Description
The Indian tire industry is worth to be around Rs.430bn as on March 2013. It is an attractive industry whose total sales revenue has grown by 16% CAGR in last ten years from 2002-03 to 2012-13. In the same period, the profit of the industry has also grown by 16% CAGR.
MRF Tires
Business Strategy
Table of Contents
Introduction .................................................................................................................................................. 4
Tire Industry in India ..................................................................................................................................... 4
Demand Drivers for Tire Industry ............................................................................................................. 7
Commercial Vehicles ................................................................................................................................. 8
Porters Five Forces analysis of Indian Tire Industry...................................................................................... 9
Degree of Rivalry - Moderate.................................................................................................................... 9
Threat of substitutes – Low ...................................................................................................................... 9
Buyer Power Buyer - High ......................................................................................................................... 9
Bargaining power of supplier – Moderate .............................................................................................. 10
Threat of new Entrants - Low.................................................................................................................. 11
PEST analysis ............................................................................................................................................... 11
1. Political ............................................................................................................................................ 11
2. Social & Cultural changes ................................................................................................................ 13
3. Economic ......................................................................................................................................... 14
4. Technological changes .................................................................................................................... 14
MRF – Madras Rubber Factory ................................................................................................................... 15
History ..................................................................................................................................................... 15
Market leadership ................................................................................................................................... 15
Operations .............................................................................................................................................. 16
R&D and Innovation: ............................................................................................................................... 17
Sales and Distribution ............................................................................................................................. 17
Exports .................................................................................................................................................... 18
Branding .................................................................................................................................................. 18
Human Resources ................................................................................................................................... 19
Exhibits: ................................................................................................................................................... 19
Value Chain: ............................................................................................................................................ 21
Key Success Factors ..................................................................................................................................... 21
Radialization ............................................................................................................................................ 21
Natural rubber prices .............................................................................................................................. 22
Automobile market growth rate ............................................................................................................. 22
Brand Awareness and Distribution Network .......................................................................................... 22
Competitors in the tire industry: ................................................................................................................ 22
Apollo Tires Ltd ....................................................................................................................................... 22
JK Tires& Industries Ltd: .......................................................................................................................... 23
CEAT Ltd .................................................................................................................................................. 23
Future of the Tire Industry: ......................................................................................................................... 23
Conclusion ................................................................................................................................................... 25
Bibliography ................................................................................................................................................ 26
Introduction
Tire Industry in India
The Indian tire industry is worth to be around Rs.430bn as on March 2013. It is an attractive industry
whose total sales revenue has grown by 16% CAGR in last ten years from 2002-03 to 2012-13. In the
same period, the profit of the industry has also grown by 16% CAGR. (Growth in revenue and profit has
been calculated using prowess database)
Tire industry can be categorized into three segments: Original Equipments Manufacturer (OEM)
segment, Replacement Market and Exports.
Category Market Share (2011-
12)
Customer Segment CAGR
(2007-08 to 2012-13)
OEM Segment 24 Automobile
manufacturers
9
Replacement
Market
65 Transportation,
Corporate Sectors &
Individuals
7
Exports 11 South East Asia, Africa,
Middle East
19
Clearly, we can see replacement market constitute the major market share of Tire Industry. Although
OEM segment is growing at rate 2 percentage point higher than the Replacement market, it is mainly
because of the large base of the replacement market. So the tire companies show a big opportunity in
the replacement market. In addition, all those companies, which have been consistently at top in this
industry, have very good presence in replacement market.
Exports of tires are growing phenomenally at around 19% CAGR in last five years. However, during the
same tenure import of tires in Indian market has grown-up by 24% so imports and exports are kind of
setting off each other’s impact. However, because of growth in imports top players in Indian tire
industry are facing heat as the imported goods are mainly eating away market shares of top branded
companies whereas small regional players do not see their sales so much influenced by imports.
At present 30 plus tire, companies are in business in tire industry. From this angle, this industry looks
very less concentrated and highly competitive. Herfindahl index also has the value of around 0.15 for
this industry showing it is highly competitive. However, with further analysis we find that top four
companies account for 70% of total market share in 2012-13. Top four companies are MRF, Apollo, Ceat
& JK Tires. This pattern has been same for last decades during which these four companies together
always had market share of 65%-75%.
Performance of the tire industry is largely influenced by the replacement segment. It is because truck
tires account for the largest share (73%) of the product mix. However, non-truck tires are mainly
influenced by growth in the automobile sector. It is worth noting that shining history of tire industry in
last decade is mainly because it is a complimentary product for automobiles. In addition, in this last
decade because of GDP boom, automobile industry flourished and so we have seen tremendous growth
in tire industry. However, post 2010 with weakening economic scenario and fall in GDP, automobile
sector has taken hit. In year 2011-12, tire industry posted net profit margin of 2.4% as compared to
5.8% in 2009-10.
Figure 1
Tires: Product categories and market segments (2012-13)
The industry is classified (based on revenue contribution) into commercial vehicle tires (71%) and
passenger vehicle tires (22%). Commercial vehicle tires include those for medium and heavy commercial
vehicles (MHCV 55%), light commercial vehicles (LCV 8%) and tractors (8%). Passenger vehicle tires cover
passenger cars (12%) and Two-wheelers (10%).
Comparing segmental revenue contribution to the segmental volume we find out two wheelers tires
have maximum production volume (53.5%) which contribute to just 13 % of revenue. On other hand
Truck/ Bus tires have volume capacity of 13% of total volume of tires but this segment contributes to
54% of total revenue.
Figure 2
The industry is raw material-intensive, with raw materials constituting around 70 per cent of the sales
turnover and 75 per cent of the operational cost. Raw material costs have increased over the past few
years. Despite the industry being moderately concentrated, players have not been able to fully pass on
the rise in these costs to consumers. This is because the decrease in customs duty over the years has led
to cheaper imports from China and other South East Asian countries, thus exerting pressure on tire
prices. Total imports have increased at a moderate 24 per cent CAGR over the past 5 years, mainly led
by higher growth in commercial vehicle tire imports (of this, 90 per cent are radial tires). Imports, as a
percentage of consumption, increased to 9 per cent in 2011-12 from 5 per cent in 2006-07.
Complete data for Tire Industry for the year 2012-13 is not available at Prowess or Crisil Research. So for
the complete overview of the industry, let us refer to statistics as of year 2011-12.
Tire Industry Overview
Size (2011-12)
Turnover (Rs. Billion) 362.1
Export (Rs. Billion) 21.7
Production (million nos) 96.5
Production (‘000 tonnes) 1267
Historical growth rate (2006-07 to 2011-12)
Production of MHCV Tires in nos. (5-year CAGR) 5.35
Value of Exports (5-year CAGR) 5.38
Share in Production
Share in Truck & Bus Category (%) Replacement: 66;Export: 14, OE: 20
Share in all categories Replacement:52 ;Export: 15, OE: 33
Industry Concentration in truck and bus tires
Market share of top 7 Companies (%) 81.4
Market Leader MRF
Leader’s Market share 22.6
Cost structure
Raw material cost as percent of op. income 74.2
Staff cost as percent of op. income 4.8
Interest Cost as percent of op. income 3.0
Depreciation Cost as percent of op. income 2.1
Profitability
Operating Profit margin (%) 8.5
Net Profit Margin (%) 2.4
Demand Drivers for Tire Industry
Passenger Vehicles
New vehicle sales are the key in driving passenger vehicle tires demand. Demand for passenger vehicles
tires is primarily from the OEM segment followed by the replacement segment and exports,
respectively. Tire demand from OEMs depends on new model launches and sales of existing models.
