INDIAN TYRE INDUSTRY

Management Research Project -I

Submitted

In the partial fulfillment of the Degree of

Master of Business Administration

Semester-III

By

Name Exam No. M. Jinesh Jose 12044311043

Patel Anand D 12044311064

Patel Ashish P 12044311071

Patel Chirag M 12044311077

Patel Kinjal P 12044311101

Patel Krushnkant B 12044311104

Under the Guidance of:

Prof. (Dr.) Mahendra Sharma

Prof. & Head,

V. M. Patel Institute of Management.

&

Ms.Harsha Jariwala & Prof. Abhishek Parikh

Faculty Members

V. M. Patel Institute of Management.

Submitted To:

V. M. Patel Institute of Management,

Ganpat University,

Kherva

(December,2013)

i

CERTIFICATE BY THE GUIDE

This is to certify that the contents of this report entitled “Indian Tyre industry ” by (Anand

Patel(12044311064),AshishPatel(12044311071),ChiragPatel(12044311077),Krushnkant(120443

11104),Kinjal Patel(12044311101) M.Jinesh Jose(12044311043)) submitted to V. M. Patel

Institute of Management for the Award of Master of Business Administration (MBA Semester -

III) is original research work carried out by him/her/them under my supervision.

This report has not been submitted either partly or fully to any other University or Institute for

award of any degree or diploma.

Prof. (Dr.) Mahendra Sharma,

Professor & Head,

V. M.Patel Institute Of Management,

Ganpat University.

Ganpat Vidyanagar.

Date : / /

Place : Kherva

ii

CANDIDATE’S STATEMENT

I/We hereby declare that the work incorporated in this report entitled “Indian Tyre industry” in

partial fulfillment of the requirements for the award of Master of Business Administration

(Semester - III ) is the outcome of original study undertaken by me/us and it has not been

submitted earlier to any other University or Institution for the award of any Degree or Diploma.

(Name & Sign. of Student)

Anand Patel ------------------

Ashish Patel ------------------

Chirag Patel ------------------

Krushnkant Patel ------------------

Kinjal Patel -------------------

M.Jinesh Jose ------------------

Date : / /

Place : Kherva

iii

PREFACE

Theories are important for understanding any subject or fields. But learning of various aspects is much

more effective to understanding any subject as a whole. The basic aim of the project report is to help the

students for developing their analytical abilities and different thoughts at different angles of the

situation. The Management Research Project is being very helpful to the students of MBA for enhancing

themes managerial capabilities and skills.

Due to the growth of Automobile industry and aggressive policy of Government for the Infrastructure

developments Tyre Industry enjoying good amount of growth rate. This Management Research Project

is much more emphasizing on the basics of the Tyre Industry. We also focus on understanding the

current scenario and competitiveness in the Industry by applying some models.

It is sincere and humble effort to understand the structure of the Indian Tyre industry along with the

Tyre Manufacturing Companies. This report is prepared by using the secondary data and this data has

been gathered by using various sources like Internet, Newspapers. Suggestions regarding report and the

project work will really add a learning value.

iv

ACKNOWLEDGEMENT

We would like to express our deep feeling of gratitude to the mentioned officials for their

assistance, guidance and inspiration before and throughout the work.

We give our special thanks to respected Dr. Mahendra Sharma, Professor & Head, V.M. Patel

Institute of Management, Ganpat University for providing us an opportunity to carry out topic to

study on “Indian Tyre industry”.

We would like to thank Prof. Harsha Jariwala and Prof. Abhishek Parikh, Asst. faculty member

of V.M. Patel Institute of Management, for their continuous guidance and support throughout the

industrial study.

We would like to give vote of thanks to all the faculty members and library and computer lab

support provided by V.M. Patel Institute of Management.

We are very thankful to them for their help and advice throughout our project. Their gentleness,

availability and readiness to provide all the type of guidance, for understanding the technical

things made this project successfully completed well within the timeframe.

v

EXECUTIVE SUMMARY

Indian Tyre Industry has grown rapidly in last decades. Today it is about Rs. 9000 crore industry. The

fortune of the tyre industry depends on the agricultural and industrial performance of the economy, the

transportation needs and the production of vehicles. The size of Indian tyre industry is estimated at

about Rs.14250 crore comprising 43 players with an aggregate installed capacity of over 655 lacks tyre.

The 10 large tyre companies account for over 95% of the total production.

The Indian tyre industry has witnessed a CAGR of 7.7 per cent over the last decade. The demand and

growth for the tyre industry depends on primary factors like overall GDP growth, agricultural as well as

industrial production and growth in vehicle-demand. It also depends on the on secondary factors like

infrastructure development and prevailing interest rates.

The Indian tyre industry is two tiered; Tier-I players (top 5 tyre companies), account for over 80% of

industry turnover and have a well diversified product-mix and presence in all three major segments, i.e.,

replacement market, original equipment manufacturers (OEM's) and exports. Tier-II companies are

small in size, mainly concentrating on production of small tyres (for two/ three-wheelers, etc.), tubes &

flaps and the replacement market. Tyre industry is highly raw-material intensive, with raw material

costs accounting for 70 per cent of the cost of production.

The export market for India has been predominantly to the USA that accounts for nearly 30% of exports

from the country. Apart from that India exporting tyre in more than 50 countries.

The main threat to the industry is the price of its raw materials, most of which are petroleum by-

products. Carbon, synthetic rubber and nylon tyre cord are offshoots of petrochemicals. Thus, the future

of the industry will swing with the supply of crude oil.

In the domestic market, tyre manufacturers are expected to increasingly focus on expanding their

dealership networks & explore possibilities of tie-ups among themselves to penetrate the growing

vi

customer base. They are also likely to pursue innovative measures (such as "dial-a-tyre service and road

shows) to improve customer awareness.

Overall Indian Tyre Industry is enjoying the fruits of more sales in the replacement market when the

input cost is comparatively lower. Since the commercial vehicles replace tyres twice a year, we have

received the full impact of the price rises affected during the first and second quarter of the last year.

vii

LIST OF TABLES

Table

no.

Particulars Page no.

3.1 Table OF Raw Materials Using by Value and Weight 23

3.2 Table of Consumption Patterns of Major Raw

Materials

25

3.3 Table of Production, Consumption & Imports of

Natural Rubber

26

3.4 Table of current global scenario 38

3.5 Competitive profile matrix (cpm) 51

3.6 Table of numbers of product and market share 55

3.7 Political factors 58

3.8 Oem partners 65

4.1 Table of financial statement of tyre industry 71

4.2 Table of trend analysis of tyre industry 73

4.3 Table of common size income statement of tyre

industry

76

4.4 Table of earning per share ratio 79

4.5 Table of current ratio 81

4.6 Table of interest coverage ratio 83

4.7 Table of return on capital employed ratio 85

4.8 Table of return on net worth ratio 87

4.9 Table of fixed assets turnover ratio 88

4.10 Table of inventory turnover ratio 90

4.11 Table of return of equity ratio 92

4.12 Table of debt equity ratio 93

4.13 Table of debtors turnover ratio 95

4.14 Table of gross profit ratio 96

5.1 Salary structure 102

5.2 Financial aspect 108

5.3 Projected profit/loss a/c 110

viii

5.4 Projected balance sheet 112

5.5 Projected cash flow 114

ix

LIST OF GRAPHS

Graph No. Particulars Page no.

3.1 Graph of category wise production 30

3.2 Graph of raw material cost 34

3.3 Graph of porter five force model 47

3.4 Graph of strategic group mapping 55

3.5 Graph of market share covered by leaders 64

3.6 Graph of market share covered in India 65

4.1 Graph of trend analysis of sales turnover 74

4.2 Graph of trend analysis of profit after tax 75

4.3 Graph of trend analysis of share capital 76

4.4 Graph of earnings per share 80

4.5 Graph of average current ratio 82

4.6 Graph of interest coverage ratio 83

4.7 Graph of return on capital employed ratio 85

4.8 Graph of returns on net worth 87

4.9 Graph of fixed assets turnover ratio 89

4.10 Graph of inventory turnover ratio 91

4.11 Graph of return on equity ratio 92

4.12 Graph of debt equity ratio 94

4.13 Graph of debtors turnover ratio 95

4.14 Graph of gross profit ratio 97

Sr.no Topics Pg.no

Certificate by the guide i

Candidate’s statement ii

Preface iii

Acknowledgement iv

Executive summary v

List of tables vii

List of graphs ix

1 Industry profile 1

1.1 Introduction 1

1.2 Outlook for the industry 3

1.3 Market profile 4

1.4 Industry segments 5

1.5 Sector specifics 6

1.6 Sector trends 7

1.7 History 8

1.8 Growth of tyre industries in india 9

2 2.0 Major player in industry 11

2.1 Mrf 12

2.2 Apollo tyres (atl) 12

2.2.1 History 13

2.3 Jk industries 13

2.4 Ceat 14

2.4.1 History 15

2.4.2 Current scenario 15

2.4.3 OEM partnets 16

2.5 Good year 16

2.6 Indian tyre industry 17

3 Macro analysis 19

3.0 Current scenario 20

3.1 Sector trends 20

3.2 Pricing scenario 20

3.3 Exim policy 21

3.4 Government policy 21

3.5 Imports of tyres 21

3.6 Increasing radialisation in india 22

3.7 Raw materials 23

3.8 Natural rubber 23

3.9 Synthetic rubber 24

3.10 Carbon black 24

3.11 Nylon tyre cord 25

3.12 Rubber consumpation 25

3.13 Classification of demand 29

3.14 Demand determinants 31

3.14.1 General economic scenario 31

3.14.2 Growth of automobile industry

32

3.14.3 Fluctuations in raw material prices

32

3.14.4 Relative importance of road transport

32

3.14.5 Retreading

32

3.14.6 Radicalization

33

3.14.7 Demand supply gap

33

3.15 Raw material cost 33

3.15.1 Rubber prices 34

3.15.2 Nylon tyre cord (ntc) fabric 36

3.15.3 Other raw materials 36

3.16 Distribution scenario 37

3.17 Replacement market 37

3.17.1 OEM 37

3.17.2 Stu 37

3.17.3 Government 37

3.17.4 Import 37

3.18 India v/s global 38

3.18.1 Current global scenario 38

3.19 Key success factor 39

3.20 Swot analysis 41

3.20.1 Strengths 41

3.20.2 Weakness

41

3.20.3 Opportunities 42

3.20.4 Threats 43

3.20.5 Industry’dominant economic features 43

3.20.6 Michael porter's five forces model 45

3.20.7 Bargaining power of suppliers 48

3.20.8 Bargaining power of buyers 48

3.21 Threat of substitute 49

3.21.1 Threat of new entrants 49

3.21.2 Industry rivalry 49

3.21.3 Competitive profile matrix (CPM) 50

3.22 Strategic groups mapping 53

3.23 Pest analysis 57

3.23.1 Political factors 58

3.23.2 Fluctuation in raw material prices 59

3.23.3 Trade policy 59

3.23.4 Dumping 60

3.23.5 Import-export and tyre industry 60

3.23.6 Social factors 61

3.23.7 Technological factors 61

3.23.8 Technology leader 61

3.24 Leaders in industry 64

3.24.1 Future of tyre industry 66

3.24.2 Crisis in the industry 66

4.0 Introduction 70

4.1 Trend analysis of indian tyre industry 73

4.2 Ratio analysis 78

5 Business Plan 98

5.0 Executive Summary 99

5.1 Projected Profile At Glance 100

5.2 Nature Of Business 102

5.3 Vision 102

5.4 Mission 102

5.5 Facility Required For ZIGZAG 102

5.6 Market Segmentation And Identification 103

5.7 Opportunities And Risk 105

5.8 Production Planning 105

5.9 Market Identification ,Segmentation And Customer Identification 106

5.10 Customer Identification 106

6 Conclusion 116

Limitations Of The Report 118

7 Bibliography 120

1

CHAPTER 1

INDUSTRY PROFILE

2

1.1 INTRODUCTION

In Indian tyre industry, capacities are concentrated in the hands of a few large players with top

four tyrecompanies accounting for over 77 per cent of industry market share. The industry is

raw material intensive with raw material constituting over 63 per cent of the sales turnover and

72 per cent of production cost, of which rubber accounts for the major share of the material cost.

The main inputs natural rubber smoked sheets and Technically Specified Natural Rubber

(TSNR) account for 43 per cent of raw material cost of tyres.

The major demand comes from the replacement market accounting for around 55 per cent. It is

followed by 29.80 per cent from the Original Equipment Manufacturers (OEM) and 25.2 percent

from the exports. In the past the replacement demand has been the major growth driver of the

industry. But the sustained GDP growth of more than 8.6 per cent has also increased the demand

for the OEMs. The strong Compound Annual Growth Rate (CAGR) of 16 per cent during the

2009-2010 period, in the automobile sales gives a clear indication of the same and has kept the

both OEM and replacement demand buoyant. The Indian tyre industry has witnessed a CAGR of

7.7 per cent over the last decade.

The demand and growth for the tyre industry depends on primary factors like overall GDP

growth, agricultural as well as industrial production and growth in vehicle-demand. It also

depends on the on secondary factors like infrastructure development and prevailing interest

rates. In India the primary factors have sustained in the last three years helping the sector to

emerge as a winner. Even the secondary factors have helped a lot; the only concerns

are raising interest rates on the automobile segment and increased rubber prices.

The size of Indian Tyre industry is estimated at about Rs.25000 crore, comprising 43 players

with an aggregate installed capacity of over 971 lakh tyres. The 10 large tyre companies account

for over 95 per cent of the total production.

3

1.2 OUTLOOK FOR THE INDUSTRY

On the positive side, it is estimated that there would be a volume growth of 12-14 per cent in

2009-10. The performance of the tyre industry is linked to the automobile and infrastructure

sectors, the growth of which is dependent on the performance of the economy. The current

estimated economic growth is over 8.6 percent. The continuous thrust being placed by

the Government on the development of infrastructure, particularly roads, agriculture and

manufacturing sectors, would lead to an impressive acceleration in the automobile, ultimately

generating more demand for tyres.

However, tyre companies face immense competition together with price and cost pressures.

Pricing pressures, from OEMs because of their high bargaining power and in the replacement

market due to huge competition, are existent dampeners. Companies are now giving emphasis to

innovation in product and process technology and operational efficiencies. The tyre companies

would definitely show improvement in the margins sequentially, and if prices remain at these

levels, profitability would improve. But then, it would be highly dependent on prices of major

raw materials like Rubber, Carbon Black, and NTC Fabric which are highly volatile. The

continuously rising trend witnessed in the prices of raw materials remains an area of concern.

The trend is very volatile and the future pundits expect the prices to go upwards from the current

levels.

4

1.3 MARKET PROFILE

While the tyre industry is mainly dominated by the organized sector, the unorganized sector

holds sway in bicycle tyres. The major players in the organized tyre segment consist of MRF

,Apollo Tyres, Ceat and JK Industries, which account for 77 per cent of the organized tyre

market. The other key players include Modi Rubber, Kesoram Industries and Goodyear India,

with 11 percent,7 per cent and 3 percent share respectively. Dunlop, Falcon, Tyre Corporation of

India Limited (TCIL), TVS-Srichakra, Metro Tyres and BalkrishnaTyres are some of the other

players in the industry. MRF, the largest tyre manufacturer in the country, has strong brand

equity. While it rules supreme in the industry, other players have created niche markets of their

own. The Indian tyre industry is two tiered; Tier-I players (top 5 tyre companies), account for

over 77% of industry turnover and have a well diversified product-mix and presence

in all three major segments, i.e., Replacement market, Original Equipment Manufacturers

(OEM's) and exports. Tier-II companies are small in size, mainly concentrating on production of

small tyres (for two/ three-wheelers, etc.), tubes & flaps and the replacement market.

5

1.4 INDUSTRY SEGMENTS

Vehicle categories

Exports

-ply tyres

6

1.5 SECTOR SPECIFICS

The tyre industry is a major consumer of the domestic rubber production. Natural rubber

constitutes 80 per cent of the material content in Indian tyres. Synthetic rubber constitutes only

20 per cent of the rubber content of a tyre in India. Worldwide, the ratio of natural rubber to

synthetic rubber is 30:70. Apart from natural and synthetic rubber, rubber chemicals are also

widely used in tyres. Most of the RSS-4 grade natural rubber required by the Indian

tyre industry is domestically sourced, with only a marginal amount being imported. This is an

advantage for the industry, since natural rubber constitutes 25 per cent of the total raw material

cost of the tyres.

