption. This investment is expected to be a hedge against any escalation in power and fuel costs.

As for the future, says Ramesh, "The company has, over the years, concentrated hard on the OE segment. It has also invested in a strong marketing and distribution network besides exploiteing group company TVS Suzuki's network. So the time is ripe to reap the benefit of repeat orders."

Falcon Tyres

Dunlop's subsidiary, Falcon Tyres, based at Mysore, Karnataka, has seen a remarkable turnaround in recent years. A prominent player in the two-wheeler tyres segment, it is now diversifying into passenger cars as well.

Falcon was taken over by M R Chhabria in 1987, after it had been continuously making losses since 1982. But it was only in 1995 that the company wiped out its entire carried-forward losses, thereby coming out of the BIFR dragnet. It actually registered increases on several fronts that year. Turnover at Rs 68 crore rose by 37 per cent while the net profit at Rs 1.03 crore witnessed a 148 per cent increase. In 1996, the company recorded a turnover of Rs 83.18 crore with a net profit of over Rs 6 crore, which was an increase of 55 per cent .

Falcon has been both increasing capacity and launching new products in the last few years. It introduced 15 new and improved tyre designs, including those for the latest models of Bajaj Auto, TVS Suzuki, Escorts, Yamaha and Kinetic Honda.

The first phase of the Rs 15 crore expansion was completed ahead of schedule in November 1995, taking production from 1.5 lakh tyres per month to 2.4 lakh tyres per month. Now, the second phase is under implementation. It will take production to 3.5 lakh tyres per month. Also tube production will go up from 1.25 lakh to three lakh tubes a month. The expansion is being funded by a term loan from the Karnataka State Industrial Investment Corporation (KSIIC).

Falcon, which has successfully developed advanced tubeless tyres for the first time in India, is now entering the car tyre segment. It began manufacturing cross-ply car tyres this year. And it proposes to take advantage of the growing demand for radial tyres. It will be manufacturing 50,000 radial car tyres annually with technical assistance from Dunlop India.