Replacement demand depends on the life of a car tire and usage of a car (number of km driven).
Figure 3
Commercial Vehicles
Replacement segment is a key driver for commercial vehicles tire demand which retains dominant
share. In 2012-13, demand from replacement segment continued to dominate the market by
contributing 70 per cent to total demand (in tonnage terms).
Figure 4
Demand from replacement segment recovered and grew robustly by 21.9 per cent year on year, while
demand from OEM fell by 6.4 per cent year on year, in 2012-13. Due to weak automobile demand
globally, exports growth remained muted year on year in 2012-13.
Porters Five Forces analysis of Indian Tire Industry
Degree of Rivalry - Moderate
The degree of Rivalry in Indian Tire industry is Moderate due to some of the below factors
1. Industry Concentration
The Concentration in Indian tire industry is high with the top 10 player accounting for around
95% of the market share. Since these firms are of similar size competition is high as they
possess similar kind of resources
2. Industry Growth
The growth in the Indian Tire industry is moderate (4-5%). So the players fight among
themselves for market share. This can also be a reason for price war since it is a commoditized
product and low scope of differentiation
3. Product Differentiation
Since the product is commoditized the customer can switch from one product to another and
hence increases rivalry as there is less scope for product differentiation.
4. High Exit Barriers
Since the plant and equipment are highly specialized for tire industry and the investment to
start a plant is huge the exit barriers are high
Threat of substitutes – Low
Since the tire Industry has no possible direct substitutes the threat from substitute products is very low.
In future the substitutes can be Electromagnetic vehicles running on electromagnetic rails. Increased rail
or air transport will also threaten the tire industry but as of now we can say that threat of substitutes is
low
Buyer Power Buyer - High
The buyer power is high in the Indian tire industry due to the below factors
1. Buyer Volume
OEM manufacturers account for 14% of the total tire demand. Since the OEM’s are bulk
purchasers they have very high bargaining power
2. Price Sensitivity
The price sensitivity of Indian consumers are high as middle class accounts for most of the
passenger class market share. Since the consumer is price sensitive and plethora of switching
options available they command a high bargaining power
3. Product Differentiation
Due to low product differentiation, Customers can switch to cheaper substitute tires and hence
command high buyer power
4. Threat of vertical Integration
There is a threat of vertical integration from OEM manufacturers eg . TVS tires ventured into the
tire Industry. Hence due to the threat of vertical integration they can command lower prices
from tire manufacturer’s
Bargaining power of supplier – Moderate
The supplier power is moderate in this industry. The major raw materials are
Natural Rubber 44%
Nylon Tire Cord Fabric 19%
Carbon Black 12%
Rubber Chemicals 5%
Butyl Rubber 4%
PBR 5%
SBR 5%
Others 6%
Source: ATMA
1. Natural Rubber – Moderate
The Natural rubber suppliers are scattered and since the tire companies buy in bulk and are
concentrated the supplier power is low. But due to Government putting tariff barriers on Import
we can say that they have moderate power. Recently the Government hiked import duty on
natural rubber prices to 30 Rs/kg to protect domestic interest of natural rubber suppliers.
2. PBR and SBR – High
Only reliance is the supplier of PBR(poly butadiene rubber) and hence has a monopoly and
command high supplier power.
Overall we can say that supplier power is moderate
Threat of new Entrants - Low
The threat of new entrants is low due to the below factors
1. Capital Intensive
The tire industry is highly capital intensive. The cost for new plant is around 10 Billion INR. Also
the exit costs are high due to specialized machinery and equipment.
2. High Capacity
The plant capacity is high and needed to achieve economies of scale as the initial investment is
high. Also radialization is highly capital intensive and requires huge capacity addition.
Due to these factors a new player finds it difficult to enter in tire industry and hence threat of new
entrants is low.
Apart from these five forces we can consider two additional forces as given below
? Power of Complement’s (HIGH power) – Tires are complements to automobiles and the sales of
automobiles affect the sale of tire industry.
? Government (Moderate) – Government impacts the tire industry by putting import restrictions
on raw materials and foreign tire companies presence in India. Recently the Government has
made all importing tire companies to obtain BIS certification. This will help curb entry of cheap
Chinese low cost tires which will not meet BIS standards.
Weighing all these factors we can say that the forces in tire industry are Moderate and therefore the tire
industry is moderately profitable.
Since the business environment can be changing and cause a threat to the tire industry lets analyze the
factors by doing a PEST analysis
PEST analysis
1. Political
The government affects the tire industry in the form of regulations and taxes, it regulates the
import and export and levy import and export duty on the raw materials procured by the tire
industry. There is a huge demand on the government by the All India rubber industry association
to increase the import duty to protect the falling price of natural rubber.
The government has recently increased the import duty on raw material to INR 30/Kg from
20/Kg and there can be a further increase in the import duty. If the import duty is raised further
the tire industry will suffer as a whole due to reduced margins and their inability to pass on the
price to the customers.
Trade Policy - Tires & Raw Materials -
? All categories of new tires can be exported freely.
? All categories of new tires can be imported freely.
? No WTO Bound Rates for Tires & Tubes.
? All raw materials required for the manufacture of tires can be imported freely (OGL).
Custom Duties : Tires
Normal rate of Basic Customs Duty (MFN) 10%
Preferential/ concessional Customs Duty under Trade Agreements
* Asian Pacific Trade Agreement
(formerly known as Bangkok Agreement)
8.60%
* Indo Sri Lanka Free Trade Agreement Nil Duty
* SAPTA ( SAARC Preferential Trading
Agreement)
Nil Duty*
5%**
* India Singapore Comprehensive
Economic Cooperation Agreement (CECA)
Nil Duty (For Bias Tires)
* India South Korea CEPA No Concession
* ASEAN FTA 7%(passenger car, truck / bus and scooter / motercycle)
5% (other categories of tires).
For details please refers to Preferential Tariff Table for Tires/ Raw-Materials of Tire Industry
(Ref. Section on RTAs)
Excise Duty:
All categories of Tires 12%
Source: ATMA
All these policies might affect the profitability of the tire industry if there is a change in the
political scenario and the upcoming assembly elections might prove to be a game changer for
the tire industry.
2. Social & Cultural changes
The Indian middle class, target consumers for many companies, is expected to grow up to 267
million people in the next five years, up 67 per cent from the current levels, thus providing a
great market opportunity for firms, according to NCAER (National Council for Applied Economic
Research).
According to a report by Mckinsey global institute, India’s household consumption is expected
to grow four times by 2025. By its estimates, the country’s middle class will be 583 million
strong by 2025, making India the world’s fifth-largest consumer market.