The two types of synthetic rubber used in tyres are Poly Butadiene Rubber (PBR) and Styrene

Butadiene Rubber (SBR). The former is used in most of the tyres, while the latter is mainly used

in the radials for passenger cars. Synthetic rubber accounts for 14 per cent of the raw material

cost. Unlike in the case of natural rubber, India imports 60 per cent of its synthetic rubber

requirements. Apart from rubber, major raw materials are nylon tyre cord and carbon black. The

former is used to make the tyres strong and impart tenacity to it. The latter is responsible for the

colour of the tyre and also enhances the life span of the tyre. Nylon tyre cord comprises 34 per

cent, while carbon black accounts for another 13 per cent of the raw material cost. In India, the

carbon black used is of the N660, N220 and N330 variety.

To sum up, the tyre industry is highly raw-material intensive, with raw material costs accounting

for 70 per cent of the cost of production. Fortunately for the industry, the rubber and carbon

black prices have taken a beating recently, which means lower costs for the tyre industry. The

export-import policy allows free import of all types of new tyres and tubes. However, import of

retreaded tyres, either for use or for Reclamation of rubber is restricted. This has led to used tyres

being smuggled into the country under the label of new tyres. Though tyre import and all raw

materials for tyresexcept natural rubber are under Open General License (OGL), only import of

natural rubber from Sri Lanka iseligible under OGL.

7

1.6 SECTOR TRENDS

Crossplytyres have been used in India for several decades. In these tyres, the ply cords run across

each other or diagonally to the outer surface of the tyre. Rayon and nylon tyre cords are used as

the reinforcing medium. These tyres can be retreaded twice during their lifetime

and are hence preferred by Indian transport operators who normally overload their trucks. A

vehicle with the normal carrying capacity of around 12 tonnes is usually loaded with double the

capacity. Moreover, one also has to contend with the bad suspensions and bad road conditions.

No wonder, 95 per cent of the tyres used in India are crossplies.

Radial tyres have their cords running radially from bead at 90 degrees angle to the rim or along

the outer surface of the tyre. The reinforcing mediums used in these tyres are

polyester, nylon, fibreglass and steel. Hence, these tyres are 20 per cent more expensive than

the crossplies. But they have a longer life and provide lower fuel consumption. The unhealthy

condition of the Indian roads has resulted in radial tyres accounting for only 5 per cent of the tyre

industry as against a global trend of 60 per cent. With two-thirds of the capacity of all major tyre

manufacturers being reserved for radials, this is a real cause for concern.

8

1.7 HISTORY :

The origin of the Indian Tyre Industry dates back to 1926 when Dunlop Rubber Limited set up

the first tyre company in West Bengal. MRF followed suit in 1946. Since then, the Indian tyre

industry has grown rapidly. Transportation industry andtyre industry go hand in hand

as the two are interdependent. Transportation industry has experienced 10% growth rate year

after year with an absolute level of 870 billion ton freight. With an extensive road network of 3.2

million km, road accounts for over 85% of all freight movement in India.

The tyre industry has witnessed a CAGR of 8.3% over the last decade mainly fuelled by the

strong growth in the domestic auto industry. Though the replacement market has driven the

industry growth for long time, the OEM market has seen a robust growth over the last couple of

years. The industry is highly capital intensive, as it requires around Rs4bn to setup a radial tyre

plant with a capacity of 1.5mn tyres and around Rs1.5-2bn for a cross ply tyre

plant of a capacity to manufacture 1.5mn tyres. The profitability of the industry has high

correlation with the prices of key raw materials such as rubber and crude oil as they account for

more than 70% of the total costs.

The raw material to sales ratio in the industry is around 65%. The industry has high entry barriers

because of its capital intensive nature and low operating margins. With demand increasing at a

steady pace, the industry is expected to go through a consolidation phase. The industry is

dominated by four players viz MRF, Apollo Tyres, JK Industries and Ceat and enjoys more than

77% of the total market share. The fortunes of the industry are linked to the trend in the

domestic auto industry, retreading, trend in road transportation and spending on road

infrastructure. The companies have lined up further expansion plans to meet the increasing

demand.

9

1.8 GROWTH OF TYRE INDUSTRIES IN INDIA :

The Indian tyre industry is expected to clock a tonnage growth of 9-10 per cent over the next five

years, according to a study by Credit Analysis and Research Limited (CARE), a noted rating

firm that offers a wide range of rating and grading services across sectors. While the truck and

buses tyres are set to register a CAGR (compounded annual growth rate) of 8 per cent, the LCV

(light Commercial vehicles) tyres are poised for a CAGR of 14 per cent. According to the

CARE study, the growth in the Indian tyre industry will be fuelled by the

expansion plans of the automobile companies, government's focus on development of road

infrastructure and sourcing of auto parts by the global Original Equipment Manufacturers

(OEMs). However, the tyre industry has to grapple with raw material price volatility, rupee

appreciation and cheap Chinese imports. The tyre industry in India recorded a CAGR of 9.69 per

cent during 2002-07.

The size of the industry was estimated at Rs 25000 crore in 2009-10 with a total production of

971 lakh units of tyres. The study points out that on the export front, the Indian tyre companies

need to explore newer markets as the existing market for bias truck tyre which accounts for about

45 per cent of the total export volume is nearing saturation. This apart, with rationalization

catching up in the foreign markets, the Indian tyre companies need to graduate to radial tyres so

as to protect their share in the export market.

At present, radicalization of tyres is low in India except for the car tyre market where 95 per

cent of the tyres is radicalized while cross ply tyres is preferred in all other categories. Cross ply

tyres are preferred owing to poor road conditions, overloading in trucks, higher cost of

radialtyres and poor awareness among the tyre users in the country. The CARE report observes

that though the tyre technology in India has witnessed several developments with

continuous innovation, the domestic tyre manufacturers still lag behind their global counterparts

in terms of product differentiation.Globaltyre makers offer a wide change of products like tyres

with pressure warning systems, run flat tyres, eco-friendly tyres and energy efficient tyres.

10

Though in FY09, we expect the industry to register a tonnage growth of only 4.27%, the growth

is expected to be higher in the medium and long run. In FY10, CARE Research expects the

industry to post a growth of 6.81% and the industry growth is expected to touch 8.21% on a

CAGR basis between FY08-13. The T&B and LCV tyre categories are expected to register a 5-

year CAGR of 6.83% and 8.97%, respectively during this period. For in-depth analysis and our

view on the future of this sector, please refer to the exhaustive Report on Indian Tyre Industry.

The debate on the environmental impact of tyres and other rubber products is generally

dominated by the risks and impacts associated with above ground tyre stockpiles. These

stockpiles are often visually prominent and the potential impacts from fires and the

creation of breeding sites for mosquitoes and other vermin are well documented. However, the

environmental impacts of rubber products extend well beyond these and appear through all of the

stages in the life of the product. It is important to consider all of these impacts to ensure that

waste management approaches do not simply result in the transfer of impacts to a different stage

in the life cycle, or to a different environmental medium, and result in greater overall impacts.

11

CHAPTER 2

MAJOR PLAYERS

12

2.0 MAJOR PLAYER IN INDUSTRY

2.1 MRF

MRF is the market leader among tyre manufacturers in India, with a 24% share in terms of revenues. Its

leadership position, coupled with its strong brand recall and high quality, MRF commands the price-

maker status. MRF has a strong presence in the T&B segment, the largest segment of the tyre industry,

and commands around 19% market share in the segment. It is the leader in the two/ three-wheeler

segment (including motorcycles) and tractor front tyres, and holds second place in the passenger cars

and tractor - rear tyres. Exports account for around 12% of the gross sales in MRF. The Company has a

distribution network of 2,500 outlets within India and exports to over 65 countries worldwide.

2.2 APOLLO TYRES (ATL)

Apollo Tyres is the second largest player in the Indian tyre industry, with a market share of 22%, in

terms of revenues, and the largest player in the T&B segment, with around 22% market share and 82%

of its product mix coming from this segment. It also enjoys a strong brand recall. ATL derives 80% of

its revenues from the replacement market, where the EBITDA margins are higher; hence, at operating

levels, Apollo Tyres has better margins compared to those of its peers. ATL is a strong player in the

domestic market, with just 2% of sales coming from exports.

Apollo's recent foray into the relatively fast growing passenger radial market is probably the only major

positive feature. However, the competitive pressure and a late entry into the segment would pressurize

profitability, at least in the near term. From an investment perspective, investors could look for

opportunities to exit from Apollo and the tyre sector.

13

2.2.1 HISTORY

First Indian Tyre Company to launch exclusive branded outlets -- Apollo Tyre World -- for truck tyres

First Indian Tyre Company to segment the market on the basis of load and mileage requirements

First Indian Tyre Company to introduce packaging for car and two-wheeler tyres and tubes

First Indian tyre company to run a customer loyalty program

First Indian Tyre Company to introduce radial tyres for the farm category

First Tyre Company in India to obtain ISO Certification for all its operations

First Indian Tyre Company to produce H, V and W-speed rated tubeless tyres

FirstIndian Tyre Company to run HIV-AIDS awareness and prevention clinics for the

trucking community

First Indian Tyre Company to support the creation of an Emergency Medical Service in an Indian city

First Indian Tyre Company to execute an overseas acquisition

FirstIndian Tyre Company to reach revenue of over US$ 1 billion

2.3 JK INDUSTRIES

JK Tyre & Industries Ltd. is the flagship company under the umbrella of JK Organization

JK Industries has a 17% market share, in terms of revenue, making it the third largest player in the

industry. The Company ranks first in the MHCV and Passenger Car tyre segments, with 79% and 7% of

its product mix coming from these segments, respectively. Exports account for approximately 17% of its

gross sales.

The advent of JK Organization on the industrial landscape of India almost synchronizes with the

beginning of an era of industrial awareness - an endeavor for self reliance and the setting up of a

dynamic Indian industry. This was way back in the middle of the 19th century. And the rest that

followed is history.

14

Core Value

JK Organization has been a forerunner in the economic and social advancement of India. It always

aimed at creating job opportunities for a multitude of countrymen and to provide high quality products.

It has striven to make India self reliant by pioneering the production of a number of industrial and

consumer products, by adopting the latest technology as well as developing its own know-how. It has

also undertaken industrial ventures in several other countries.

JK Organization is an association of industrial and commercial companies and charitable trusts. Its

member companies, employing nearly 50,000 persons are engaged in the manufacture of a variety of

products and indiversefield so commerce.

Trusts are devoted to promoting industrial, technical and medical research, education, religious values

and providing better living and recreational facilities. With the spirit of social consciousness uppermost

in mind, J.K. Organization is committed to the cause of human advancement.

2.4 CEAT

CEAT has a 14% market share, in terms of revenues, and is an average player across categories. 68% of

its product mix comes from the MHCV segment. Its leading brands in the T&B segment are Lug XL,

Mile XL and Rib XL, Secura in two-wheelers and Formula-1 in passenger radials. In terms of

profitability, CEAT has lower margins compared to its peers, in spite of deriving 60% of its revenues

from the replacement market.

The oldest company of the RPG Enterprises, CEAT Tyres was established in 1958. Today, we are one

of India’s leading tyre manufacturers, with an annual turnover of Rs 1,952 crores (US $434 million).

Our solid brand equity has empowered us to establish a strong presence in both, domestic and

international markets. Our tyres, tubes and flaps are renowned for their superior quality and durability,

and are recognized as being “born tough”.

15

2.4.1 HISTORY

CEAT stands for Cavi Electrici Affini Torino (Electrical Cables and Allied Products of Turin).

CEAT International was first established in 1924 at Turino in Italy and manufactured cables for

telephones and railways.

In 1958, CEAT came to India, and CEAT Tyres of India Ltd was established in collaboration with

the TATA Group.

In 1982, the RPG Group took over CEAT Tyres of India, and in 1990, renamed the company

CEAT Ltd.

2.4.2 CURRENT SCENARIO

Manufactures over 6 million tyres every year.

Enjoys 55% of the local market for light truck and truck tyres.

Operates from plants in Mumbai and Nasik.

Exports to USA, Africa and other parts of Asia.

Has a robust network consisting of 36 regional offices, over 3,500 dealers and more than 100 C&F

agents.

Has a dedicated Customer Service department, comprising Customer Service Managers in all four

divisional offices, assisted by 50 Service Engineers.

16

2.4.3 OEM PARTNERS

Category OEM Partner

Truck TATA Motors, Ashok Leyland, Eicher Motors

LCV TATA Motors, Eicher Motors, Swaraj Mazda, Mahindra

& Mahindra

Passenger Car Maruti Udyog, Bajaj Tempo, Piaggio, Mahindra & Mahindra,

Scooters India, Bajaj Auto

Utility Vehicle TATA Motors, Maruti Udyog, Mahindra & Mahindra

Farm Mahindra & Mahindra, Eicher Tractors, HMT, TAFE

SHCV JCB, L&T

Two-wheelers Bajaj Auto, TVS, Hero Honda, HMSI

OTR Caterpillar, JCB, TELCON, L&T, BEML

2.5 GOODYEAR INDIA

Goodyear India, with presence across the globe, has a market share of 6% in the Indian Tyre industry, in

terms of revenues. It has a significant market share in the tractor tyres segment, with 22% share in

tractor - front tyres and a 30% share in tractor - rear tyres. It derives 45% of the product mix from the

MHCV segment and 31% from the tractor tyres segment.

17

2.6 INDIAN TYRE INDUSTRY – DRIVING ON THE AUTO SECTOR

GROWTH

The Indian Tyre Industry is an integral part of the Auto Sector and its fortunes are interdependent

on those of the Automobile players. For the year 2010-11 the industry has clocked a turnover of

almost Rs. 30,000 Cr. of which 90-95% has come from the domestic market. While there are

around 40 tyre manufacturers in India, the top 10 tyre players account for around 90-95% of the

total tyre production in India. The tyre industry can be divided into 6 categories based on the

different auto segments that they are manufactured for. The table given below gives the category

wise production for 2010-11. On a volume basis, the 3 major segments for the tyre industry are

Two-wheelers, Passenger Cars and Truck and Bus (T&B).

The table given below gives the list of the top 3 players (considering their market share as per

volumes) in these 3 major segments.

18

As seen in the above table, the T&B (Truck & Bus) segment is highly competitive with the top 3

players having market share very close to each other. JK Tyre is slightly ahead with a 22%

market shares. Apollo Tyres is the market leader in Passenger Car segment with 24%. MRF

which has a good presence in all the segments is the leader in Motor Cycle with 28% share.

19

CHAPTER 3

MACRO ANALYSIS

20

3.0 CURRENT SCENARIO

3.1 SECTOR TRENDS

Cross ply tyres have been used in India for several decades. In these tyres, the ply cords run across each

other or diagonally to the outer surface of the tyre. Rayon and nylon tyre cords are used as the

reinforcing medium. These tyres can be retreaded twice during their lifetime and are hence preferred by

Indian transport operators who normally overload their trucks. A vehicle with the normal carrying

capacity of around 12 tones is usually loaded with double the capacity. Moreover, one also has to

contend with the bad suspensions and bad road conditions. No wonder, 95 per cent of the tyres used in

India are cross plies.

Radial tyres have their cords running radically from bead at 90 degrees angle to the rim or along the

outer surface of the tyre. The reinforcing mediums used in these tyres are polyester, nylon, fiberglass

and steel. Hence, these tyres are 20 per cent more expensive than the cross plies. But they have a longer

life and provide lower fuel consumption. The unhealthy condition of the Indian roads has resulted in

radial tyres accounting for only 5 per cent of the tyre industry as against a global trend of 60 per cent.

With two-thirds of the capacity of all major tyre manufacturers being reserved for radials, this is a real

cause for concern.

3.2PRICING SCENARIO

Pricing is influenced by the demand. Since the tyre demand has not significantly increased in the last one year,

many of the tyre companies have surplus stocks. Hence in the last 2-3 months the tyre companies are offering

discounts between 20 to 40 percent to car manufacturers, but the car companies are trying to squeeze more

discounts. The cheap imports of non-radial tyres from china are also adding to the present of the tyre

manufacturers

21

3.3 EXIM POLICY

The export market for India has been predominantly to the USA that accounts for nearly 30% of

exports from the country. These are mostly of the cross ply variety. However, of late India’s share in

the US market is being threatened by China and Japan. These two countries are able to offer prices that

are lower than that offered by Indian manufacturers. In addition, these two nations are logistically

better placed than India when it comes to exporting to the USA. Domestic tyre manufacturers are also

facing threat from imports from China and South Korea. The landed cost of tyres from China is lower

than the Indian price by 30%. In addition, tyres from South Korea are imported at 30% customs duty

while from other countries the duty levied is 35%. Thus, In the both cases the domestic tyre

manufacturers are feeling the heat.

3.4 GOVERNMENT POLICIES

The recent budget policy of the government has also not brought much relief to the tyre manufacturers.

The major issues of concern are high import duty on raw materials, ban on import of used tyres, lack of

exemption in import duty for steel and polyester tyre cords (currently being imported) and imports of

tyres from South Korea at lower duty.