Also as evident from the above figure from Mckinsey, The household income for Strivers and
Global’s will increase which have the highest disposable income and drive the economic growth.
This will fuel the consumption of automobiles and indirectly will affect the demand for tires.
Figure 5
3. Economic
Interest rate movements – lowering of interest rates might increase money circulation in market
and fuel growth which might push the automobile sales and in turn fuel tire sales.
Inflation – Can affect the tire industry negatively if the govt increase the interest rates to curb
inflation
Consumer Confidence – Stagnant growth and low market sentiments will hurt tire industry
Currently the Inflation in India is very high around 8%. The RBI has increased the interest rates
to curb inflation and this is putting a strain on the tire company’s interest payment for debts.
Also raising debts will become difficult to increase the production capacity and radialization due
to high interest rates. With the general elections coming in the near future the companies are
expecting that interest rates will go down and the GDP growth will pick up and sales will
increase and debts become cheaper.
4. Technological changes
Using more Synthetic rubber – Will reduce the dependence on natural rubber and might see an
increase in the number of companies producing artificial rubber and decrease the dependence
on few manufacturers in future. The tire companies are undergoing technological changes and
investing heavily in R&D
Efforts in brief made towards technology absorption, adaptation and innovation
a) Evaluation of new materials: New raw materials are evaluated and introduced into to achieve
required properties.
b) New product development: New products are developed with increased product
performance by adapting to different design and compound changes.
c) New process development: New innovative process changes are made to improve
consistency and uniformity. This has also resulted in energy savings and productivity increase.
d) Development of equipment and machinery: Development and maintenance to improve
product consistency, reduce down times and increase productivity
MRF – Madras Rubber Factory
History
MRF Ltd is among one of the country’s select Blue Chip companies. It was started by K M Mammen
Mappillai in 1946 as a small manufacturer of toy balloons, which later went on to become the
manufacture of tread rubber. In a few years, the company emerged as a leading manufacturer of tread-
rubber. In 1961 MRF entered into technical collaboration with the Mansfield Tire & Rubber Company of
USA and started manufacturing of tires. After a year the company became a public limited company. In
early nineties MRF made some successive technical collaborations with BF Goodrich, Uniroyal Goodrich
and Michelin which helped it to accelerate development of its own technology and R&D. Today, MRF is
uniquely positioned as one of the few companies globally, who possess their very own technology in
both Bias Ply and Radial tires. Over the years the MRF has established a country wide distribution
network and has a very strong brand image.
Market leadership
MRF is one of the country’s leading market players with a market share of close to 27% with a strong
presence across the value chain of automotive segments. If you see the below figure depicting share of
different players in across the segment we see that, MRF is the largest player in the passenger car
segment with a market share of 21.3%. It is also the largest player in LCV segment with a market share
of 44%. In the M&HCV(Truck) segment, it has overall market share of 20.4%.
MRF Market Share in each Segment:
Figure 6
One of the reasons for MRF to maintain its market leadership over the years despite the competition is
presence across all the segments and diverse product offerings. Despite the slowdown in OEM segment
due to recession, the replacement market has emerged as strong tire market and MRF with 75-76% of
its domestic revenues coming from this segment enjoys a dominant position in the market.
0 10 20 30 40 50
Ceat
Birla
MRF
Apollo
JKTIL
OTR
Passanger Car
LCV
Truck
In 2011 MRF Ltd became the only Indian company to cross gross revenue mark of Rs. 10,000 crores and
total sales for the period 2012-13 is around Rs. 13,500 crores.
Presently, Some of the OEM customers of MRF are major global and domestic automobile companies
like Ashok Leyland, Eicher, Fiat, Force Motors, Ford, General Motors, Honda, Hyundai, John Deere,
Komatsu, Mahindra & Mahindra, Man, Maruti Suzuki, Mitsubishi, Tata Motors, Scania and Volvo.
Operations
MRF operates 7 plants across India at Tiruvottiyur and Arakonam in Tamil Nadu, Kottayam in Kerala,
Ponda in Goa, Medak in AP, Pondicherry and Trichy in Tamilnadu. All the factories are TS 16949/ISO
9001 certified. MRF manufacturers tires across all segments like heavy duty truck/bus tires(MH&CV),
light commercial vehicles tires(LCV), passenger car tires, off-road or Industrial tires, two-wheeler tires
and farm service tires. Capacity has expanded from 28.4 million tires in 2009 to 45 million tires in 2013
to meet the growing future demand. MRF is currently investing in a steady and new expansion projects
including the implementation of Greenfield projects.
A Robust ERP system connecting all plants, sales offices and head offices is set up to enable information
flow. This increase control check points and helps to manage inventory, demand and supply. Because of
this, it is able to achieve operational efficiency and MRF has been consistently maintaining better than
industry EBITDA margins.
In the Following figure, we compare the margins of MRF with that of its competitors and Industry. We
see that MRF is consistently maintaining higher margins than both industry as well as its peers.
Figure 7
R&D and Innovation:
MRF has commissioned Greenfield project in two of its new plants at Medak (AP) and Trichy (TN). Focus
on Green tires and Radial technology going forward is helping MRF to stay ahead of its competition.
MRF R&D has also designed and developed tires for Sukhoi 30 MKI and Chetak Helicopters.
It has an in house strong R&D team. Continuous product up gradation is a key to its success over the
years. MRF uses cutting - edge technologies in predictive testing and design validation before it leaves
the drawing board. These advances have significantly brought down the time to market for new designs.
MRF has its own radial tire technology suit. MRF has pioneered the concept of motorsport as a testing
opportunity and currently has a strong presence across the Asia-Pacific region. The prototypes for
verification and validation testing are done on MRF tires confirming the architecture. Series of indoor
testing are carried to meet the MRF’s tight standards, quality and those required by the OEM or by any
of the national standards like BIS/JIS/ETRTO/T&RA. MRF formula championship is a great place to test
their products, gives it access to new technologies and new insights into product development.
Specific areas in which R&D concentrates are:
? Development of new product to improve product performance to meet the requirements of
OEM and replacement market
? Raw materials are tested in NABL accredited laboratories.
? Introduction of new alternate raw materials to reduce dependencies, improve quality and cost
reduction. Self developed raw materials and process equipment has resulted in substantial
savings and has helped in import substitution.
? Process modification is continuously made to optimize energy consumption and increase
productivity
? Modernization and automation of process equipment are done to achieve greater accuracy and
narrow tolerance levels
Sales and Distribution
Sales and Distribution is a core business of MRF tires. MRF has a PAN India wide distribution network of
129 sales offices and 10,000 dealers. Of which more than 4500 dealers are exclusive MRF product
dealers. MRF service stations provide world-class ambience with services like wheel alignment,
balancing, automatic tire changing, nitrogen filling and tubeless tire repair. MRF also trains the service
personnel itself.
MRF T&S: It is a one-stop shop for a unique tire shopping experience. An experience that is fun and
enjoyable for the whole family. T&S stocks the entire range of MRF tires and is equipped to provide
services of computerised wheel alignment, wheel balancing and tire changing. The technicians at MRF
T&S are trained at the MRF Tiredrome. Currently, there are 300 T&S franchisees across the country and
many more coming up each day.
MRF Tiredrome: MRF provides a unique service experience to its customers. World-class services like:-
? Robotic wheel alignment
? Vehicle safety test lane
? Diagnostic wheel balancer
? A/C Recovery & Recharging unit
? Leverless Tire changer
? Headlight aligner/Car Wash
MRF Fast: It is India’s 1
st
customer care centre for tires. It offers a window for customers to reach out to
MRF for on all their tire related queries. On spot settlement on warranty claims is done.
M.I.D.D: MRF Institute of Driver development imparts training to young men in LCV and HCV driving.
MRF ranks highest in customer satisfaction survey with original equipment tires among five tire
manufacturers, according to the J.D Power and Associates India. With an overall CSI (customer
satisfaction index) score of 840 on a 1,000-point scale, MRF ranks highest and performs particularly well
in all factors driving overall satisfaction.
Figure 8
Exports
Company has grown overseas as well. Currently MRF tires are exported to over 60 countries including
US, South America, Africa, Middle East, Australia and other Asian Countries. MRF is being continuously
awarded “Highest Export Award” by the All India Rubber Industries Association from many years.
Branding
MRF has a high brand recall as compared to other tire brands in India. This is partly because of its close
association with the sport everyone likes in India – Cricket. In 1987 it started MRF Pace foundation with
a unique corporate commitment to the development of pace bowlers for Indian cricket. It has produced
fantastic bowlers since then. Sachin Tendulkar as a brand ambassador for MRF has given it a unique
identity. Now Virat Kohli, Shikhar Dhawan, Gautam Ghambir continue to promote the brand through
their association. MRF formula championship also provides much needed brand exposure and
recognitions.
810 815 820 825 830 835 840 845
MRF
JK Tyre
Bridgestone
Industry Average
Apollo Tyres
Goodyear
MRF Ranks highest in CSI by JD Power
Human Resources
MRF is the right place to join for the bright and talented young workforce. Induction and orientation
program are one of its kind to make the new entrants feel at home. Operatives are recruited and trained
by NTTF. With syllabus updated and customized to suit current requirements that helps operatives
settle into their jobs effortlessly. MRF provides leadership training to its union leaders, opinion makers
and also staff and managers to promote their development within the organization. MRF maintains
good relationship with employee union. Recent lockouts at plants in Chennai by employee union has
been resolved by proper consultation. To promote TPM(Total Productive Maintenance) culture, the
employees are encouraged to adopt ‘Kaizen Principles’. Employees are rewarded and given incentives
based on their performance. New features in SAP are developed and employees are encouraged to
continuously improve processes and operational efficiency. Many Employee benefit schemes like life
insurance, annual bonuses are provided.
Exhibits:
Revenue:
MRF revenue rose significantly in 2008-10, second only to Apollo. Also in the years of declining demand
due to global crisis, decline in MRF sales was less steep than its competitors. At present MRF and Apollo
maintains almost same quantity and growth in sales revenue.
Figure 9
Profitability:
MRF commands higher profitability as compared to its peers and overall industry average. Its current
profitability stands at 6%, which is 3 percentage points higher than its closest competitor Apollo at 3.2%.
It shows the operational efficiency and margins that MRF commands which is best in the industry.
0
2
4
6
8
10
12
14
16
18
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
M R F Ltd.
Apollo Tyres Ltd.
J K Tyre & Inds. Ltd.
Ceat Ltd.
Figure 10
Operating profit:
MRF operating profit is way above its competitors. It mainly comes from better capacity utilization that
is critical factor in tire industry for profitability.
Figure 11
Efficiency in use of total assets:
MRF Asset turnover is one of the highest in Industry varying between 2 to 2.5. At present its in declining
stage. There may be two reasons behind it. One is decrease in profitability due to global crisis. Second
reason is MRF has invested in new plants in Tamil Nadu and Madhya Pradesh in last four years. This new
plants require heavy investment but it will take time before they reach full production scale. So it may
hurt their asset turnover ratio.
-2
-1
0
1
2
3
4
5
6
7
8
9
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Industry
MRF
Apollo
Ceat
JK Tyre
0
20
40
60
80
100
120
140
M R F Ltd.
Apollo Tyres Ltd.
J K Tyre & Inds. Ltd.
Ceat Ltd.
Value Chain:
Key Success Factors
Radialization
Radialization in truck segment in India is 21% where as the world average is 68%. There is a lot of scope
for it in near future. It is expected to grow by 35%+ over the next three years. Radial tires are usually
priced higher, about 20-25 % more than cross-ply tires. Most tire companies are expanding radial tire
capacities. Manufacturing radial tires is more capital intensive but is more profitable in the long run.
0
0.5
1
1.5
2
2.5
3
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
JK Tyres
Ceat
Industry
Apollo
MRF
Radialization Trends in India:
Natural rubber prices
Natural rubber cost 60-65% of overall raw materials. Tire companies are highly sensitive to price
fluctuation. In India Rubber Industries Association play an important role in fixing Natural rubber prices.
Domestic rubber prices in India are higher than the imported price of rubber. With recent deregulation
in imports of rubber, import of natural rubber by tire companies is on increase. However, in future any
change in government policy or natural rubber demand may hurt the profitability of company.
Automobile market growth rate
India is sixth largest automobile manufacturer in the world. According to SIAM report Automobile
Industry has grown up by 12% CAGR in last 10 years. Export of vehicles is also on rise. But the growth in
automobile industry in recent years has been very grim. Slower than anticipated recovery of automobile
sales in the Indian Market has affected sales of tires.
Brand Awareness and Distribution Network
Tire is a commodity product with very low scope of differentiation. Also its major share of revenue
comes from the replacement market. So in this case good brand awareness and recall is important for
the increase sales on the company. Good brand recall has to be complemented by extensive product
availability in the market. For this reason expansion of distribution network is important.
Competitors in the tire industry:
Apollo Tires Ltd
Apollo Tires Ltd. was founded in 1976. Apollo is the second largest tire manufacturing company in India.
The corporate headquarters of the company is in Gurgaon, Haryana. The company had a turnover of
$2.34 billion during FY 12-13. During the last five years, the company has grown at a compounded
annual growth rate of 20%. With eight manufacturing facilities in Asia, Europe and Africa, Apollo is one
of the major tire manufacturers of the world. Today, Apollo Tires is a multi-brand enterprise comprising
0
20
40
60
80
100
120
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Passenger Cars
LCV
Trucks and Buses
of five key brands viz. Apollo, Kaizen, Maloya, Regal and Vredestein. The Apollo and Vredestein brands
manufacture tires across categories from passenger and commercial vehicles to off highway tires. Regal
and Kaizen focus on truck-bus tire segment. The Maloya brand operates in the passenger vehicle
category. Apollo Tires Ltd. is a 16,500 strong company has a worldwide market with 65% of its revenues
coming from the Indian market, 23% from Europe and 12% from South Africa. On June 12, 2013, Apollo
Tires acquisition of US-based Cooper Tire and Rubber Company, worth $2.5 billion has made Apollo the
seventh largest tire manufacturer globally.