3.5 IMPORTS OF TYRES AND ITS IMPACT ON THE INDUSTRY

Cheaper imports of tyres, especially from China, South Korea, Japan, Thailand and Indonesia, which

sell at very low prices, have been posing a challenge to the industry. India? Signing of the Bangkok

agreement with ASEAN countries, in intensified the import threat, as this agreement provided for

preferential customs duty of 15 per cent for imports from China and South Korea, along with Sri Lanka

and Bangladesh, as against the standard rate of 20 per cent. This led to a gush of imported tyres from

these countries. The landed price is approximately 25 per cent lower than that of the corresponding

Indian Truck/LCV tyres. Imports from China now constitute around 5 per cent of the market share.

22

3.6 INCREASING RADIALISATION IN INDIA

"Rate of radialisation is actually an index of the status of road development, vehicle engineering and the

economy in general". Notwithstanding the problem areas, constraints and limitations, the tyre

companies have kept pace with the technological improvements that radialisation signifies and offer

state-of-the-art product (tyres), comparable to the best in the world.

Radialisation can be aptly classified as the most important innovation in tyre technology. Despite its

several advantages (additional mileage; fuel saving; improved driving) radialisation in India earlier did

not catch on at a pace that was expected, since its introduction way back in 1978. This could be

attributed due to several factors, viz. Indian roads generally not being suitable for ideal plying of radial

tyres; (older) vehicles produced in India not having suitable geometry for fitment of radial tyres (and

hence the general, and wrong, perception that radial tyres are not required for Indian vehicle;

unwillingness of consumer to pay higher price for radial tyres etc.

However, the situation has radically changed in recent years, especially for the passenger car tyre

segment where radialisation has crossed 98% mark and is expected to reach 100% in two to three years.

In the Medium and Heavy Commercial vehicle segment current level of radialisation is up to 15%, and

that in the LCV segment is estimated at 18%. A few years back a beginning was made in Radialisation

of truck and bus and LCV tyres and this process is gaining momentum.

23

3.7 RAW MATERIALS

3.1 Table OF Raw Materials Using by Value and Weight

Tyre Industry is highly raw-material intensive. Raw materials cost accounts for approx. 70% of Tyre

Industry Turnover.

Given below is the composition of raw-materials as a percentage (%) of Total Raw Material Cost:

Natural Rubber 44%

Nylon Tyre Cord Fabric 19%

Carbon Black 12%

Rubber Chemicals 5%

Butyl Rubber 4%

PBR 5%

SBR 5%

Others 6%

44% of total Natural Rubber consumption is by the Tyre Sector balance by rubber based non-tyre

industries.

Total weight of raw-materials consumed by tyre industry – 17.50 Lakh M.T.

Total Cost of Raw Materials consumed by tyre industry – Rs.21, 000 Crores

3.8 NATURAL RUBBER

Natural rubber accounts for 44% of the value of the tyre. In India mixture of both natural as well as

synthetic rubber is used for making tyres. However the consumption ratio is towards higher usage of

natural rubber due to Indian climatic conditions, over loading of vehicles and poor road condition. In

India the consumption of natural to synthetic rubber is 80:20 which is in stark contrast to international

ratio. The industry uses RSS – 4 grade rubber.

24

India’s 90% of the rubber production comes from Kerala. Domestic rubber production has increased at a

compounded growth rate of 9% annually from 1991 to 1997 after which the production slowed down.

However In FY 2001, rubber production soared and crossed double-digit mark at 10.2%.

3.9 SYNTHETIC RUBBER

Synthetic rubber is generally of two types – poly-butadiene rubber (PBR) which forms 19% of the

synthetic rubber used in tyres. The other variety is Styrene Butadiene Rubber (SBR) primarily used in

passenger car radials to give the grip to the tyres. At present, IPCL is the only domestic producer of

PBR. However it able to meet only 44% of the tyre industry’s requirement. Thus India is a significant

importer of synthetic rubber. There is an urgent need to increase production capacity of SBR to

supplement natural rubber.

3.10 CARBON BLACK

Carbon black is a key raw material used in the manufacture of automotive tyres. More than 70 per cent

of the demand for carbon black is from the tyres segment. Carbon black feed stock (CBFS) is the key

raw material used to manufacture carbon black. Roughly 2.2 tonnes of CBFS is required to produce one

ton of carbon black. Its main use is as a reinforcing agent in tyres.

Though there are more than twenty types of CB, the ones used for tyre production are mainly of three

types, N220, N330 and N660. N660 is mainly used in the carcass of the tyres, N330 is used for the tread

and N220 is used for the tread of heavy-duty tyres. On an average, about 45% of the CB consumed by

the tyre industry is of the N660 variety, 28% of N220 and 27% of N330 variety.

Truck tyres consume 20 kgs of CB per tyre, while smaller tyres like Maruti consume 1.5 kgs. Overall

approximately 60 – 65% of the CB produced in India is consumed by the tyre industry. Indian market is

dominated by the top three players in the industry -- Philips Carbon Black, Hitech Carbon (unit of

Indian Rayon) and Cabot India

25

3.11 NYLON TYRE CORD

This is mainly a reinforcing material and lends strength and tenacity to the tyre. It is placed below the

tyre tread, in contact with the road. Almost 90% of nylon cord manufactured in India is consumed by

the industry. The tyre cord fluctuates in consonance with the prices of caprolactum its main input.

3.12 RUBBER CONSUMPATION

With the lifting of physical barriers on imports of all commodities by April 2001, as also phasing out of

various subsidies for exports, the rubber industry is in for a very rough tide. With the slowdown in

economy compounding the problem, the automobile majors are in for a major shake-out.

3.2 Table of Consumption Patterns of Major Raw Materials (2012-13)

Raw

Materials

Total

Cons.

Tyre

Sector

Cons.

Non Tyre

Sector

Cons.

Total

Import

Tyre

Sector

Imports

Non Tyre

Sector

Imports

Natural

Rubber

944700 63% 37% 177637 95% 5%

SBR 174855 66% 34% 115520 100% -

PBR 125305 85% 12% 45000 - -

Carbon

Black

412640 - - 46700 - -

Nylon

Tyre Cord

115000 - - 58000 - -

Rubber

Chemicals

35000 - - 20000 - -

Steel Tyre

Cord

30000 - - 20000 - -

Butyl 40000 - - 40000

26

Rubber

3.3 Table of Production, Consumption & Imports of Natural Rubber

(in Tonnes)

Year Production Consumption Total

Cons.

Imports

Total Tyre Sector Non Tyre Sector

2005-06 749660 406220 54% 349170 46% 755400 68700

2006-07 802625 442921 55% 358189 45% 801110 45285

2007-08 852895 462081 56% 358224 44% 820305 89799

2008-09 825345 495577 58% 365878 42% 861455 86394

2009-10 864500 508121 58% 363599 42% 871720 77616

2010-11 831400 576210 62% 354355 38% 930565 176756

20-11-12 861950 597623 63% 350092 37% 947715 177637

27

3.4 DEMAND CYCLE

Demand for tyres can be categorized under four segments - Replacement Market (RM), the Original

Equipment Manufacturers (OEMs), Exports, and the Government. In FY05-06, the replacement market

constituted 48.7% of tyre sales (by volume), followed by OEMs at 42.8%. Exports constituted 8.2% and

government sales were at 0.3%. According to the products, the maximum tyre sales are in the Truck &

Bus segment, followed by Passenger cars and Tractor Trailers.

28

Increase in income level, higher disposable income:

Increase in income level of people and higher disposable income so that they have an thought

to buy a two wheeler or four wheeler so the demand of tyre also goes high so it is the first

steps in the demand cycle.

Increase in demand for passenger cars:

Increase in demand for passenger cars because the use of passenger cars is increasing now a

days because of increasing in population of our country and for hence increasing travelling

also so that the demand for passenger cars.

Increase in demand for passenger cars tyres:

As increasing the demand of passenger cars so the demand of tyre is also increase.

Creates replacement demand after about 24-48 month:

As a disposable income is high with the people so they can change the tyre within the period of

24 to 48 months for the safety point of view .

Growing economy:

As we know that the Indian marketis growing economy and so the transportation , demand in

automobile industries etc are very high so the tyre industries is also benifited.

Increase in demand of freight movement:

Increase in the demand of freight movementso that it is nessory to incrase in the moving the

demand of tyre product.

Increase in tyre demand from OEM’s:

29

The OEMs are always in strong position when the bargaining power of buyers is concerned.

The reason behind this is most of them are having contract with their relative tyre

manufacturer under which the prices of tyre remains stable for this OEM irrespective of

market price. The benefits are given to them as they are buying in bulk and the relation gives

the tyre firms something called brand association.

3.13 CLASSIFICATION OF DEMAND

3.13.1 BY TYPE:

1) Two wheeler

Bike, Scooter, Motor cycle

2) Four wheeler

SUV, MUV, Cars

3) Passenger Cars

Jeep, Bus, Rickshow

4) Others

Tractors, JCB,Truck

The Indian tyre industry produces the complete range of tyres required by the Indian automotive

industry, except for aero tyres and some specialized tyres. Domestic manufacturers produce tyres for

trucks, buses, passenger cars, jeeps, light trucks, tractors (front, rear and trailer), animal drawn vehicles,

scooters, motorcycles, mopeds, bicycles and off-the-road vehicles and special defense vehicles.

30

3.1 CATEGORY WISE PRODUCTION (2010-11)

BY MARKET:

OEM

Replacement

Export

Category

Production

(Nos.)

2010-12

(April-

September)

Segment wise Percentage supply

(as % of Total Production)

Replacement

Market OEMs Export

Truck/Bus

7799228 65 21 14

31

Passenger Car / Jeep

14165944 42 53 5

LCV

3400113 34 41 25

Tractor Front

1419373 5 44 1

Tractor Rear

972938 34 64 2

Scooter / Moped

10979956 43 53 4

Motor Cycle

22931173 46 52 2

3.14 DEMAND DETERMINANTS

3.14.1 GENERAL ECONOMIC SCENARIO

In FY 11 the revised GDP growth was less then the forecasted GDP growth. As GDP is a reflector of

the purchasing power of consumers, low GDP apparently hinders progress of manufacturing industries.

Consumers tend to defer their investments.

OEMs are under pressure and so are the replacement markets, because there is little fleet utilization and

hence less replacements.

32

3.14.2GROWTH OF AUTOMOBILE INDUSTRY

Tyre is a demand-derived product. Its fortunes are closely linked with the automobile segment as can be

seen from the 95.5% correlation coefficient between the sales of vehicles and tyres. Therefore the

growth or fall of automobile sector is reflected in growth or fall of tyre industry. The whole tyre market

is dominated by the truck/bus segment, which formed 20.3% of total production volumes in FY11

(21.7% in FY10).

On the other hand, sales in the motorcycle segment have grown robustly since FY95 on the back of

increasing demand for motorcycles (20% yoy in FY11) from amongst others in the two-wheeler

segment.

3.14.3 FLUCTUATIONS IN RAW MATERIAL PRICES

Prices of natural rubber, carbon black and the nylon tyre cord directly affects the prices of the tyre since

these inputs constitute of 60% of the total cost. Variable cost is very high leading to thin profit margins.

The price of RSS-4 variety of natural rubber remained lower as compared to previous year during most

of the year.

3.14.4 RELATIVE IMPORTANCE OF ROAD TRANSPORT

With the share of railways in carrying freight coming down over the past few years, this has led to

higher demand for road transport. Thus, increased usage of commercial vehicles should translate into

more demand for tyres. Also, the poor road conditions in most parts of the country and overloading of

vehicles would require superior quality tyres.

3.14.5 RETREADING

Retreading a tyre costs around 20% of the price of a new tyre. It is more prevalent in truck and bus

segments due to their high prices. A tyre can be retreated at least 3 times. According to some estimates,

retreading has reduced demand in the replacement market by around 10%. As technology for retreading

improves, it could act be a dampener to growth in replacement market.

33

3.14.6 RADICALIZATION

63% of passenger car tyres produced in India were radials and the industry is further expecting

radialisation in this segment to over 70% in the coming two years. While in the commercial vehicles

segment they are expecting 13-15% radicalization by that time.

3.14.7DEMAND SUPPLY GAP

The demand for tyres is either in the domestic market or in the export market. As far as domestic

demand is concerned, the OEM and the replacement segments are likely to witness strong growth given

the current performance of the automotive sector. Given the strong linkages of tyre industry with

automotives, its demand is likely to be strong over the short to medium term. As for the export demand

for tyres, the outlook is positive, even though some downsides remain.

As regards supply of tyres, currently, the major players are in the process of expanding their capacities,

in anticipation of uptrend in sales. For instance, Apollo Tyres has set up a joint venture with Michelin

for manufacture and sale of bus and truck radials. JK is expanding its Mysore truck and bus radial

facility along with eyeing acquisitions of smaller units. CEAT has increased its off take by 3 times from

Pirelli. However, a characteristic of the Indian tyre industry is that most of the tyre manufacturers in the

past had increased capacities in anticipation of a surge in demand, but when it did not materialize, they

reduced their addition to capacities.

3.15 RAW MATERIAL COST

Raw material costs account for almost 70% of the tyre industry’s incomes. Labor cost is another

significant overhead. The Tyre industry has a narrow product range, huge operating overheads and high

break-even levels. Raw material costs for the last three years have been raising constantly, especially

those of rubber and crude oil-linked raw materials. The steep rise in raw material prices has impacted

profit margins of all players. Consistent rise in major raw materials costs (those of natural rubber, nylon

tyre cord, carbon black, synthetic rubber), with limited pricing flexibility, has resulted in pressure on

margins of tyre companies, despite a good top line growth. Consequently, while the revenues showed a

34

healthy growth, profitability remained depressed. In fact, some of the major tyre companies are

operating at break-even situations.

3.2 RAW MATERIAL COST IN A TYRE CONSTRUCTION

3.15.1 RUBBER PRICES

In 2010-11, production and consumption of rubber grew by5.5% and 6.2%, respectively, while exports

increased by 51.2% (for the same period), on account of the imbalance in the global demand-supply

position. The average domestic price of rubber increased by 20.3%, while the international prices soared

by 31.5% in the same period. In April-June 2009, Domestic-Rubber prices increased 59% year by year,

while the international prices increased 76.6%. Natural-Rubber prices have been continuously on the

rise in the international markets, with weather conditions playing a major role in disrupting supplies.

During FY08, China lost rubber plantations in the Hainan province due to a typhoon in September 2008,

followed by floods in Thailand and Malaysia in December, the same year. Production suffered in most

rubber-producing regions in India, due to bad monsoons, which in turn led to the soaring of rubber

prices. With international natural-rubber prices ruling high, and India being a part of the global market,

44%

19%

12%

5%

4% 5%

5% 6%

Raw Material Cost(%)

Natural Rubber

Nylon Tyre Cord Fabric

Carbon Black

Rubber Chemicals

Butyl Rubber

PBR

SBR

Others

35

exports of rubber from the country affected the demand and supply positioning in its domestic market.

The growth in exports is driving-up average domestic prices of rubber. With rising demand from the

Tyre sector, the supply situation is expected to remain constrained in the medium term. Currently,

rubber prices have depleted to around Rs 80-levels, but there is high level of volatility and hence, their

behavior is difficult to predict. If current levels persist, it would result in better profitability for tyre

companies.

RUBBER prices have suddenly spurted to a four-year high, touching Rs 38 per kg for RSS 4 on

Tuesday. This unexpected rise has bolstered the demand for restoring duty free import of rubber under

advance license. Last time, the price reached this level during September 1997.

The rubber market remained steady in July this year with average price for RSS 4 being Rs 33.90.

Market trends during the first week of August indicate that the price may move up further as there is

acute shortage of rubber in the market. However, demand is not high enough to bring about an abrupt

price spurt. The market is obviously chasing deficient supply.

One reason for the short supply is this year's thunderous monsoon. For about a month, rubber tapping

has been halted. Rubber plantations in many regions were hit by inclement weather.

Also, the turmoil raised by the introduction of turnover tax (TOT) is another factor. The 1.5 per cent tax

imposed on the annual turnover of Rs 30 Lakh and above came into force on August 1. This is not

transferable to consumers. Traders fear that the levy will drastically erode their income and make rubber

trade unprofitable.

The levy has forced majority of the traders to keep down their volume of business in an effort to confine

the annual turnover to Rs 30 Lakh.

However, a section of the growers feel that the current price escalation is artificial. The market's quick

march ahead despite high stock in the country has surprised them. Some of them attributed conscious

efforts by the tyre sector to push up the price in order to get the ban on advance license imports lifted.

36

Some growers have also raised an allegation that a few major rubber traders are hoarding rubber to take

the price to the height of Rs 40 per kg, which would indirectly help the designs of the manufacturers to

demand lifting the ban on duty free imports.

The current price is way above the price in the international market. While RSS 4 is traded at Rs 37 per

kg in the country, world price of comparable grades of rubber is fluctuating around Rs 27.60 per kg.

The current stock of natural rubber is estimated to be 150,000 tones, against the monthly consumption

of around 50,000 tones.

3.15.2 NYLON TYRE CORD (NTC) FABRIC

Nylon tyre cord accounts for around 19% of the total raw material costs. During 2008-09, the

production of NTC fabric declined by 12.2%, while its consumption grew by 9%. This imbalance in the

production-consumption pattern has led to a 7.5% increase in domestic NTC prices in 2008-09.

The international prices are much higher than domestic rates and have shown a 15.2% increase in 2008-

09; the price of caprolactam, the main feedstock for NTC fabric, increased by 6.2% in the same period.

However, the average international and domestic prices during April-June 2009 were lower by 22% and

18%, respectively, due to carpolactam prices, which declined by 10.8 %.

3.15.3 OTHER RAW MATERIALS

The prices of other raw materials like carbon black, styrene butadiene rubber (SBR) and poly butadiene

rubber (PBR) are closely linked to global crude oil prices. The average domestic price of carbon black

increased by 7.7 % in 2008-09 and the average international prices of both SBR and PBR increased by

16.9% and 13.4%, respectively, during 2008-09. During April-June06, the average domestic price of

carbon black increased by 27.2% and this momentum is expected to continue. The average international

prices of both SBR and PBR fell by 10% and 1.4%, respectively, during April-June06. The prices are

expected to be in line with global oil prices.

37

3.16 DISTRIBUTION SCENARIO

The distribution system consists of distributors, followed by large dealers and also small/sub dealers.

Some tyre companies also follow a system of appointing C&F agents, in place of distributors.

3.17 REPLACEMENT MARKET

Tyre companies sell tyres through widespread dealer distribution net-work (over 5000 in the country),

either through exclusive dealer of the companies or through multi-company dealers.

3.17.1 OEM

Direct supply by tyre companies through negotiations.

3.17.2 STU

Direct supply by tyre companies through tender system.

3.17.3 GOVERNMENT

Direct supply by tyre companies through tender system. Through dealers in the exporting countries.

3.17.4 IMPORT

Some tyre companies also import tyres for the domestic market. Such imports are generally from the

principal company overseas or from technical collaborator or from tyre companies with which it has an

alliance for a particular line of tyres, for example, passenger car tubeless tyres; With tyre import freely

allowed, import of various categories of tyres is also taking place.

Tyres are imported by importing agents and then marketed through the dealers who are marketing

Indian tyres also.

38

3.18 INDIA V/S GLOBAL

The global tyre market currently is estimated at USD 70 billion while the Indian market is around Rs.

100 million. The global market is dominated by Goodyear-Sumitomo with a share of 22%. On the other

hand, the domestic industry is dominated by MRF Ltd. Several mergers and acquisitions have

characterized the global market, in the recent past. This is essentially to acquire technology, gain wider

access to markets and be competitive. Indian players are also reengineering their businesses and

looking at strategic tie-ups in this segment.

In terms of technology, radial tyre usage has been catching up at a quick pace in the global market.

Almost all the automobile segments have shifted to radial tyres and the usage of cross ply is restricted to

trucks and buses only. On the other hand, in the domestic market, the radial tyres are being used only in

the passenger car segment while the rest of them still stick to the cross ply variety. This is because of the

lower price of cross ply and its re-tread ability. In addition, the poor quality of roads in India

restricts the use of such tyres.

3.18.1 CURRENT GLOBAL SCENARIO

The world tyre industry is worth around US$70bn. The industry is marked by a presence of around half

a dozen major players who together occupy 70% of the world market share. The table below indicates

the individual market share of the major players.

The worldwide tyre industry is likely to witness more restructuring efforts after the deal between

Goodyear and Sumitomo of Japan. Analysts are speculating that there will be only six to seven major

players across the globle.

3.4 TABLE : CURRENT GLOBAL SCENARIO

Companies Market share (%)

Michelin 19.4

Bridgestone 19.4

39

Goodyear 16.6

Continental 7.1

Sumitomo 4.9

Pirelli 3.9

Yokohama 3.5

Kumho 1.7

Others 23.5

3. 19 KEY SUCCESS FACTOR

TECHNOLOGY UP-GRADATION

In Tyre Industry technology upgradation is absolutely critical issue. In the era of modernization and

globalization, there are difficult to find a place or exist into the business without innovations or

upgradation of technology. So, many companies are come by the certain technology innovations and

newer things. In Tyre Industry now a day we find concepts of Tube-less Tyres, Environmental Friendly

Green Field Tyre, and Anti puncture Tyres and So on. We can put this technology upgradation as a

major Key Success Factors in the Tyre Industry.

RADIAL TYRES

Industry likely to focus on the manufacturing of high performance Radial Tyres. Radial Tyre provides

long life in compare of the other basic tyres. And there are threat from the China and South Korea who

are providing the Radial Tyres with the high amount of efficiency with the low prices. Some companies

are now realizing the importance of this technology and they are start working in this area. If the

companies are successful in production of Radial Tyre with high efficiency and low price then it will be

drives the growth rate of Tyre Industry at new levels. So, Radial Tyre will be a one of the major Key

Success Factor for the Industry.

40

INTRODUCTION OF NEW CONCEPTS

Another major Key Success Factor for the Tyre Industry will be a degree of introduction of new

concepts by the players. The pace of the introducing newer concepts will certainly helps to the Tyre

Industry. New concepts like Puncture proof tyres, Low Rolling resistance tyres, Environmental Friendly

Green Field Tyres and so on.

GROWTH OF AUTOMOBILE INDUSTRY

Main source of demands in Tyre Industry depends on the Automobile Industry. So, Automobile

Industry plays very crucial role as a Key Success Factors in Tyre Industry. In India there are constant

and steady growth seems in the Automobile Industry. So we can put this factor as a Key Success Factor

in Tyre Industry.

GOVERNMENT POLICY

Government policy also works as a Key Success Factors in Tyre Industry. It means to say that how

much government is aggressive towards the infrastructure developments? And the other policies and

rules towards the Industry. This factor leads the whole industry in particular directions.

Tyre Industry Delicenced since 1987

Export (of tyres and tubes) Freely alowed

Import (of new tyres and tubes) Freely alowed.

Import Policy for Used / Retreaded

tyres:

Restricted from April,

2006

41

3.20 SWOT ANALYSIS

3.20.1 STRENGTHS

GROWTH OF AUTOMOBILE INDUSTRY

Day by day the automobile Industry is growing and there is no other option to the automobile industry

for replacing the tyre.

CHEAPER RAW MATERIAL

The main raw material of tyre is rubber and it is easily and cheaply available in the India. So if the raw

material is available at cheap rate and selling at higher rate means the margin is very high in this

business.

3.20.2WEAKNESS

LACK OF TECHNOLOGY

In India the production of tyre is still done by the old and manly style so many times it costs more than

the technological production of tyre.

NUMBER OF PLAYER

Number of player in the tyre industry is high around 46 but there is only 8-9 players who covers 90% of

the market share so they becomes the dominating in the price decision.

42

3.20.3 OPPORTUNITIES

GROWING AUTOMOBILE INDUSTRY

Since the first car rolled out on the streets of Mumbai (then Bombay) in 1898, the Automobile Industry

of India has come a long way. During its early stages the auto industry was overlooked by the then

Government and the policies were also not favorable. The liberalization policy and various tax relief by

the Govt. of India in recent Years have made remarkable impacts on Indian Automobile Industry. Indian

auto industry, which is currently growing at the pace of around 18 % per annum, has become a hot

destination for global auto,players, likeVolvo,General Motors and Ford.A well developed transportation

system plays a key role in the development of an economy, and India is no exception to it. With the

growth of transportation system the Automotive Industry of India is also growing at rapid speed,

occupying an important place on the 'canvas' of Indian economy.

GROWING OEM DEMAND

Traditionally, the replacement market has been the main growth driver for the tyre industry, as also the

major segment that consumes tyres; however, with the recent escalation in auto sales, OEM demand too,

has been on a substantial increase, thus enlarging its share in the sales pie. Auto sales have been

growing at a CAGR of 15.8% during 2002-06, which has driven the growth in the tyre industry, keeping

the OEM demand buoyant. Going forward, the automobile industry is estimated to grow at double

digits. This, in turn, is expected to keep demand, for tyres from OEMs, buoyant. Looking at the global

rail-to-road cargo scenario, in Europe, roadways have an 84% share, while in India, currently, the ratio

is 35:65, which was 62:38, two decades ago. Also, with growth in roadways and with projects like

Golden Quadrilateral and NSEW getting implemented, there would be a further shift in freight

movement, from railroad to roadways. This would lead to an increase in demand for automobiles and

hence, the OEM

Demand for tyres.

43

3.20.4 THREATS

Continuous increase in prices of natural rubber, which accounts for nearly one third of total raw

material costs so it become a big threats again industry.

Cheaper imports of Tyres, especially from China, selling at very low prices, have been posing a

challenge. The landed price is approximately 25% lower than that of the corresponding Indian

Truck/ LCV tyres. Imports from China now constitute around 5% of market share

With crude prices scaling upwards, added pressure on raw material prices is expected

Ban on Overloading

Industry estimates say that nearly 15% of Commercial Vehicles are overloaded to the extent of

100-150%, which results in a higher wear and tear of tyres. The recent Supreme Court order, to

curb the overloading of trucks, is expected to affect the demand for MHCV tyres, in both, the

replacement and OEM markets. On account of the ban on overloading, the life of a tyre would

increase and also, tyres that are not overloaded would further enable re-treading, before being

replaced. Hence, the replacement demand may come down. However, the curb on overloading is

expected to lead to additional truck sales, as also the demand for multi-axle vehicles would rise.

This would lead to higher OEM demand. So, in the short term, ban on overloading could be a

dampener, but in the long run, it is definitely a positive move. The ban would also provide a fillip

to radialisation.

Cyclical nature of automobile industry.

3.20.5 INDUSTRY’DOMINANT ECONOMIC FEATURES:

The major dominant economany features which are related to the tyre industry are given below:

1) Market size & Groth rate:

Tyre industry is one of the important industries in India and fastest growing industries alsoas we know

the demand of tyre in the market because the demand increasing in Two-Wheelers, Four Wheeler,

44

Passenger cars, Bus, Truck etc. The Growth rate of tyre industries is also very high because of

growing economy.

2) Number of Rivals:

The market is growing so this is the main point is to attract the rivals and there are major five players

in this market like, MRF, APOLLO, JK, CEAT, GOOD YEAR. These are all very strong players in

the market.

3) Scope of competitive rivalry:

All the major players are competing each other in india and the global level there are few players that

can competing this companies.

4) Degree of product differentiation:

Degree of product differentiation in the tyre industries is less differentiated because of technology.

5) Product innovation:

Product innovation includes new product design, life of the product etc. The product category of all

the players are same so product innovation is very much required by the companies so the companies

are always doing innovation in their products.

6) Supply & Demand conditions:

Supply of products in the market as per the demand scenario in the market and they always produce

that much of capacity that they can fulfill the requirement of the customers.

7) Technological change:

Technology plays a vital role in any business or industries success because our differentiation is based

on how and what kind of technology we are using for our production process or R & D department

how we accepted the technological changes and make our product successful in the market.

45

3.20.6 MICHAEL PORTER'S FIVE FORCES MODEL

One important component of industry and competitive analysis involves delving into the

industry’s competitive process to discover what the main sources of competitive pressure are and

how strong each competitive force is. This analytical step is essential because managers cannot

devise a successful strategy without in-depth understanding of the industry’s competitive

character. Even though competitive pressures in various industries are never precisely the same,

the competitive process works similarly enough to use a common analytical framework in

gauging the nature and intensity of competitive forces.

Two things determine your company’s profitability- the industry in which it competes and its

strategies position in the industry. Some industries have inherently low profit potential while

others are highly profitable. The most profitable companies have a strongest competitive position

in a profitable industry. The poorest companies have weak positions in weak industries.

The following write-up is a view of the Indian Consumer electronics goods industry from these

five angles leading to the expected changes in the coming years in the underlying structure of the

Indian Consumer electronics goods industry.

46

Porter's Five Forces Model On Electronics Goods Industry

Source: Adopted from Michael E. porter, “how competitive forces shape strategy,” Harvard Business Review 57, no. 2 (March-April 1979), pp. 137-45.

47

3.3 MICHAEL PORTER'S FIVE FORCES MODEL ON TYRE INDUSTRY

Capital- intensive

Distribution Network

Low operating Margin

Branding

The demand of most raw material

especially rubber is high, while

supply is restricted

Threat of Substitutes-

Low

Import Especially from

China.

China is a great substitute for

Indian tyre industry

Competitive

Pressure-

High

Top six players enjoying

over 80% of total market

share

Buyer Power- High

High competition pressure due to

high bargaining power of OEMs and

wide brand choice in the replacement

market.

Barriers to New

Entrant-High

Supplier Power-High

48

3.20.7 BARGAINING POWER OF SUPPLIERS

1) In the tyre industries the Bargaining power of suppliers is high because the demand for most raw

materials, especially rubber, has been high. While the supply is restricted. So, it will result into the rise

in the price. And it will be resulted in high supplier power.

2) availability of raw material:

The demand of raw material is very high and specially rubber because it is the primary raw material

used for making the tyre and the demand for rubber is high and supply is restricted.

3.20.8 BARGAINING POWER OF BUYERS

This can be classified into two parts as follows:

OEM'S

The OEMs are always in strong position when the bargaining power of buyers is concerned. The

reason behind this is most of them are having contract with their relative tyre manufacturer under

which the prices of tyre remains stable for this OEM irrespective of market price. The benefits are

given to them as they are buying in bulk and the relation gives the tyre firms something called brand

association.

REPLACEMENT

The scene in replacement segment is quite reverse as the bargaining power for the replacement segment

is moderate due to the fact that the buyers are not that strong as compared to OEMs. The demand in

buses and truck segment is always high because of Indian poor road conditions apart from this the

purchase is made in small units.

So it is obviously that bargaining power of buyer is high.

49

3.21 THREAT OF SUBSTITUTE

It is moderate or as the industry is facing opposition from retreading sector all over the globe. This

cheaper option, around 20-25% of the original tyre cost, is present in developed countries since

some decade back. And this is heading towards strong position here in India too.

3.21.1 THREAT OF NEW ENTRANTS

The threat of new entrant is described as low because the industry is highly capital intensive and the

level of technological expertise required is also highly specific. But if we see from domestic (Indian)

industry's point of view, this better can be defined as high. The reason being, global tyre industry is

already seeing mergers and acquisitions in order to restructure. And as of now India and China going to

be the hub of activities as far as tyre industry is concerned due to low production cost as well as other

relevant benefits. So for any of the global big shot Indian company will be a good option to go for.

Capital requirements:

Capital requirement for investing these type of business is very high because the kind of

machinery and technology required for production of tyre is very advanced so there is very less

opportunity for new entrants.

Government Policy:

Government policy regarding establishing new business is very strict because these kind of

business generate high pollution and it is dangerous for the enviourment as well as health of

people.

3.21.2 INDUSTRY RIVALRY

High, because gradually the overseas players are expanding their wings over Indian tyre industry

and also a limited and every player is moving towards automated technology, like ERP and SCM.

Apart from the aforementioned reason, the industry is seeing high competitive scenario at present

because of various reasons like rising input costs, low realizations from growing OEM segment.

50

where the vehicle manufacturers are not ready to share the burden of tyre firms, the portion of

replacement pie continuously taken away by the retreading sector which is slowly but firmly rising

its head and that to in high realization segment of Bus-Truck tyres and last but not the least the

unorganized sector is always there to give head ache to these established players like CEAT, JK,

Apollo and MRF etc.

3.21.3 COMPETITIVE PROFILE MATRIX (CPM)

The CPM identifies a firm’s major competitors and their particular strengths and weakness

and relation to a sample firm’s strategic position. The weights and total weighted scores in

both CPM and EFE have the same meaning. However, the factors in the CPM include both

internal and external issues; the rating refers to strength and weakness.

There are some important differences between the EFE and CPM. First of all critical success

factors in a CPM are broader; they do not include specific data and may even focus on

internal issues. The critical success factors in a CPM also are not grouped in to opportunities

and threats as they are in an EFE.

In a CPM the ratings and total weighted scores for rival firms can be compared to the sample

firm. The comparative analysis can be provide important internal strategic information

The following are the steps of CPM:

1. We identified critical success factors. We include total of 6 factors which consist both

external and internal factor affecting the firm and its industry.