JK Tires& Industries Ltd:
JK Tires started manufacturing tires in 1977 with a capacity of 0.5 million tires per annum. JK Tires
manufactures passenger car radial tires, truck and bus tires and radials, tires for light and small
commercial vehicles, off the road highway tires and tires for farm vehicles like tractors. JK Tires’ vision is
to be amongst the most admired companies in India and committed to excellence. The company is
based in Delhi with three manufacturing plants in Mysore and one each in Chennai, Kankroli and
Banmore. The company also has three manufacturing plants in Mexico. It is the third largest tire
manufacturing company and the largest radial tire manufacturers in India. JK Tires had a turnover of
6015 cr. during FY 12-13. It has 138 selling points in India and a network of 4000 dealers. The company
recently commissioned the Greenfield capacity in Chennai which has brought the current overall
production capacity of the company to 20 million tires per annum. JK Tires has global presence with a
customer base in over eighty countries.
CEAT Ltd
CEAT Ltd. is the fourth largest tire manufacturing company in India. It is based in Mumbai. Originally
founded in Italy, CEAT established its first presence in India in 1958. CEAT controls about 20% of the
market share in local truck and tire truck market in India. In India, the company has manufacturing
plants in Mumbai, Nasik and Halol besides three plants in neighbouring Sri Lanka. CEAT produces more
than 6 million tires annually. It has a network of 37 regional offices, 8 Zones, over 3,500 dealers and
more than 100 C&F agents. CEAT exports to more than 110 countries globally including US, Australia,
Africa and Asia. CEAT had a turnover of over 4900 cr. during FY 12-13. CEAT is India’s first tire
manufacturing company to get the ISO/TS 16949:2002 certification by the International Automotive
Task Force (IATF) and Japan Automobile Manufacturers Association (JAMA) for quality management.
CEAT manufactures tires in a diverse range of segments including heavy-duty trucks and buses, LCVs,
tractors, SUVs, cars, earthmovers, scooters etc.
Future of the Tire Industry:
According to a recent research report, tire production in India is set to reach 191 million units by the end
of FY ’16. A major proportion of new investment coming into the tire industry is expected to go towards
radial tire expansion. The fall in the prices of rubber has been a major boost to the Indian tire industry.
Tire manufacture is a raw material intensive industry and the fall in rubber prices has significantly
boosted margins for Indian tire manufacturers. Rubber surplus in the global market is expected to
continue to help falling rubber prices. The Indian government has also gone back on a move to hike
import duty on rubber bringing cheer to the tire industry.
One of the major changes happening in the tire industry is the introduction of green tires. Green tires
could help slash fuel consumption by up to 7 percent for vehicle owners. Tire manufacturers including
MRF, JK Tires, CEAT etc. have set up several green field projects over the course of the last few years to
meet the growing demand of the Indian tire industry. Further, tubeless tires are also being increasingly
adopted by Indian automobile manufacturers. Tubeless tires are expected to see a compounded annual
growth of 24% over the course of the next few years. Recently, the Goodyear Company has developed
self-inflating tire technology which is slowly making its way to the Indian market. Run flat tires (RFT)
developed by Bridgestone are also being accepted in the Indian market. RFTs are most widely used by
BMWs.
CEAT Ltd is increasing its capacity in passenger tire production and focusing on two wheeler and SUV
segment as the margins are higher in it. Apollo by acquiring US based cooper tires to scale up its
international presence and reduce dependencies on Indian market. It is planning to open up
manufacturing plants and sales offices in Europe and South East Asia. JK tire invested $230 million in
expanding its capacity of Chennai plant by 66%. It is also investing in Radial tire technologies to meet the
future radial tire demand in India.
Conclusion
Tire industry in India has top 4 players contributing 70% of the total market share and top 10 players
with more than 90% market share. Replacement market constitutes the major market share of Tire
Industry with about 65% followed by OEM with 25%. Tire manufacturing in India is expected to reach
191 million units by FY16.
Tire industry is raw material intensive with raw materials constituting about 70% of the revenue. Recent
decline in the Natural rubber prices as brought down the operational costs and increased the margins.
Government regulations on import and export duties, trade policies, and increasing middle income
groups and their buying power and technological changes like radialization etc determine the
profitability of this industry in future. In OEM segment tie ups with manufacturers is the key to success.
Porters five forces analysis shows that this industry is moderately profitable. Moderate rivalry between
existing competitors, low threat of substitutability because of non availability of any substitutes, High
buyer power because of less switching cost, moderate supplier power due it is a raw material intensive
industry and low threat of new entrants(high entry barriers) define this industry.
MRF commands dominant position in the tire industry and has presence across the entire value chain of
the automobile sector. Key success factors for MRF are its strong brand recall and quality products, and
nationwide Strong distribution network of about 10,000 dealers. MRF value chain shows how it is able
to reap the benefits of having huge manufacturing capacity and wide distribution network. MRF spends
heavily in marketing and advertisement and its close association with cricket and formula championship
has given it edge over its competitors in high brand recall. MRF has a very strong presence in
replacement market with 75% of its revenue coming from this market. On account of higher efficiency in
asset utilization it has better than industry EBITDA margins. MRF with High Customer Satisfaction Index
has become a reliable, well known tire brand in India.
Future of Indian tire industry shows that there is in an increasing trend in radialization of LCV and
MH&CV segment in India. Radial tires offer more mileage, better grip and are more durable. Tire
manufacturers have identified this opportunity and are investing in new technology. Going ahead MRF
also should focus on Radial tire technology and increase capacity. Future Growth in Automobiles market
in India will increase the demand for tires.
Bibliography
? Association, A. T. (n.d.). ATMA. Retrieved from ATMA
India: http://www.atmaindia.org/
? CAPITALINE. (n.d.).
? CMIE. (n.d.). MRF tires. Retrieved from CMIE
Prowess: www.prowess.cmie.com
? Jonathan abblett, A. B. (2007). The Bird of Gold: Rise of Indian consumer
market. Mckinsey global institute.
? MRF. (2013). MRF annual report. MRF.
? MRF. (n.d.). MRF Tires. Retrieved from MRF Tires: www.mrftires.com
? Reaserch, C. (2013). Tire Industry. CRISIL.
doc_769823078.pdf
The Indian tire industry is worth to be around Rs.430bn as on March 2013. It is an attractive industry whose total sales revenue has grown by 16% CAGR in last ten years from 2002-03 to 2012-13. In the same period, the profit of the industry has also grown by 16% CAGR.