2. Assign to each factor a weight that ranges from 0.0(not important) to 1.0 (very

important). The weight indicates the relative importance of that factor to being successful

in the firm’s industry. Opportunities often receive higher weights then threats.

3. Assign a 1 to 4 rating to each critical success factor to indicate how effectively the firm’s

currents strategies respond to the factor. The ratings values are as follows:

51

(a) 4 = Major Strength

(b) 3 = Minor Strength

(c) 2 = Minor Weakness

(d) 1= Major Weakness

4. Then we multiply each factor’s weight by its rating to determine a weighted score.

Sum the weighted scores for each variable to determine the total weighted score for the

organization.

3.5 COMPETITIVE PROFILE MATRIX (CPM)

W= Weight, R = Rating, WS = Weighted Score

Critical Success

Factor

APOLLO MRF CEAT JK GOOD

YEAR

W R WS R WS R WS R WS R WS

Market Share 0.16 4 0.64 2 0.32 3 0.48 3 0.48 3 0.48

Price

Competitiveness

0.13 3 0.39 1 0.13 2 0.26 3 0.39 2 0.26

Financial Position 0.20 4 0.80 2 0.40 3 0.60 3 0.60 3 0.62

Service Quality 0.17 3 0.51 3 0.51 3 0.51 4 0.68 3 0.51

Customer Loyalty 0.18 2 0.36 2 0.36 2 0.38 3 0.54 2 0.36

Reputation 0.16 3 0.48 1 0.16 3 0.48 4 0.64 3 0.48

TOTAL 1 3.18 1.88 2.71 3.33 2.71

52

1. Interpretation of CPM:

Financial position is the most important critical success factor, as indicated by a weight of

0.20. The sample company (APOLLO),”market share and financial position” are superior, as

evidenced by a rating of 4.

Competitors 1’s (MRF) price competitiveness and reputation are poor, as indicated by rating

of 1.

Competitor 2 (CEAT) customer loyalties and price competitiveness are poor as indicate by

rating 2.

Competitor 3 (JK) is the strongest firm overall as indicated by total weighted score of 3.33

A word on interpretation: just because one firm receive a 3.33 rating and the receive 2.71

rating in a CPM, it does not follow that the first firm is 22% better than second.

From the CPM analysis we can say that take the dominate position in the tyre market.

53

3.22 STRATEGIC GROUPS MAPPING

Strategic Groups:

In some industries, groups of competitors are constrained by similar resource positions and

follow similar strategies. The groups or clusters of similar competitors are called strategic

groups. The alliance dynamics among the largest companies in the worldwide tyre indusries

indicates that the likelihood of an alliance between any two firms depends on the local density of

alliances among the members of their strategic groups, rather than on the global density of

alliances in the industry. These results suggest that firms most closely observe and imitate the

strategic behavior of firms who occupy the same strategic niche rather than the behavior of firms

in their industry defined more broadly. Over time, the resource positions and strategies are

converging, and the sharp differences between strategic groups are eroding.

Strategic Group Mapping

A strategic group is a concept used in strategic management that groups companies within an

industry that have similar business models or similar combinations of strategies. The number of

groups within an industry and their composition depends on the dimensions used to define the

groups. Strategic management professors and consultants often make use of a two dimensional

grid to position firms along an industry's two most important dimensions in order to distinguish

direct rivals (those with similar strategies or business models) from indirect rivals. Strategy is the

direction and scope of an organization over the long term which achieves advantages for the

organization while business model refers to how the firm will generate revenues or make money.

Strategic Group Analysis

Strategic Group Analysis (SGA) aims to identify organizations with similar strategic

characteristics, following similar strategies or competing on similar bases.

Such groups can usually be identified using two or perhaps three sets of characteristics as the

bases of competition.

Examples of Characteristics

Extent of product (or service) diversity

Extent of Geographic coverage

54

Number of Market segments served

Distribution Channels used

Extent of Branding

Marketing Effort

Product (or service) quality

Pricing policy

Use of Strategic Group Analysis

This analysis is useful in several ways:

Helps identify who the most direct competitors are and on what basis they compete.

Raises the question of how likely or possible it is for another organization to move from

one strategic group to another.

Strategic Group mapping might also be used to identify opportunities.

Can also help identify strategic problems.

There are five steps to make strategy group:

1. Identify two important competitive characteristics that strategically differentiate firms

in an industry from one another:

So here there are two factors identify are reported no. of product and market share of the

company they are taken on X axis and Y axis

2. Plot the firm in two variable

In the chart sawn different companies are plotted in X axis and Y axis in respect to their

performance.

3. Draw circles around the firms that are cluster together.

In this step actually find out the close firms which are nearby similar factor that we have taken in

X, Y axes.

4. Indicate potential movement of firms with arrows.

55

At the last have to saw the potential movement means the strategy for future movement

3.6 TABLE OF NUMBERS OF PRODUCT AND MARKET SHARE

3.4 CHART OF STRATEGIC GROUP MAPPING:

0%

5%

10%

15%

20%

25%

30%

-100 0 100 200 300 400 500 600 700

Y-market share

Net profit in cr.

CEAT

MRF

APOLLO

(Year 2013) Net profit (Cr.) Market share

MRF 572.11 19.8%

APOLLO 321.53 21.0%

JK 121.6 18.0%

CEAT 120.35 24.0%

GOODYEAR 56.35 11.0%

GOOD YEAR

JK

56

INTERPRETATION:

In this chart in X axis Net Profit and Y axis Market Share of the company. 1)

2) MRF is highest profit getting company and GOODYEAR is lowest profit getting company.

3) CEAT having highest market share and GOODYEAR having lowest market share.

4) CEAT, APOLLO, and MRF are having more competition among each other in the market

share category.

5) CEAT and JK are having competition on net profit getting .

6) CEAT having close competitors like APOLLP, MRF, and JK.

57

3.23 PEST ANALYSIS

DESCRIPTION

PEST analysis is nothing but analysis of external environmental factors. The factors included

in PEST analysis are political/legal, economic, social-cultural, and technological. Each

industry is more or less affected by each of these factors. Every industry has to consider these

factors because these factors can create opportunity or threat at regular period of time. We

will now discuss all these factors in detail.

The PEST analysis is a framework that strategy consultants use to scan the external macro-

environment in which a firm operates. PEST is an acronym for the following factors:

Political

Economic

Social

Technological

PEST factors play an important role in the value creation opportunities of a strategy. However they are

usually outside the control of the corporation and must normally be considered as either threats or

opportunities.

Completing a PEST Analysis is relatively simple, and can be done via workshops using brainstorming

techniques. Usage of PEST analysis can vary from: company and strategic planning, marketing

planning, business and product development, and research reports.

58

3.7 POLITICAL FACTORS

A. TRADE POLICY

All categories of tyres can be exported freely.

All categories of new tyres can be imported freely. No WTO Bound Rates for tyres & tubes.

Tyre imports under the Asia Pecific Trade Agreement (formerly Bangkok Agreement) between

India, Bangladesh, South Korea, Sri Lanka & China allowed at a concessional custom duty of

8.60%.

All raw materials required for the manufacture of tyres can be imported freely (OGL).

B. TARIFF – DUTIES

Item - Tyres-Basic Import Duty

Normal rate of basic custom duty (MFN) -10%

Under the Asia Pecific Trade Agreement (formerly Bangkok Agreement)-8.60%

Under the Indo Sri Lanka Agreement-Nil

Under the SAARC Agreement*-5%

Under the India Singapore Agreement-5%

Government Policy

Tyre Industry Delicenced 1987

Export (of tyres and tubes) Freely allowed

Import (of new tyres and tubes) Freely allowed Since 2001

Import Policy for Used / Retreaded tyres: Restricted Since April, 2006

59

C. EXCISE DUTY

Tyre is essential for the growth of economy and used in movement of goods and common man. By

reducing excise duty on tyres, road transportation becomes more cheaper thereby reducing the cost of

commodities. The Excise Duty should be reduced from 16% to 8% and the customs duty on natural

rubber (HS Code 4001.21) be reduced from 20% to preferably 7.5% or 10%. The Government may also

consider waiving the customs duty on butyl rubber, polyester tyre cord and styrene butadiene rubber

(tyre grades: S-1502 & S-1712).

D. ECONOMICAL FACTORS

The industry is expected to grow at an average rate of 7% per annum during Eleventh Five-Year Plan

period.

3.23.1 FLUCTUATION IN RAW MATERIAL PRICES

Raw material price of any of the product is the major determinant for any of the industrial sector. Tire

industry is also getting affected by this factor. Prices of natural rubber, carbon black and the nylon tyre

cord directly affected the price of the tyre since these input constitute of 60 % of the total cost. Variable

cost is very high leading to thin profit margin. The price of RSS-4 variety of natural rubber remained as

compared to previous year during most of the year.

3.23.2 TRADE POLICY

All the category of tyre can be exported freely.

All the category of new tyre can be imported freely. No WTO bound rates for tyre

& tubes.

Second hand /used tyre can also imported freely (certain condition)

60

3.23.3 DUMPING

Dumping means to sell the same product in another country at the fewer prices then that countries price.

so basically to break market by selling at cheap price. The domestic’s tyre industries fear dumping of

tyre in Indian by mid-size foreign tyre companies following the government s decision to allow tyre

imports. The industry is more worried about import of used and second- hand tyre into the country than

the new tyres.

The second hand tyres could be offered to Indian customer at throw –away prices since disposing of

used tyre is a major problem in developed countries. Thus these how the Indian tyre industry is getting

affected by dumping.

The recommendation for imposing provisional anti-dumping duty on import of cross-ply tyres from

China and Thailand seems to have brought the domestic manufacturers to a stand-off with its dealer

network and sections of user industry as well.

All India Tyre Dealers Federation (AITDF), which had objected to ATMA's anti-dumping plea before

the designated authority, however, believes that imports are here to stay and is going to have a long term

impact on trade and services for two reasons: First, new players are bringing in new trade practices like

paving way for higher rate of return to the dealer network.

Second, apart from the low-end products, imports are increasing at a faster clip in the high-end category

as well.

3.23.4 IMPORT-EXPORT AND TYRE INDUSTRY

Relief on reduction on import duty by 3.5% on input like buty rubber, nylon tyre cord, rubber

chemicals, steel tyre cord and synthetic rubber will help. Big tyre manufactures will be happy, as there

are ancillary industries in this sector.

61

3.23.5 SOCIAL FACTORS

EMPLOYMENT GENERATE:

Employment is always a major factor when measuring the significance of any economic activity. The

automotive industry, on account of its backward and forward linkages, is a significant generator of

employment - both direct and indirect. While direct employment is by way of workers engaged in the

production of Tyre, indirect employment is generated in feeder and supplier industries to the tyre

industry, such as the growers of Natural Rubber, dealer, retreaders, service and maintenance provider

and employment in raw material sector etc. Thus steps are needed to ensure that demand – supply gap,

both quantitative and qualitative, in terms of human resources, does not arise.

3.23.6 TECHNOLOGICAL FACTORS

Increased cash and technology requirements in the domestic automobile tyres industry, given the strain

on sales and working capital requirements as a fall out of the low growth and excess capacity in the

industry.

The industry was facing increasing technology requirement in terms of quality, consistency and

longevity necessitating additional investments in modernization, Larger working capital requirements

were also expected on account of the stiff demand conditions prevailing in the industry, it added. The

rating agency believes that increasing technology needs of the industry, especially with respect to radial

tyres, is likely to emerge as a key area in future.

3.23.7 TECHNOLOGY LEADER

A.TYRE WITH COTTON (REINFORCEMENT) CARCASS

In the starting phase of proper Bias or Cross ply tyre, cotton plies were used as main reinforcing

material (end of 19th and early 20th Century). Cotton reinforcing material had inherent problems of low

strength and high moisture regainer. Leading to large number of plies to get the requisite casing strength

62

for the tyre weight of the tyre and poor heat dissipation. This, in turn, gave an adverse impact on Tyre

weight and buck rendering poor performance.

B. TYRE WITH RAYON (REINFORCEMENT) CARCASS

With the development of viscose and rayon the strength of reinforcing material went up and found

application in tyres in early 20th Century. Due to higher strength of rayon it was possible to reduce

number of plies and weight of the tyre. Since less number of plies was needed to match cotton strength,

concept of ply rating developed. It was also possible to have higher ply ratings now.

C.TYRE WITH NYLON (REINFORCEMENT) CARCASS

Pursuant to development and introduction of Polyamide (Nylon) the strength and flexing behavior of

reinforcing materials improved substantially resulting in further reduction of number of plies,

consequently the weight of the tyres. This development substantially improved the heat and impact

resistance of the carcass leading to better tyre performance and higher durability. Nylon casing gave a

boost to retread ability. Thus effective cost of the tyre in operation became much more economical.

Development of Tyre Technology due to change in Reinforcing material is basically in the case of Cross

Ply or Bias Tyres. Bias tyre has cotton, Rayon or Nylon Cords, bound as plies and each ply (i.e. Cords)

cross each other at a definite angle anchoring at the bead.

D. RADIAL (CONSTRUCTION) TYRE - TEXTILE/STEEL BELTS

Once Steel Tyre cord got developed it found its immediate application in Belt material, keeping casing

plies of Textile, to further improve durability.

E.TUBELESS TYRE (CROSS PLY)

Concept of tubeless tyre in cross ply construction wherein an inner liner compound based on

chlorobutyl or Halo Butyl which is impermeable to gases, was introduced eliminating the usage of

tubes. This concept could not find sustained application in India due to bad roads and poor

63

handling/maintenance of Rims other than in OTR range. However, Tubeless tyres are produced for

Export Market.

Gradually this concept will become fully acceptable with the advent of new generation vehicles and

improved service facilities.

F.TUBELESS TYRE - RADIAL CONSTRUCTION

As in the case of Bias Tyres, the concept of tubless tyre was extended to radial construction and

introduced in later half of the century in Developed countries. A tubless tyre not only has tube

eliminated but provides for smoother ride and vehicle handling. This is slowly entering into the Indian

market with the advent of new generation vehicles.

G. HIGH PERFORMANCE PASSENGER CAR RADIAL TYRE

High Performance Passenger Car radial tyres not only have very low aspect ratio (0.65 - 0.35) but also

have substantial changes in construction. Very low aspect ratio enables use of large diameter wheels

which, in turn, allows better stability at high speeds. The tyre contour is based on the cross section of a

fully loaded tyre and this reduces the energy losses within the tyre and reduced dynamic fatigue. High

performance Passenger tyres are made with speed rating up to ZR indicating speed capability in excess

of 240 kmph. In India, this concept has not yet been found popular though customers are demanding

tyres up to 220 km/ph (V Rating).

H. RUN FLAT (PUNCTURE PROOF) TYRE - NEW CONCEPT

A new concept of run flat tyre (puncture proof) was introduced by Continental in early 1980s wherein

the basic construction of the rim and bead was changed by which on loosing air the tyre tread sits on the

rim thus enabling one to drive at a reasonable speed for a long distance till the flat tyre could be

attended to.

This revolutionizes the OE need for a new vehicle as the Stepney tyre can also be dispensed off.

However, there is very slow progress of this concept. This has not been tried in India so far.

64

I. FUEL ECONOMY/LOW ROLLING RESISTANCE TYRE - SPECIAL COMPOUND

Tremendous work is being carried out towards the development of tyres with modified special

compounds, besides tyre construction aspect, to reduce rolling resistance thus gaining in fuel

consumption. However, the ultimate advantage is obtained by Radial Construction which is gradually

finding it’s well deserved place in Indian Industry.

J.GREEN TYRE (ENVIRONMENT FRIENDLY)

This is the latest development in Passenger Radial tyres. These tyres have a rolling resistance

appreciably lower than normal tyres. These tyres have high proportion of non petroleum based material

used in their construction and are called environment friendly or green tyres.

This concept is well perceived and will gradually find its application world over, including India.

3.24 LEADERS IN INDUSTRY

3.5 CHART: MARKET SHARE COVERED BY LEADERS

20

18

17 7

4 4

3 2

24

Market Share (%)

MRF

Apollo tyres

Goodyear

Continental

Pirelli

Sumitomo

Yokohama

Cooper

Others

65

3.6 CHART: MARKET SHARE COVERED BY LEADERS IN INDIA

3.8 OEM PARTNERS

Category OEM Partner

Truck TATA Motors, Ashok Leyland, Eicher Motors

LCV TATA Motors, Eicher Motors, Swaraj Mazda, Mahindra

& Mahindra

Passenger Car Maruti Udyog, Bajaj Tempo, Piaggio, Mahindra &

Mahindra, Scooters India, Bajaj Auto

Utility Vehicle TATA Motors, Maruti Udyog, Mahindra & Mahindra

Farm Mahindra & Mahindra, Eicher Tractors, HMT, TAFE

SHCV JCB, L&T

Two-wheelers Bajaj Auto, TVS, Hero Honda, HMSI

20

18

17

7 4 4

Market Share (%)

MRF

Apollo tyres

J k inds

CEAT

Goodyear

Others

66

OTR Caterpillar, JCB, TELCON, L&T, BEML

3.24.1 FUTURE OF TYRE INDUSTRY

The tyre industry in India has already embarked on a process of consolidation, and this is no different

from what has basically happened in the rest of the world already. India is no more an isolated economy,

and the continued economic liberalization, and relaxation of import duties and laws, makes competition

from overseas inevitable. In fact, tyres are already being imported into India.