MRF Tires
Business Strategy
Table of Contents
Introduction .................................................................................................................................................. 4
Tire Industry in India ..................................................................................................................................... 4
Demand Drivers for Tire Industry ............................................................................................................. 7
Commercial Vehicles ................................................................................................................................. 8
Porters Five Forces analysis of Indian Tire Industry...................................................................................... 9
Degree of Rivalry - Moderate.................................................................................................................... 9
Threat of substitutes – Low ...................................................................................................................... 9
Buyer Power Buyer - High ......................................................................................................................... 9
Bargaining power of supplier – Moderate .............................................................................................. 10
Threat of new Entrants - Low.................................................................................................................. 11
PEST analysis ............................................................................................................................................... 11
1. Political ............................................................................................................................................ 11
2. Social & Cultural changes ................................................................................................................ 13
3. Economic ......................................................................................................................................... 14
4. Technological changes .................................................................................................................... 14
MRF – Madras Rubber Factory ................................................................................................................... 15
History ..................................................................................................................................................... 15
Market leadership ................................................................................................................................... 15
Operations .............................................................................................................................................. 16
R&D and Innovation: ............................................................................................................................... 17
Sales and Distribution ............................................................................................................................. 17
Exports .................................................................................................................................................... 18
Branding .................................................................................................................................................. 18
Human Resources ................................................................................................................................... 19
Exhibits: ................................................................................................................................................... 19
Value Chain: ............................................................................................................................................ 21
Key Success Factors ..................................................................................................................................... 21
Radialization ............................................................................................................................................ 21
Natural rubber prices .............................................................................................................................. 22
Automobile market growth rate ............................................................................................................. 22
Brand Awareness and Distribution Network .......................................................................................... 22
Competitors in the tire industry: ................................................................................................................ 22
Apollo Tires Ltd ....................................................................................................................................... 22
JK Tires& Industries Ltd: .......................................................................................................................... 23
CEAT Ltd .................................................................................................................................................. 23
Future of the Tire Industry: ......................................................................................................................... 23
Conclusion ................................................................................................................................................... 25
Bibliography ................................................................................................................................................ 26
Introduction
Tire Industry in India
The Indian tire industry is worth to be around Rs.430bn as on March 2013. It is an attractive industry
whose total sales revenue has grown by 16% CAGR in last ten years from 2002-03 to 2012-13. In the
same period, the profit of the industry has also grown by 16% CAGR. (Growth in revenue and profit has
been calculated using prowess database)
Tire industry can be categorized into three segments: Original Equipments Manufacturer (OEM)
segment, Replacement Market and Exports.
Category Market Share (2011-
12)
Customer Segment CAGR
(2007-08 to 2012-13)
OEM Segment 24 Automobile
manufacturers
9
Replacement
Market
65 Transportation,
Corporate Sectors &
Individuals
7
Exports 11 South East Asia, Africa,
Middle East
19
Clearly, we can see replacement market constitute the major market share of Tire Industry. Although
OEM segment is growing at rate 2 percentage point higher than the Replacement market, it is mainly
because of the large base of the replacement market. So the tire companies show a big opportunity in
the replacement market. In addition, all those companies, which have been consistently at top in this
industry, have very good presence in replacement market.
Exports of tires are growing phenomenally at around 19% CAGR in last five years. However, during the
same tenure import of tires in Indian market has grown-up by 24% so imports and exports are kind of
setting off each other’s impact. However, because of growth in imports top players in Indian tire
industry are facing heat as the imported goods are mainly eating away market shares of top branded
companies whereas small regional players do not see their sales so much influenced by imports.
At present 30 plus tire, companies are in business in tire industry. From this angle, this industry looks
very less concentrated and highly competitive. Herfindahl index also has the value of around 0.15 for
this industry showing it is highly competitive. However, with further analysis we find that top four
companies account for 70% of total market share in 2012-13. Top four companies are MRF, Apollo, Ceat
& JK Tires. This pattern has been same for last decades during which these four companies together
always had market share of 65%-75%.
Performance of the tire industry is largely influenced by the replacement segment. It is because truck
tires account for the largest share (73%) of the product mix. However, non-truck tires are mainly
influenced by growth in the automobile sector. It is worth noting that shining history of tire industry in
last decade is mainly because it is a complimentary product for automobiles. In addition, in this last
decade because of GDP boom, automobile industry flourished and so we have seen tremendous growth
in tire industry. However, post 2010 with weakening economic scenario and fall in GDP, automobile
sector has taken hit. In year 2011-12, tire industry posted net profit margin of 2.4% as compared to
5.8% in 2009-10.
Figure 1
Tires: Product categories and market segments (2012-13)
The industry is classified (based on revenue contribution) into commercial vehicle tires (71%) and
passenger vehicle tires (22%). Commercial vehicle tires include those for medium and heavy commercial
vehicles (MHCV 55%), light commercial vehicles (LCV 8%) and tractors (8%). Passenger vehicle tires cover
passenger cars (12%) and Two-wheelers (10%).
Comparing segmental revenue contribution to the segmental volume we find out two wheelers tires
have maximum production volume (53.5%) which contribute to just 13 % of revenue. On other hand
Truck/ Bus tires have volume capacity of 13% of total volume of tires but this segment contributes to
54% of total revenue.
Figure 2
The industry is raw material-intensive, with raw materials constituting around 70 per cent of the sales
turnover and 75 per cent of the operational cost. Raw material costs have increased over the past few
years. Despite the industry being moderately concentrated, players have not been able to fully pass on
the rise in these costs to consumers. This is because the decrease in customs duty over the years has led
to cheaper imports from China and other South East Asian countries, thus exerting pressure on tire
prices. Total imports have increased at a moderate 24 per cent CAGR over the past 5 years, mainly led
by higher growth in commercial vehicle tire imports (of this, 90 per cent are radial tires). Imports, as a
percentage of consumption, increased to 9 per cent in 2011-12 from 5 per cent in 2006-07.
Complete data for Tire Industry for the year 2012-13 is not available at Prowess or Crisil Research. So for
the complete overview of the industry, let us refer to statistics as of year 2011-12.
Tire Industry Overview
Size (2011-12)
Turnover (Rs. Billion) 362.1
Export (Rs. Billion) 21.7
Production (million nos) 96.5
Production (‘000 tonnes) 1267
Historical growth rate (2006-07 to 2011-12)
Production of MHCV Tires in nos. (5-year CAGR) 5.35
Value of Exports (5-year CAGR) 5.38
Share in Production
Share in Truck & Bus Category (%) Replacement: 66;Export: 14, OE: 20
Share in all categories Replacement:52 ;Export: 15, OE: 33
Industry Concentration in truck and bus tires
Market share of top 7 Companies (%) 81.4
Market Leader MRF
Leader’s Market share 22.6
Cost structure
Raw material cost as percent of op. income 74.2
Staff cost as percent of op. income 4.8
Interest Cost as percent of op. income 3.0
Depreciation Cost as percent of op. income 2.1
Profitability
Operating Profit margin (%) 8.5
Net Profit Margin (%) 2.4
Demand Drivers for Tire Industry
Passenger Vehicles
New vehicle sales are the key in driving passenger vehicle tires demand. Demand for passenger vehicles
tires is primarily from the OEM segment followed by the replacement segment and exports,
respectively. Tire demand from OEMs depends on new model launches and sales of existing models.
Replacement demand depends on the life of a car tire and usage of a car (number of km driven).
Figure 3
Commercial Vehicles
Replacement segment is a key driver for commercial vehicles tire demand which retains dominant
share. In 2012-13, demand from replacement segment continued to dominate the market by
contributing 70 per cent to total demand (in tonnage terms).
Figure 4
Demand from replacement segment recovered and grew robustly by 21.9 per cent year on year, while
demand from OEM fell by 6.4 per cent year on year, in 2012-13. Due to weak automobile demand
globally, exports growth remained muted year on year in 2012-13.