Nevertheless, while the Indian tyre industry does lack scale, the tyre companies themselves have proven

to be very competitive. What is especially encouraging is the vigor with which the Indian tyre

companies are proactively changing to face global competition in the changed economic and industrial

environment. Product improvements and cost reduction programs, along with a focus on the future -

radials - augurs well for the industry. Also, we believe the unique road conditions, and consumer

behavior in India, provides a window of opportunity, for a few years at least, before the mainstay of the

Indian tyre industry-bias truck and bus tyres - will be threatened by the shift towards radials. We are

confident that the continuing innovative efforts of our partners in the Indian tyre industry will produce

the necessary results that allow them to continue to perform credibly in the future as well.

3.24.2 CRISIS IN THE INDUSTRY

India, as a whole, is clearly going through trying times, while GDP growth continues to slow the growth

rate from a peak of 7.5% has decelerated to a little less than 5%. What is of more concern to us is the

fact that the growth in industrial production had dropped drastically from a peak of around 11% per

annum to a little over 4%. The lack of investment, and project fruition, especially in the infrastructure

sector, is now clearly adversely affecting the Indian industry. The general slow down in exports and

increased competition from imports, and the overall picture is a sea change from the high levels of

optimism of three - four years ago.

67

So the tyre industry growth has also slowed down. Some manufacturers have even stopped production

altogether. The fact that some of our major customers had reduced production this year due to inventory

build-up, and labor unrest, also has not helped.

The SBM is coping with the crisis effectively. To tide over the crisis, it has expanded its business

interests outside the tyre and rubber industry. It supplies a healthy range of products to the plastics,

optical fiber and power cables, synthetic fibers, pharmaceuticals and security industries as well. This has

effectively mitigated the risks of being dependent on just one industry - especially a cyclical one - such

as tyre and rubber.

The continued political instability, Far Eastern economic crisis, and possible global recession are

complex variables. We do hope, however, that by early 2000, the economy should start improving.

68

CHAPTER 4

FINANCIAL ANALYSIS

69

FILTRATION DETAILS:-

We have selected in Indian tyre industry in top five players based on net sales , gross profit ,

earning per share .those company in three criteria based details is high level compare other

companies as selecting in financial details

We have selected company’s name:-

1) Apollo tyre

2) MRF tyre

3) CEAT tyre

4) JK tyre

5) Good year tyre

Indian tyre industry is out of 13th

companies we have selecting 5th

companies.

70

4.0 INTRODUCTION

The position of finance in business can be matched with the position blood in the human body.

Finance is the life blood of the business. Finance, today is not only limited up to the function that

circulates business but also extended its boundaries. Today success or failure of any business

concerned heavily depends upon how effective finance management a firm has. It is the portfolio

that gives maximum return at minimum cost. Further different parties, both inside and outside of

the firm are interested in financial position of firm and fixed interval they often evaluate

financial position by assessing financial statement of firm.

Objectives of financial analysis:-

Provide objective actionable analysis to support informed recommending and decision

making.

Provide tools to support the discussion of restoring the project, financial investing so that

funds are available when the needs for repairs arises.

Comparing the 2008-09 to 2012-13 analysis so that changes are transparent and available

for discussion.

Support the 2013-14 financial analysis for future trend analysis and financial

Parameters.

Tools used for financial analysis:-

There basically four types tools are using in financial analysis

Ratio analysis.

Trend analysis.

P&l common size statement.

Balance sheet analysis.

71

4.1FINANCIAL STATEMENT OF INDIAN TYRE INDUSTRY:-

Here we define techniques of analyzing financial statement are as follows.

Table 4.1 (Rs in cr.)

Year 2008-09 2009-10 2010-11 2011-12 2012-13

Indian

tyre

SOURCES OF FUNDS :

Share Capital 153.02 255.63 507.02 979.8 1918.54 3814.01

Equity Application Money 3548.45 5791.6 10466.65 20479.16 40423.55 80709.41

Total Shareholders’ Funds 3701.47 6047.23 10973.67 21458.96 42342.09 84523.42

Secured Loans 2288.17 4113.95 7650.55 14902.98 28955.65 57911.3

Unsecured Loans 1403.77 2574.41 4476.69 8706.36 17161.23 34322.46

Other Liabilities 3691.94 6688.36 12127.24 23609.34 46116.88 92233.76

APPLICATION OF FUNDS : 7393.41 12735.59 23100.91 45068.3 88458.97 176757.2

Gross Block 8029.13 14220.26 26017.96 50801.87 99333.36 198402.6

Less: Impairment of Assets 3959.74 7224.82 12893.63 25328.59 49555.68 98962.46

Lease Adjustment 4069.39 6995.44 13124.33 25473.28 49777.68 99440.12

Capital Work in Progress 997.35 1713.29 2982.9 5946.24 11652.29 23292.07

Current Assets, Loans &

Advances 498.43 699.41 1330.26 2617.85 5145.95 10291.9

Inventories 2106.61 3796.17 6608.06 12996.7 25578.95 51086.49

Sundry Debtors 1560.41 3033.54 5457.03 10595.35 20748.23 41394.56

Cash and Bank 741.69 1142.78 2183.21 4164.9 8287.81 16520.39

Loans and Advances 783.62 1371.27 2442.23 4805.04 9413.69 18815.85

Less : Current Liabilities and

Provisions 5192.33 9343.76 16690.53 32561.99 64028.68 127817.3

Current Liabilities 2589.93 4719.73 8701.52 16913.98 33077.7 66002.86

Provisions 474.62 853.41 1449.11 2880.42 5701.07 11358.63

Total Current Liabilities 3064.55 5573.14 10150.63 19794.4 38778.77 77361.49

72

Net Current Assets 2127.78 3770.62 6539.9 12767.59 25249.91 50455.8

Miscellaneous Expenses not

written off 5.36 10.57 21.14 42.28 79.35 158.7

Deferred Tax Assets 58.08 105.2 203.68 394.95 768.75 1530.66

Deferred Tax Liability 362.98 558.94 1101.3 2173.89 4214.96 8412.07

Other Assets -304.9 -453.74 -897.62 -1778.94 -3446.21 -6881.41

Total Assets 7393.41 12735.59 23100.91 45068.3 88458.97 176757.2

Contingent Liabilities 913.14 1467.35 2627.22 5099.11 10130.17 20236.99

We are taken the all data of balance sheet by average.

By using techniques management or any person who knows these techniques can analyze the

financial position with adequate data and interpret it and also deriving conclusion from it.

73

4.2TREND ANALYSIS OF INDIAN TYRE INDUSTRY:-

Trend analysis is one of the tools for the analysis of the company’s monetary statements for the

investment purposes. Investors use this analysis tool a lot in order to determine the financial

position of the business. In a trend analysis, the financial statements of the company are

compared with each other for the several years after converting them in the percentage. In the

trend analysis, the sales of each year from the 2008-2009 to 2012-2013 will be converted into

percentage form in order to compare them with each other.

Trend Analysis is an aspect of technical analysis that tries to predict the future movement of a

stock based on past data. Trend analysis is based on the idea that what has happened in the past

gives traders an idea of what will happen in the future.

Five years figure at Indian tyre industry

Table 4.2 (Rs in crs.)

2008-09 2009-10 2010-11 2011-12 2012-13

Sales turnover 19368.25 19582.42 24507.64 31983.78 35479.92

Index 1 1.10 1.26 1.65 1.83

Gross profit 1251.12 2416.48 2009-10.94 2607.67 3254.64

Index 1 1.93 1.60 2.08 2.60

PBIT 833.43 1918.94 1462.23 1982.78 2518.56

Index 1 2.30 1.75 2.37 3.02

PAT 314.25 1121.43 760.71 1101.2 1339.68

Index 1 3.56 2.42 3.50 3.62

Equity Application

Money 3548.45 5791.6 10466.65 20479.16 40423.55

Index 1 1.63 2.94 5.77 2.93

Total Shareholders’

Funds 3701.47 6047.23 10973.67 21458.96 42342.09

Index 1 1.63 2.96 5.79 11.43

Share Capital 153.02 255.63 507.02 979.8 1918.54

74

Index 1 1.67 3.31 6.4 12.53

Work in capital 997.35 1713.29 2982.9 5946.24 11652.29

Index 1 1.71 2.99 5.96 11.68

Provisions 474.62 853.41 1449.11 2880.42 5701.07

Index 1 1.79 3.05 6.06 12.021

Net Current Assets 2127.78 3770.62 6539.9 12767.59 25249.91

Index 1 1.77 3.07 6.0 11.88

4.2.1 SALES TURNOVER TREND ANALYSIS:-

Graph 4.1 trend analysis of sales turnover.

INTERPRETATION:

In the above graph on the X-axis years is mention and on the Y-axis sales turnover are mention

in crores. The sales turnover of tyre industries has increased from 2008-09 to2012-13 constantly.

0

5000

10000

15000

20000

25000

30000

35000

40000

2008-09 2009-10 2010-11 2011-12 2012-13

sales turnover

75

4.2.3. PROFIT AFTER TAX TREND ANALYSIS:-

Graph 4.2 trend analysis of profit after tax

INTERPRETATION:

In the above graph on the X-axis years is mention and on the Y-axis Profit after tax are mention

in crores. The profit after tax of tyre industries has increased from 2008-09 to2009-10 and then

decline in the year2010-11. Then it started increasing till 2012-13.

0

200

400

600

800

1000

1200

1400

1600

2008-09 2009-10 2010-11 2011-12 2012-13

PAT

76

4.2.4 SHARE CAPITAL TREND ANALYSIS:-

Graph 4.3 trend analysis of share capital

INTERPRETATION:

In the graph on the X-axis years is mention and on the Y-axis share capital is mention in crores.

The share capital of tyre industries has consistently increasing from 2008-09 to 2012-13.

4.2 COMMON SIZE INCOME STATEMENT OF INDIAN TYRE INDUSTRY:-

Common size income statement is of tools for the easily analysis of company’s monetary

statement for the incomes and expences analysis purpose. Use this analysis tools a financial

position of business. Easily future forecasting Expences and incomes.

Table 4.3 (Rs in crs.)

Particular 2008-09 2009-10 2010-11 2011-12 2012-13 Total

Revenue 17500.66 18046.47 23526.67 30124.38 32455.90 121654.1

0

500

1000

1500

2000

2500

2008-09 2009-10 2010-11 2011-12 2012-13

share capital

share capital

77

Less : COGS 16249.54 15629.99 21515.73 27516.71 29201.26 110113.2

Gross profit 1251.12 2416.48 2010.94 2607.67 3254.64 11540.85

Less:

depreciation

417.69 497.54 548.71 624.89 736.08 2824.91

PBIT 833.43 1918.94 1462.23 1982.78 2518.56 8715.94

Less : interest 393.80 326.20 428.31 712.86 830.25 2691.42

PBT 439.63 1592.74 1034.04 1269.92 1688.31 6024.64

Less : tax 125.38 471.31 273.33 168.72 348.63 1387.37

PAT 314.25 1121.43 760.71 1101.2 1339.68 4637.27

We are taken the all data of profit & loss by average.

78

4.2 RATIO ANALYSIS:-

Ratio broadly speaking, is the numerical relationship between to numbers, and hence ratio

analysis of statement stands for the process of determining and presenting the relationship of

items and groups of items in the statement

The ratio analysis is one of the most powerful tools of the analysis. It is used as a device to

analysis and interpret the financial statement can be analyze more clearly and decision made

from such analysis.

The use of ratio is not confined to financial manager only. There are different parties in ratio

analysis for knowing the financial position of the firm for different purposes. The supplier of

goods on credit, banks, financial institution, investor, shareholder and management make use of

ratio analysis as a tool in evaluating the financial position and performance of a firm for granting

credit, providing loans for making investment in the firm. Thus, ratios have wide application and

are of immergence use today.

The relationship of one item to another expressed in a simple mathematical form is known as the

Ratio.

The relationship can be expressed as:

1. Percentage

2. Times

3. Proportion of numbers

4. Days

Ration is used as benchmark for evaluating the financial position and the performance of the

company. Ratio helps to summaries the large quantities of financial data and to make qualitative

judgment about the financial performance of the company. Ratio in general, is a statistical

yardstick by means of which the relationship between figures can be compared and measured.

Ratio analysis is a widely – used tool of financial analysis. It is defined as the systematic use of

ratio to interpret the financial statement so that the strengths and weaknesses of a firm as well as

its historical performance and current financial can be determined.

79

4.3.1 EARNINGS PER SHARE RATIO

EPS measures the profit available to the equity shareholder on a per share basis, that is, the amount they

can get on every share held. It is calculated by dividing the profits available to the equity share holders by

the number of the outstanding shares. Earnings per share are the widely used ratio. Yet, EPS as a measure

of profitability of a firm from the owner’s point of view should be used cautiously as it does not

recognized the effect of increase in equity capital as a result of retention of earnings. The another

limitation of the EPS is that it does not reveal how much is paid to the owners as dividend, nor how

belong to the ordinary shareholders (per share basis)

As a profitability ratio, the EPS can be used to draw inferences on the basis of(1) its trends over a period

of time,(2) comparisons with the EPS of other firms, and

Earnings per share = Net profit (PAT) / No of equity shares

Table 4.4

Apollo MRF CEAT Jk Tyre Good year Total Average

2008-09 2.07 337.55 0 2.79 12.93 355.34 71.068

2009-10 8.11 592.52 46.35 39.23 30.49 716.70 143.34

2010-11 3.85 826.56 6.2 14.45 31.29 882.35 176.47

2011-12 3.52 1456.82 2.04 2.27 26.89 1,491.54 298.30

2012-13 6.11 1,345.83 30.38 25.11 23.28 1,430.71 286.14

80

Graph 4.4 earnings per share

INTERPRETATION:

In the graph on the X-axis years is mention and on the Y-axis Earning per share are mention in

rupees. The earnings per share ratio of Indian tyre industry are continually increased from 2008-

09 to 2011-12 and the ratio of MRF and Good year is decline in 2012-13. The increase the EPS

because of the company did not issue new equity share but increase the Net profit of the

company through the maximum utilization of available resources of the company. From the

above data we can say that Indian tyre industry is performing very well.

0

50

100

150

200

250

300

350

2008-09 2009-10 2010-11 2011-12 2012-13

eps

81

4.3.2 CURRENT RATIO

Current ratio is commonly explained as a measure of a company’s abilities to pay the current

liabilities. For the leaders, current ratio is very helpful for them to determine whether a company

has a sufficient level of liquidity to pay abilities. They would prefer a lower current ratio so that

more of the company’s assets can be used for growing business. Although current ratio is an

indicator of liquidity, investor should be aware that it cannot give us the comprehensive

information about company’s liquidity.

The TANDON committee appointed by the RBI Had recommended a current ratio of 2:1. But later on the

view of CHORE committee appointed by the RBI. Recommended a satisfactory current ratio of 1.33:1.

The formula of calculating current ratio is as under:

Current ratio = current assets / Current liabilities

Table 4.5

Apollo MRF CEAT Jk Tyre Good

year

Total Average

2008-09 1.06 1.43 1.14 0.78 1.13 5.54

1.108

2009-10 0.99 1.52 1.16 0.78 1.19 5.64

1.128

2010-11 0.76 1.75 0.89 0.81 1.22 5.43

1.086

2011-12 0.72 1.48 0.75 0.84 1.26

5.05 1.01

2012-13 0.78 1.43 0.73 0.85 1.33

5.12 1.024

82

Graph 4.5 average current ratio

INTERPRETATION:

In the graph on the X-axis years is mention and on the Y-axis average current ratio are mention

in times. From the above data we can say that current ratio of tyre industries has increased in the

year 2009-10. And then started declining which is not good for the tyre industries.

0.94

0.96

0.98

1

1.02

1.04

1.06

1.08

1.1

1.12

1.14

2008-09 2009-10 2010-11 2011-12 2012-13

average.current ratio

83

4.3.3 INTRESET COVERAGE RATIO

The interest coverage ratio is computed by dividing earnings before interest and taxes (EBIT) by

interest charges.

Interest coverage = EBIT / interest

The interest coverage ratio shows the numbers of times charge are covered by funds that are

ordinarily available for the payment.

Table 4.6

Apollo MRF CEAT Jk Tyre Good year Total Average

2008-09 3.17 4.19 0.56 1.26 17.35 26.53 5.306

2009-10 7.76 6.78 4.31 3.65 29.49 51.99 10.398

2010-11 2.62 9.47 1.41 2.07 30.34 45.91 9.182

2011-12 2.04 5.90 1.07 1.07 19.47 29.55 5.91

2012-13 2.78 6.25 1.89 1.88 23.15 35.95 7.19

Graph 4.6 interest coverage ratios

0

2

4

6

8

10

12

2009 2010 2011 2012 2013

intesr covereg ratio

84

INTERPRETATION:

In the graph on the X-axis years is mention and on the Y-axis average interest coverage ratio are

mention in times..A higher ratio is desirable, but too high a ratio indicate that the company is

very conservative in using debt, and that it is not using credit to the best advantage of

shareholders

The interest coverage ratio of nestle is decreased in the 2010-11 from 1,061.30 times to 154.2

times because of nestle increase the debt from 0 rs to 970.87 crores.

When a company interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may

be questionable but an interest coverage ratio below 1 indicate the company is not generating

sufficient revenue to satisfy interest expenses.

Interest ratio of lotus is below from last two year then we can say that the company has not

abilities to pay interest expenses

A lower ratio indicates excessive use of debt for inefficient operation.

85

4.3.4 RETURN ON CAPITAL EMPLOYED RATIO

Here the profits are related to the capital employed. The term capital employed refers to the total

long term funds supplied by the lenders and owners of the firm. Thus the capital employed basis

provides a test of profitability related to sources of long term funds. A comparison of this ratio

with similar firms, with the previous year average and over time would provide sufficient insight

into how efficient the long-term funds of owners and lenders are being used. The higher the ratio,

the more efficient is the use of capital employed.

Return on capital employed = Net Profit (PBIT) / capital employed * 100

Table 4.7

Apollo MRF CEAT Jk Tyre Good year Total Average

2008-09 13.37 13.25 4.46 9.63 37.18 77.89 15.578

2009-10 28 21.23 25.82 22.64 62.53 160.22 32.04

2010-11 12.79 23.54 9.67 10.99 47.88 104.87 20.97

2011-12 12.60 14.83 11.45 7.24 33.88 80 16

2012-13 17.14 19.29 19.80 12.53 25.23 93.99 18.79

Graph 4.7 return on capital employed ratio

0

5

10

15

20

25

30

35

2008-09 2009-10 2010-11 2011-12 2012-13

Average. ROCE

86

INTERPRETATION:

In the graph on the X-axis years is mention and on the Y-axis average Return on capital

employed ratio is mention in percentage. The return on capital employed shows a considerable

increase in returns. Return on capital Employed ratio also indicates that the company is earnings

sufficient revenues and profits in order to make the best use of its capital assets. From the above

data we can say that the return on capital employed ratio of tyre industries has increased in the

year 2009-10 as compare to2008-09 and then started declining.

4.3.5 RETURN ON NET WORTH:

The net worth states the return that shareholder could receive on their investment in a company,

if all of the profit earned were to be passed through directly to them. Thus the ratio is developed

from the perspective of the shareholder, not the company, and is used to analyze investor returns.

The ratio is useful as a measure of well a company is utilizing the shareholder investment to

create returns for them and can be used for comparison purposes with competitors in the same

industry.

To calculate the net worth ratio, first compile the net profit generated by the company. The profit

figure used should have all financing costs and taxes deducted from it , so that it accurately

reflects the profit available to shareholder. This is the numerator in the formula. Next, add

together the capital contribution made by shareholders, as well as all retained earnings; this is the

denominator in the formula.

87

RONW: Net Profit / Shareholder capital + Retained earnings

Table 4.8

Graph 4.8 returns on net worth

INTERPRETATION:

In the graph on the X-axis years is mention and on the Y-axis average Return on net worth is

mention in percentage. An excessively high net worth ratio may indicate that a company is

funding its operation with a disproportion amount of debt and trade payables. If so, a decline in

its business could results in the inability to pay back the debt, which increase the risk of

bankruptcy, this means that the shareholder may lose their investment in the company..

0

5

10

15

20

25

30

35

2008-09 2009-10 2010-11 2011-12 2012-13

RONW

Apollo MRF CEAT Jk Tyre Good year Total Average

2008-09 8.37 13.72 -3.28 3.12 21.56 43.49 8.698

2009-10 26.98 20.39 28.95 31.71 39.63 147.66 29.532

2010-11 10.97 23.20 4.31 11.56 31.23 81.27 16.254

2011-12 9.21 17.47 1.36 1.57 22.23 51.84 10.368

2012-13 14.26 22.20 17.16 17.94 16.95 88.51 17.702

88

From the above data the return on net worth of tyre industries has increased in the year 2009-10

as compare to 2008-09 which can be consider a good year for share holder. And then started

declining

The year 2011-12 is not a good year for share holder as compare to other year except 2008-09.

4.3.6 THE FIXED ASSETS TURNOVER RATIO

The fixed asset turnover ratio gives important clues. Financial ratio such as the fixed asset

turnover help financial analysts, management, and investors alike to make critical decision

whether to invest further, and they also determine how well a particular business is being run. Of

course, the ratios have real meaning when compared to industrial standards and averages.

The fixed assets turnover ratio is used to determine how efficiently a company or operation is at

using its fixed assets to generate sales. A low turnover suggests that the fixed assets are being

underutilized or that there are most assets than can be effectively used. On the other hand, a very

high turnover ratio may suggest that the operation is running at peak efficiency; a high turnover

may also mean that the plant is running at full capacity or is bursting at the seams and will need

further capital investments or upgrades.

Formula = SALES / net fixed assets

Table 4.9

Apollo MRF CEAT Jk Tyre Good year Total Average

2008-09 2.68 2.56 2.15 1.77 3.98 13.14 2.628

2009-10 2.56 2.38 2.41 1.72 4.00 13.07 2.614

2010-11 2.10 2.65 2.41 2.06 4.79 14.01 2.802

2011-12 2.46 2.96 2.42 2.22 4.83 14.89 2.978

2012-13 2.27 2.94 2.50 1.86 4.21 13.78 2.756

89

Graph 4.9 fixed assets turnover ratio

INTERPRETATION:

In the graph on X-axis years is mention and on the Y-axis average fixed assets turnover ratio are

mention in times

The formula is useful in analyzing growth companies to see if they are growing sales in

proportion to their assets bases. The fixed assets turnover ratio really has little meaning except

when it is put in the context of industrial average’s and consideration is made whether new

capital expenditures recently undertaken were such that they could skew the ratio. For example,

the turnover ratio will be lower just after a significant amount of fixed asset is acquired to

upgrade or expand the plant facilities.

Fixed Assets Turnover Ratio which indicates under-utilization of fixed assets. From the above

data we can say that the performance of the tyre industries has increased, decreased curve..

which means it doesn’t remain constant neither increased nor decreased.

2.4

2.5

2.6

2.7

2.8

2.9

3

3.1

2008-09 2009-10 2010-11 2011-12 2012-13

FATR

90

4.3.7 INVENTORY TURNOVER RATIO:

Inventory turnover ratio measures company’s efficiency in turning its inventory into sales. Its

purpose is to measure the liquidity of the inventory.

Inventory turnover ratio is figured as “turnover times” Average inventory should be used for

inventory level to minimize the effect of seasonality.

A low inventory turnover ratio is signal of inefficiency, since inventory usually has a rate of

return of zero. It also implies either poor sales or excess inventory. A low turnover rate can

indicate poor liquidity, possible overstocking, and obsolescence, but it may also reflect a planned

inventory build-up in the case of material shortage or in anticipation of rapidly rising prices.

A high inventory turnover ratio implies either strong sales or ineffective buying ( the company

buys too often in small quantities, therefore the buying prices is higher). A high inventory

turnover ratio can indicate better liquidity, but it can also indicate a shortage or inadequate

inventory levels, which may lead to loss in business.

High inventory levels are usual unhealthy because they represent an investment with a rate of

return of zero. It also opens the company up to trouble if the prices begin to fall.

Inventory turnover ratio is one of the efficiency ratios and measures the number of times, on

average; the inventory is sold and replaced during the fiscal year.

Inventory turnover ratio formula is = Cost of goods sold / Average Inventory

Table 4.10

Apollo MRF CEAT Jk Tyre Good year Total Average

2008-09 9.78 6.81 9.32 7.98 14.75 48.64 9.728

2009-10 11.19 7.51 9.56 9.05 17.36 54.67 10.934

2010-11 7.11 9.18 7.77 9.17 24.38 57.61 11.522

2011-12 7.94 8.07 8.42 8.86 22.08 55.37 11.074

2012-13 8.48 8.24 9.63 8.16 17.01 51.52 10.304

91

Graph 4.10 inventory turnover ratio

INTERPRETATION:

In the graph on X-axis years is mention and on the Y-axis average Inventory turnover ratio is

mention in times. A high inventory turnover ratio implies either strong sale. A high inventory

turnover ratio can indicate better liquidity. From the above data we can say that the inventory

turnover of tyre industries has increased consistently from the year 2008-09 to till 2011-12. And

then declined in the year 2012-13.

8.5

9

9.5

10

10.5

11

11.5

12

2009-10 2010-11 2011-12 2012-13

I.T.R

92

4.3.8 RETURN ON EQUITY RATIO

Return on equity are means the amount of net income returned as a percentage of shareholders

equity. Return on equity measures corporations profitability by revealing how much profit a

company generates with the money shareholders have invested.

Roe is expressed as a percentage and calculated as

Return on equity = net income / shareholders equity

Table 4.11

Graph 4.11 return on equity ratio

0

5

10

15

20

25

30

35

2008-09 2009-10 2010-11 2011-12 2012-13

ROE

Apollo MRF CEAT Jk Tyre Good year Total Average

2008-09 8.37 13.72 -3.28 3.12 21.56 43.49 8.698

2009-10 26.98 20.39 28.95 31.17 39.63 147.12 29.424

2010-11 10.97 23.2 4.31 11.56 31.23 81.27 16.254

2011-12 9.21 17.47 1.36 1.57 22.23 51.84 10.368

2012-13 14.26 22.2 17.16 17.94 16.95 88.51 17.702

93

INTERPRETATION:

In the graph on X-axis years is mention and on the Y-axis average return on Equity ratio mention

in percentage

From the above table and graph it shows that Return on Equity of tyre industries has increased in

the year 2009-10 as compare to the year 2008-09. And then started decline in the year 2011-12.

And in the year 2012-13 Return on equity increased but remains average as compare to the year

2008-09 and 2011-12.

4.3.9 DEBT EQUITY RATIO

This ratio also termed as External - Internal Equity Ratio. This ratio is calculated to ascertain the

Firm’s obligations to creditors in relation to funds invested by the owners. The ideal Debt Equity

Ratio is 1: 1. This ratio also indicates all external liabilities to owner recorded claims. It may be

calculated formula is debt / equity.

Table 4.12

Apollo MRF CEAT Jk Tyre Good year Total Average

2008-09 0.24 0.99 1.14 2.48 0 4.85 1.2125

2009-10 0.43 0.77 1.17 1.9 0 4.27 1.0675

2010-11 0.48 0.66 1.28 1.79 0 4.21 1.0525

2011-12 0.54 0.74 1.74 2.45 0 5.47 1.3675

2012-13 0.59 0.64 1.63 3.06 0 5.92 1.48

94

Graph 4.12 debt equity ratio

INTERPRETATION:

In the graph on the X-axis years is mention and on the Y-axis debt equity ratio is mention in

percentage. The debt equity ratio of tyre industries has decreased from 2008-09 to 2010-11

which is good for the industries and then started increasing from 2010-11 to 2012-13 which is

not good for the industries.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2008-09 2009-10 2010-11 2011-12 2012-13

D/E ratio

95

4.3.10 DEBTORS TURNOVER RATIO

Debtors Turnover ratio is a test of the liquidity of the firm. This ratio establishes the relationship

between net credit sales and accounts receivables. The objective of this ratio is to determine the

efficiency with which the debtors are being managed. It suggests the number of time the amount

of credit sale is collected during the year.

Debtor's Turnover Ratio = Net Credit Sales/ Average Trade Debtor's

Table 4.13

Graph 4.13 debtors turnover ratio

0

2

4

6

8

10

12

14

16

18

20

2008-09 2009-10 2010-11 2011-12 2012-13

debt turnover

Apollo MRF CEAT Jk Tyre Good year Total Average

2008-09 37.54 9.84 8.33 8.34 8.68 72.73 14.546

2009-10 48.27 10.32 8.60 8.51 10.66

86.36

17.272

2010-11 35.11 11.61 8.83 8.81 14.03 78.39 15.678

2011-12 31.35 10.04 8.82 7.59 14.18 71.98 14.396

2012-13 29.68 9.45 8.56 6.72 11.32 65.73 13.146

96

INTERPRETATION:

In the graph on the X-axis years is mention and on the Y-axis debtor turnover ratio is mention in

times. From the above table and graph it shows that Debtor’s turnover ratio has increased in the

year 2009-10 as compare in the year 2008-09. And started declining.

4.3.11 GROSS PROFIT RATIO

Table 4.14

Gross Profit Ratio established the relationship between gross profit and net sales. This ratio is

Calculated by dividing the Gross Profit by Sales. It is usually indicated as percentage.

Gross Profit Ratio= gross profit / net sale *100

Higher Gross Profit Ratio is an indication that the firm has higher profitability. It also reflects the

effective standard of performance of firm's business.

Apollo MRF CEAT Jk Tyre Good year Total Average

2008-09 7.65 7.82 2.78 5.77 6.66 30.68 6.136

2009-10 14.92 11.67 11.31 10.72 11.97 60.59 12.118

2010-11 9.56 10.62 4.44 5.33 9.44 39.39 7.878

2011-12 7.75 11.64 5.64 4.76 7.48 37.27 7.454

2012-13 10.17 9.9 7.82 7.82 6.98 42.69 8.538

97

Graph 4.14 gross profit ratios

INTERPRETATION:

In the graph on the X-axis years is mention and on the Y-axis average gross profit are mention in

crores. From the above table and graph it shows that gross profit/sales has increased in the year

2009-10 as compare in the year 2008-09. And started declining which is not good for the growth

of the tyre industries.

0

2

4

6

8

10

12

14

2008-09 2009-10 2010-11 2011-12

gross profit

98

CHEPTER 5

BUSINESS PLAN

99

5.0 EXECUTIVE SUMMARY

Indian Tyre Industry has grown rapidly in last decades. Today it is about Rs. 9000 crore industry. The

fortune of the tyre industry depends on the agricultural and industrial performance of the economy, the

transportation needs and the production of vehicles. The size of Indian tyre industry is estimated at

about Rs.14250 crore comprising 43 players with an aggregate installed capacity of over 655 lacks tyre.

The 10 large tyre companies account for over 95% of the total production.

The Indian tyre industry has witnessed a CAGR of 7.7 per cent over the last decade. The demand and

growth for the tyre industry depends on primary factors like overall GDP growth, agricultural as well as

industrial production and growth in vehicle-demand. It also depends on the on secondary factors like

infrastructure development and prevailing interest rates.

The Indian tyre industry is two tiered; Tier-I players (top 5 tyre companies), account for over 80% of

industry turnover and have a well diversified product-mix and presence in all three major segments, i.e.,

replacement market, original equipment manufacturers (OEM's) and exports. Tier-II companies are

small in size, mainly concentrating on production of small tyres (for two/ three-wheelers, etc.), tubes &

flaps and the replacement market. Tyre industry is highly raw-material intensive, with raw material

costs accounting for 70 per cent of the cost of production.

The export market for India has been predominantly to the USA that accounts for nearly 30% of exports

from the country. Apart from that India exporting tyre in more than 50 countries.

The main threat to the industry is the price of its raw materials, most of which are petroleum by-

products. Carbon, synthetic rubber and nylon tyre cord are offshoots of petrochemicals. Thus, the future

of the industry will swing with the supply of crude oil.

In the domestic market, tyre manufacturers are expected to increasingly focus on expanding their

dealership networks & explore possibilities of tie-ups among themselves to penetrate the growing

customer base. They are also likely to pursue innovative measures (such as "dial-a-tyre service and road

shows) to improve customer awareness.

100

Overall Indian Tyre Industry is enjoying the fruits of more sales in the replacement market when the

input cost is comparatively lower. Since the commercial vehicles replace tyres twice a year, we have

received the full impact of the price rises affected during the first and second quarter of the last year.

5.1 PROJECTED PROFILE AT GLANCE:-

3.NAME: ZIGZAG TYRE REMOULDING

TAGLINE: The Service which driver trust

CONTACT DETAIL: - (382210) 255377 MOB: 9933675432

ADDRESS: - 37, sahajanand estate, behind lalji-mulji transport office, sarkhej – Gandhinagar

highway, Ahmadabad Pin code-382210.