Porters Five Forces analysis of Indian Tire Industry
Degree of Rivalry - Moderate
The degree of Rivalry in Indian Tire industry is Moderate due to some of the below factors
1. Industry Concentration
The Concentration in Indian tire industry is high with the top 10 player accounting for around
95% of the market share. Since these firms are of similar size competition is high as they
possess similar kind of resources
2. Industry Growth
The growth in the Indian Tire industry is moderate (4-5%). So the players fight among
themselves for market share. This can also be a reason for price war since it is a commoditized
product and low scope of differentiation
3. Product Differentiation
Since the product is commoditized the customer can switch from one product to another and
hence increases rivalry as there is less scope for product differentiation.
4. High Exit Barriers
Since the plant and equipment are highly specialized for tire industry and the investment to
start a plant is huge the exit barriers are high
Threat of substitutes – Low
Since the tire Industry has no possible direct substitutes the threat from substitute products is very low.
In future the substitutes can be Electromagnetic vehicles running on electromagnetic rails. Increased rail
or air transport will also threaten the tire industry but as of now we can say that threat of substitutes is
low
Buyer Power Buyer - High
The buyer power is high in the Indian tire industry due to the below factors
1. Buyer Volume
OEM manufacturers account for 14% of the total tire demand. Since the OEM’s are bulk
purchasers they have very high bargaining power
2. Price Sensitivity
The price sensitivity of Indian consumers are high as middle class accounts for most of the
passenger class market share. Since the consumer is price sensitive and plethora of switching
options available they command a high bargaining power
3. Product Differentiation
Due to low product differentiation, Customers can switch to cheaper substitute tires and hence
command high buyer power
4. Threat of vertical Integration
There is a threat of vertical integration from OEM manufacturers eg . TVS tires ventured into the
tire Industry. Hence due to the threat of vertical integration they can command lower prices
from tire manufacturer’s
Bargaining power of supplier – Moderate
The supplier power is moderate in this industry. The major raw materials are
Natural Rubber 44%
Nylon Tire Cord Fabric 19%
Carbon Black 12%
Rubber Chemicals 5%
Butyl Rubber 4%
PBR 5%
SBR 5%
Others 6%
Source: ATMA
1. Natural Rubber – Moderate
The Natural rubber suppliers are scattered and since the tire companies buy in bulk and are
concentrated the supplier power is low. But due to Government putting tariff barriers on Import
we can say that they have moderate power. Recently the Government hiked import duty on
natural rubber prices to 30 Rs/kg to protect domestic interest of natural rubber suppliers.
2. PBR and SBR – High
Only reliance is the supplier of PBR(poly butadiene rubber) and hence has a monopoly and
command high supplier power.
Overall we can say that supplier power is moderate
Threat of new Entrants - Low
The threat of new entrants is low due to the below factors
1. Capital Intensive
The tire industry is highly capital intensive. The cost for new plant is around 10 Billion INR. Also
the exit costs are high due to specialized machinery and equipment.
2. High Capacity
The plant capacity is high and needed to achieve economies of scale as the initial investment is
high. Also radialization is highly capital intensive and requires huge capacity addition.
Due to these factors a new player finds it difficult to enter in tire industry and hence threat of new
entrants is low.
Apart from these five forces we can consider two additional forces as given below
? Power of Complement’s (HIGH power) – Tires are complements to automobiles and the sales of
automobiles affect the sale of tire industry.
? Government (Moderate) – Government impacts the tire industry by putting import restrictions
on raw materials and foreign tire companies presence in India. Recently the Government has
made all importing tire companies to obtain BIS certification. This will help curb entry of cheap
Chinese low cost tires which will not meet BIS standards.
Weighing all these factors we can say that the forces in tire industry are Moderate and therefore the tire
industry is moderately profitable.
Since the business environment can be changing and cause a threat to the tire industry lets analyze the
factors by doing a PEST analysis
PEST analysis
1. Political
The government affects the tire industry in the form of regulations and taxes, it regulates the
import and export and levy import and export duty on the raw materials procured by the tire
industry. There is a huge demand on the government by the All India rubber industry association
to increase the import duty to protect the falling price of natural rubber.
The government has recently increased the import duty on raw material to INR 30/Kg from
20/Kg and there can be a further increase in the import duty. If the import duty is raised further
the tire industry will suffer as a whole due to reduced margins and their inability to pass on the
price to the customers.
Trade Policy - Tires & Raw Materials -
? All categories of new tires can be exported freely.
? All categories of new tires can be imported freely.
? No WTO Bound Rates for Tires & Tubes.
? All raw materials required for the manufacture of tires can be imported freely (OGL).
Custom Duties : Tires
Normal rate of Basic Customs Duty (MFN) 10%
Preferential/ concessional Customs Duty under Trade Agreements
* Asian Pacific Trade Agreement
(formerly known as Bangkok Agreement)
8.60%
* Indo Sri Lanka Free Trade Agreement Nil Duty
* SAPTA ( SAARC Preferential Trading
Agreement)
Nil Duty*
5%**
* India Singapore Comprehensive
Economic Cooperation Agreement (CECA)
Nil Duty (For Bias Tires)
* India South Korea CEPA No Concession
* ASEAN FTA 7%(passenger car, truck / bus and scooter / motercycle)
5% (other categories of tires).
For details please refers to Preferential Tariff Table for Tires/ Raw-Materials of Tire Industry
(Ref. Section on RTAs)
Excise Duty:
All categories of Tires 12%
Source: ATMA
All these policies might affect the profitability of the tire industry if there is a change in the
political scenario and the upcoming assembly elections might prove to be a game changer for
the tire industry.
2. Social & Cultural changes
The Indian middle class, target consumers for many companies, is expected to grow up to 267
million people in the next five years, up 67 per cent from the current levels, thus providing a
great market opportunity for firms, according to NCAER (National Council for Applied Economic
Research).
According to a report by Mckinsey global institute, India’s household consumption is expected
to grow four times by 2025. By its estimates, the country’s middle class will be 583 million
strong by 2025, making India the world’s fifth-largest consumer market.
Also as evident from the above figure from Mckinsey, The household income for Strivers and
Global’s will increase which have the highest disposable income and drive the economic growth.
This will fuel the consumption of automobiles and indirectly will affect the demand for tires.
Figure 5
3. Economic
Interest rate movements – lowering of interest rates might increase money circulation in market
and fuel growth which might push the automobile sales and in turn fuel tire sales.
Inflation – Can affect the tire industry negatively if the govt increase the interest rates to curb
inflation
Consumer Confidence – Stagnant growth and low market sentiments will hurt tire industry
Currently the Inflation in India is very high around 8%. The RBI has increased the interest rates
to curb inflation and this is putting a strain on the tire company’s interest payment for debts.
Also raising debts will become difficult to increase the production capacity and radialization due
to high interest rates. With the general elections coming in the near future the companies are
expecting that interest rates will go down and the GDP growth will pick up and sales will
increase and debts become cheaper.