E-MAIL ID: zigzag_tyre remoulding@yahoo.com

LOGO:

1. Name of the project: zigzag tyre Remolding.

2. Location within stat country: - 37, sahajanand estate, behind lalji-mulji

transport office, sarkhej – Gandhinagar highway, Ahmadabad Pin code-382210.

3. Estimate capital cost of project: - 30 lacks.

4. Capital equipment: - tyre retreading machine and tyre Buffing machine.

5. Raw material: - Rubber.

6. Environment impact: - the project is an environment friendly activity. There

will be no ecological imbalance and pollution hazard the localities because of

the project. The project may help in checking the destruction of rubber.

7. Time frame for selection & completion of selection of project: - within a

period of 12 month.

101

NAME: ZIGZAG TYRE REMOULDING

TAGLINE: “The Service which driver trust”

CONTACT DETAIL: - (382210) 255377 MOB: 9933675432

ADDRESS: - 37, sahajanand estate, behind lalji-mulji transport office, sarkhej – Gandhinagar

highway, Ahmadabad Pin code-382210.

E-MAIL ID: zigzag_tyre remoulding@yahoo.com

LOGO :

PARTNERS :

Krushnkant Patel

Anand Patel

Ashish Patel

Kinjal Patel

Chirag Patel

M.jinesh jose

102

5.2 NATURE OF BUSINESS:

The business nature would be remolding the tyre of all commercial vehicle. ZigZag company

will be remolding all company’s tyre such as MRF, BRIDGESTONE, APOLLO, CEAT,

GOODYEAR, etc

The business is also including service facility for all company tyre. ZigZag will be focusing more

on quality and service which satisfy customer. Company will be purchasing the best quality raw

material from outside and with its best employee and resources will use this resources to make a

old tyre into new tyre with best quality.

5.3 VISION:

To become the leading king in the tyre remolding services providers in Gujarat state in coming

years.

5.4 MISSION:

To obtain and empower the consumer’s loyalty towards our company by giving them best

service and best quality.

5.5 FACILITY REQUIRED FOR ZIGZAG:

Workshop ( Area in which two sets of tyre can be remold)

Working capital

Service equipment

Machine

Manpower

5.1 SALARY STRUCTURE:

Designation No OF

PERSON

SALARY Total

salary

Yearly

salary

General Manager 1 17000 17000 204000

Workshop Manager 1 13500 13500 162000

Factory Head 1 11000 11000 132000

Employee 10 8500 85000 1020000

Accident Dept Advisor 1 6000 6000 72000

Worker 2 4500 9000 108000

Cleaner 2 3000 6000 72000

Computer operator 1 6000 6000 72000

Cashier 1 7500 7500 90000

20

1932000

103

Other competitor in Ahmadabad

Royal Tyre Company

Krishna tyre service

Jay Hind tyre service

Haji Usmanbhai tyrewala

Bangalore tyre remoulding.

5.6 MARKET SEGMENTATION AND IDENTIFICATION:

our market segment is all the owner of , trucks, farm tractor, fork lift trucks. These all segments

are including in our market segmentation and we can identified by the above mentioned target

market.

1) All commercial vehicle market segment:

All commercial vehicle market segment include Truck, luxury buses which is having a very

large market share so our targeted segment is this targeted.

2) four wheeler market segment:

As mentioned earlier likewise there is also a large no. of commercial vehicle markets is are

available like Loading truck, Tanker truck, LCV(light commercial vehicle), Buses. These all

commercial vehicle are our target segment because the market is growing so this segment is our

target market.

3) Passenger vehicle:

Passenger vehicle include jeep, luxury bus etc are falling in our target market.

Situational analysis and specification of objective:

Market trends

Technology- With the growing use of the internet and other electronic technologies, global

communication is rapidly increasing. This is allowing firms to start within the country and

market. It has driven competition greatly as companies strive to be first-movers.

Socio-Cultural – the growing trends societal concerns, attitudes, and lifestyles are important to

consumers.

104

Market Growth

As we know that Indian economy is growing rapidly and Transportation business is one of the

key important sector in our economy so the transportation business also increasing rapidly

sector is highly growing and the market of transportation vehicle is also a very high so the

market growth is very high.

Market Needs

The market suffers from a lack of service oriented with work station who provide a good value

for money. The market needs a type of work station that values the customer as its number one

priority.

Main Competitors: Competition comes from major chains and from various

independents.

1) By defining our customers are, who has having any type of any kind of transportation vehicle

like luxury, buses, LCV etc all these vehicle owner are falling in the category in the our customer

.

2) Organization structure of our company is Our organization structure is very much simple it

start with the top management and then comes the middle level management and last different

departments like HR, Marketing, Finance.

105

ORGANIZATION STRUCTURE

GENERAL MANAGER

WORKSHOP MANAGER

FACTORY HEAD

EMPLOYEES

ACCIDENT ADVISORY DEPARTMENT

Our organization chart show the flow of authority and responsibility in our company follows. In

our organization the top management takes the decision of all kind of the purchasing of raw

material and other required decision. The work allocation base is skills and education. According

to their skills and education they are having.

5.7 OPPORTUNITIES AND RISK:

Opportunity:

1) Opportunity in this business is high, because the market for tyre is also high and its

application is also very high because the transportation business is also growing. So all that

trucks and buses are need to remolding there tyre .

2) risk:

The business of tyre remolding market is very huge and there is a very less requirement of

capital for starting this business so there is a risk of entrance of new rival in this category of

business is very high because the nature of business is very high.

5.8 PRODUCTION PLANNING:

In our workstation there is no any production required but simply we can provide the Service of

tyre remolding and according to their need and requirement we made there tyre remolding by

making new design of surface of the tyre.

106

1) raw material:

In our business the main raw material is rubber because the remolding process required the

rubber for the covered the surface of tyre with the rubber and make new design on the tyre for

the superior grip on the road.

2) Supplier:

Supplier of the scrap tyre from the damaged tyre and it will be used for remolding the tyre.

5.9 MARKET IDENTIFICATION SEGMENTATION AND CUSTOMER

IDENTIFICATION:

our market segment is all the owner of trucks, farm tractor, fork lift trucks. These all segments

are including in our market segmentation and we can identified by the above mentioned target

market.

1) All commercial vehicle market segments:

All commercial vehicle market segments include Truck, luxury buses which are having a very

large market share so our targeted segment is this targeted.

2) Four wheeler vehicle market segment:

As mentioned earlier likewise there is also a large no. of commercial vehicle markets is are

available like Loading truck, Tanker truck, LCV(light commercial vehicle), Buses. These all

commercial vehicle are our target segment because the market is growing so this segment is our

target market.

3) Passenger vehicle:

Passenger vehicle include jeep, luxury bus etc are falling in our target market.

5.10 CUSTOMER IDENTIFICATION:

In the customer identification we can classify our customer on the basis of their needs like

requirement for remolding the tyre because of heavy use of there tyre and running there tyre for

longer period of time.

107

MARKETING STRATEGIES

Pricing

Develop profitable pricing strategies by analyzing all the factor like competitor pricing

strategy, market situation and most important factor that is quality service provided to the

customer.

As we mentioned earlier that customer satisfaction and quality service provided to the

customer at a greater value.

Promotional

For promotional of our work station we can give the advertisement in the leading news

paper like Sandesh, Gujarat samachar etc.

Foe using the hoardings on the road in the market where the crowed is high. We can put the

hoardings near the petrol pumps so the all the commercial vehicle owner can know about

our work station.

108

5.2 Financial aspect:-

Fixed Assets

Sr. No Description Amount

1. Service equipment

a. Tyre retreading machine

Add : Retreading tools

15,70,000

b. Tyre buffing machine 80,000

c. Polishing machine 75,000

d. Tools ( Ring , fix, t and alenkey) 1,60,000

e. Tire curing chambers 8,000

Total service equipment 18,93,000

2. Others fixed assets

a. Computers 1,30,000

b. air conditioner and television 80,000

c. office furniture 2,00,000

d. water purifier 15,000

Total other fixed assets 4,25,000

Total fixed assets 23,18,000

109

Source of finance at starting time

Partners capital 18,00,000

Loan of urban co operative bank @ 15% 12,00,000

Total capital 30,00,000

110

5.3 PROJECTED PROFIT/LOSS A/C

Particulars 1st year 2

nd year 3

rd year 4

th year 5

th year

Income :-

Service & labor

income

40,00,000 42,00,000 47,00,00 54,000,00 68,00,000

Total income (A) 40,00,000 42,00,000 47,00,00 54,000,00 68,00,000

expense :-

Rent 3,60,000 3,72,000 3,84,000 3,84,000 4,56,000

Salary 19,32,000 20,60,000 22,00,000 23,00,000 24,60,000

Electricity 1,90,000 1,95,000 1,98,000 2,10,000 2,12,000

Municipal tax 35,000 35,000 35,000 35,000 35,000

Advertisement 50,000 65,000 65,000 78,000 78,000

Stationary 55,000 55,000 61,000 61,000 64,000

Training 50,000 45,000 41,000 30,000 30,000

Uniform 35,000 -------- 42,000 --------- 48,000

Telephone 19,000 25,000 31,000 42,000 44,000

Bank charges 65,000 65,000 65,000 65,000 70,000

111

Depreciation on

machinery

3,47,700 295545 251213 242031 280876

Insurance 85,000 85,000 85,000 85,000 85,000

Misc.expences 87,000 88,000 90,000 90,000 90,000

Professional tax 5000 5000 5000 5000 5000

Maintenance 4,60,000 4,30,000 4,40,000 4,90,000 5,15,000

Income before interest

& tax:-

2,24,300 3,80,000 7,06,787 12,82,969 35,27,714

Less : interest 1,80,000 1,80,000 1,80,000 1,80,000 1,80,000

Income before tax 44,300 2,00,000 5,26,787 11,02,969 33,47,714

Less: tax (33%) 14,619 66,000 1,73,840 3,63,980 11,04,745

Net profit (after tax) 29,681 1,44,000 3,52,947 7,38,989 22,42,969

112

5.4 PROJECTED BALANCE SHEET

Particulars 1st year 2

nd year 3

rd year 4

th year 5

th year

Partners capital

Krushnkant Patel 300000 300000 30000 300000 300000

Anand Patel 300000 300000 30000 300000 300000

Ashish Patel 300000 300000 30000 300000 300000

Kinjal Patel 300000 300000 30000 300000 300000

Chirag Patel 300000 300000 30000 300000 300000

M.jinesh jose

300000 300000 30000 300000 300000

Total partners capital 1800000 1800000 1800000 1800000 1800000

Secured loan (urban

bank)

1200000 1200000 1200000 1200000 1200000

Reserve and surplus ------ 29,681 1,73,681 5,26,628 12,65,617

Profit and loss ac 29,681 1,44,000 3,52,947 7,38,989 22,42,969

Assets

Fixed assets

Tyre retreading

machine

15,70,000 -100000 -500000

113

Tyre buffing machine 80,000 -90000

Tyre Polishing machine 75,000

Tools 1,60,000

Tire curing chambers 8,000

Furniture 2,00,000

Computers 1,30,00

Water purifier 15,000

Air conditioner and

television

80,000

Total fixed assets 2318000 1970300 1674755 1613542 1872511

Less : depreciation

@15%

347700 295545 251213 242031 280876

Total 1970300 1674755 1423542 1372511 1591635

Current assets

Cash & bank 250000 740000 860000 760000 1046000

Raw material stock 300000 455000 399700 456000 470000

Total current assets 550000 1190000 1259700 1216000 1516000

Total assets 5549981 6038436 6209870 66,64,128 9115948

114

5.5 PROJECTED CASH FLOW

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19

A. Cash flow of

operating activities

PBIT 2,24,300 3,80,000 7,06,787 12,82,969 35,27,714

+ depreciation 347700 295545 251213 242031 280876

-Direct tax 14,619 66,000 1,73,840 3,63,980 11,04,745

Net cash inflow 557381 609545 784160 1161020 2703845

B. cash flow of

investing activities

-2318000 -1970300 -1674755 -1613542 -1872511

Net cash outflow -2318000 -1970300 -1674755 -1613542 -1872511

C. cash flow from

financial activities

Borrowing loan 1200000 1200000 1200000 1200000 1200000

Interest paid -1,80,000 -1,80,000 -1,80,000 -1,80,000 -1,80,000

Net cash outflow from

financial activities

1080000 1080000 1080000 1080000 1080000

A+B+C=Net cash flow

+/-

-680619 -280755 189405 627478 1911334

Current assets 550000 1190000 1259700 1216000 1516000

Net increase / decrease

cash flow

-130619 909245 1449105 1843478 3427334

115

CHAPTER 6

CONCLUSION

116

CONCLUSION

The growing economy and the infrastructure sectors provide the much-needed force. However, tyre

companies face competition, together with price and cost pressures. Pricing pressure, from OEMs

because of their high bargaining power and in the replacement market due to huge competition, is a

substantially reduce. Companies are now giving emphasis to innovation in product and process

technology and to operational efficiencies. However, the continuously rising trend witnessed in the

prices of raw materials remains an area of concern.

Tyre companies would definitely show improvement in the margins, sequentially, and if prices remain

at these levels, profitability would improve. But then, it is highly dependent on the prices of major raw

materials like Rubber, Carbon Black, NTC Fabric, SBR and PBR, which are highly volatile. However,

with surging automobile sales, if demand for tyres increases without the supply catching up with it,

then, prices of tyres are likely to increase. This may provide some benefit to the tyre companies.

The industry is definitely set to grow, but the huge competition, huge buyer power, and pricing

inflexibility and cost pressures. Tyre companies are operating at very thin margins and their return ratios

are also not attractive.

Currently India exports tyres to around 65 countries and this is expected to increase significantly during

the current financial year. Though the growth has been lower than when overall growth was around 7

per cent, there is nothing to worry about as couples of companies are in expansion mode and also they

are catering to the increasing domestic needs.

The consolidation of the Indian tyre industry is likely to continue in the coming years through mergers

among existing players. The industry is likely to expand through a combination of organic and inorganic

growth. While organic growth would come from raising efficiency levels, inorganic growth would be

achieved.

The main threat to the industry is the price of its raw materials, most of which are petroleum by-

products. Carbon, synthetic rubber and nylon tyre cord are offshoots of petrochemicals. Thus, the future

of the industry will swing with the supply of crude oil.

117

In the domestic market, tyre manufacturers are expected to increasingly focus on expanding their

dealership networks & explore possibilities of tie-ups among themselves to penetrate the growing

customer base. They are also likely to pursue innovative measures (such as "dial-a-tyre service and road

shows) to improve customer awareness.

According to estimates, major tyre companies in the country export about 20 per cent of their truck tyre

production and the continuous up gradation of quality has resulted in greater acceptance level for Indian

tyres in various countries.

The biggest threat, however, is yet to fully materialize. It will be from global majors like Apollo, MRF,

JK which control 36 per cent of the global tyre market. These players have set up their bases in

Southeast Asia and the slump of the markets in this region, coupled with the vast growth potential of the

Indian market, is attract them towards India.

Overall Indian Tyre Industry is enjoying the fruits of more sales in the replacement market when the

input cost is comparatively lower. Since the commercial vehicles replace tyres twice a year, we have

received the full impact of the price rises affected during the first and second quarter of the last year.

118

LIMITATION OF THE REPORT

In this report we are assuming that selected five companies are representing the whole

industry but it may not be.

We select five companies on the basis of available financial data but it may be possible

that major companies remain unconsidered because of lack of financial data.

Here we selected five major companies on the basis of only net profit ratio so it may be

possible that other parameters of the other companies are good compare to selected

companies.

In the strategic analysis of the Indian Tyre Industry we used strategic analysis tool call

Strategic Grouping Mapping and competitive profile matrix in which we give weights

and ratings to opportunities, threats and critical success factor as per our understanding.

In the PEST and Porter’s five force analysis we include all possible variables as per our

understanding but there may be chances of missing some variable.

We try our best effort to apply all possible strategic tools and financial data to study the

performance of Indian Tyre Industry but it may possible that some portion of the

industry remain unanalyzed.

119

CHAPTER 7

BIBLIOGRAPHY

120

BIBLIOGRAPHY

BOOKS:

By,

Thomsan Arthur, A. J Strickland, Gamble E John, Arun K. Jain

“Crafting and Executing Strategy”( Special Indian Edition), 14th

Edition, TMH Production.

WEB SITES:

www.way2wealth.com

www.indiainfoline.com

www.atmaindia.com

WEB LINKS:

http://www.atmaindia.org/Export.htm

http://www.atmaindia.org/Radialisation.htm

http://www.atmaindia.org/Redreading.htm