4. Technological changes
Using more Synthetic rubber – Will reduce the dependence on natural rubber and might see an
increase in the number of companies producing artificial rubber and decrease the dependence
on few manufacturers in future. The tire companies are undergoing technological changes and
investing heavily in R&D
Efforts in brief made towards technology absorption, adaptation and innovation
a) Evaluation of new materials: New raw materials are evaluated and introduced into to achieve
required properties.
b) New product development: New products are developed with increased product
performance by adapting to different design and compound changes.
c) New process development: New innovative process changes are made to improve
consistency and uniformity. This has also resulted in energy savings and productivity increase.
d) Development of equipment and machinery: Development and maintenance to improve
product consistency, reduce down times and increase productivity
MRF – Madras Rubber Factory
History
MRF Ltd is among one of the country’s select Blue Chip companies. It was started by K M Mammen
Mappillai in 1946 as a small manufacturer of toy balloons, which later went on to become the
manufacture of tread rubber. In a few years, the company emerged as a leading manufacturer of tread-
rubber. In 1961 MRF entered into technical collaboration with the Mansfield Tire & Rubber Company of
USA and started manufacturing of tires. After a year the company became a public limited company. In
early nineties MRF made some successive technical collaborations with BF Goodrich, Uniroyal Goodrich
and Michelin which helped it to accelerate development of its own technology and R&D. Today, MRF is
uniquely positioned as one of the few companies globally, who possess their very own technology in
both Bias Ply and Radial tires. Over the years the MRF has established a country wide distribution
network and has a very strong brand image.
Market leadership
MRF is one of the country’s leading market players with a market share of close to 27% with a strong
presence across the value chain of automotive segments. If you see the below figure depicting share of
different players in across the segment we see that, MRF is the largest player in the passenger car
segment with a market share of 21.3%. It is also the largest player in LCV segment with a market share
of 44%. In the M&HCV(Truck) segment, it has overall market share of 20.4%.
MRF Market Share in each Segment:
Figure 6
One of the reasons for MRF to maintain its market leadership over the years despite the competition is
presence across all the segments and diverse product offerings. Despite the slowdown in OEM segment
due to recession, the replacement market has emerged as strong tire market and MRF with 75-76% of
its domestic revenues coming from this segment enjoys a dominant position in the market.
0 10 20 30 40 50
Ceat
Birla
MRF
Apollo
JKTIL
OTR
Passanger Car
LCV
Truck
In 2011 MRF Ltd became the only Indian company to cross gross revenue mark of Rs. 10,000 crores and
total sales for the period 2012-13 is around Rs. 13,500 crores.
Presently, Some of the OEM customers of MRF are major global and domestic automobile companies
like Ashok Leyland, Eicher, Fiat, Force Motors, Ford, General Motors, Honda, Hyundai, John Deere,
Komatsu, Mahindra & Mahindra, Man, Maruti Suzuki, Mitsubishi, Tata Motors, Scania and Volvo.
Operations
MRF operates 7 plants across India at Tiruvottiyur and Arakonam in Tamil Nadu, Kottayam in Kerala,
Ponda in Goa, Medak in AP, Pondicherry and Trichy in Tamilnadu. All the factories are TS 16949/ISO
9001 certified. MRF manufacturers tires across all segments like heavy duty truck/bus tires(MH&CV),
light commercial vehicles tires(LCV), passenger car tires, off-road or Industrial tires, two-wheeler tires
and farm service tires. Capacity has expanded from 28.4 million tires in 2009 to 45 million tires in 2013
to meet the growing future demand. MRF is currently investing in a steady and new expansion projects
including the implementation of Greenfield projects.
A Robust ERP system connecting all plants, sales offices and head offices is set up to enable information
flow. This increase control check points and helps to manage inventory, demand and supply. Because of
this, it is able to achieve operational efficiency and MRF has been consistently maintaining better than
industry EBITDA margins.
In the Following figure, we compare the margins of MRF with that of its competitors and Industry. We
see that MRF is consistently maintaining higher margins than both industry as well as its peers.
Figure 7
R&D and Innovation:
MRF has commissioned Greenfield project in two of its new plants at Medak (AP) and Trichy (TN). Focus
on Green tires and Radial technology going forward is helping MRF to stay ahead of its competition.
MRF R&D has also designed and developed tires for Sukhoi 30 MKI and Chetak Helicopters.
It has an in house strong R&D team. Continuous product up gradation is a key to its success over the
years. MRF uses cutting - edge technologies in predictive testing and design validation before it leaves
the drawing board. These advances have significantly brought down the time to market for new designs.
MRF has its own radial tire technology suit. MRF has pioneered the concept of motorsport as a testing
opportunity and currently has a strong presence across the Asia-Pacific region. The prototypes for
verification and validation testing are done on MRF tires confirming the architecture. Series of indoor
testing are carried to meet the MRF’s tight standards, quality and those required by the OEM or by any
of the national standards like BIS/JIS/ETRTO/T&RA. MRF formula championship is a great place to test
their products, gives it access to new technologies and new insights into product development.
Specific areas in which R&D concentrates are:
? Development of new product to improve product performance to meet the requirements of
OEM and replacement market
? Raw materials are tested in NABL accredited laboratories.
? Introduction of new alternate raw materials to reduce dependencies, improve quality and cost
reduction. Self developed raw materials and process equipment has resulted in substantial
savings and has helped in import substitution.
? Process modification is continuously made to optimize energy consumption and increase
productivity
? Modernization and automation of process equipment are done to achieve greater accuracy and
narrow tolerance levels
Sales and Distribution
Sales and Distribution is a core business of MRF tires. MRF has a PAN India wide distribution network of
129 sales offices and 10,000 dealers. Of which more than 4500 dealers are exclusive MRF product
dealers. MRF service stations provide world-class ambience with services like wheel alignment,
balancing, automatic tire changing, nitrogen filling and tubeless tire repair. MRF also trains the service
personnel itself.
MRF T&S: It is a one-stop shop for a unique tire shopping experience. An experience that is fun and
enjoyable for the whole family. T&S stocks the entire range of MRF tires and is equipped to provide
services of computerised wheel alignment, wheel balancing and tire changing. The technicians at MRF
T&S are trained at the MRF Tiredrome. Currently, there are 300 T&S franchisees across the country and
many more coming up each day.
MRF Tiredrome: MRF provides a unique service experience to its customers. World-class services like:-
? Robotic wheel alignment
? Vehicle safety test lane
? Diagnostic wheel balancer
? A/C Recovery & Recharging unit
? Leverless Tire changer
? Headlight aligner/Car Wash
MRF Fast: It is India’s 1
st
customer care centre for tires. It offers a window for customers to reach out to
MRF for on all their tire related queries. On spot settlement on warranty claims is done.
M.I.D.D: MRF Institute of Driver development imparts training to young men in LCV and HCV driving.
MRF ranks highest in customer satisfaction survey with original equipment tires among five tire
manufacturers, according to the J.D Power and Associates India. With an overall CSI (customer
satisfaction index) score of 840 on a 1,000-point scale, MRF ranks highest and performs particularly well
in all factors driving overall satisfaction.
Figure 8
Exports
Company has grown overseas as well. Currently MRF tires are exported to over 60 countries including
US, South America, Africa, Middle East, Australia and other Asian Countries. MRF is being continuously
awarded “Highest Export Award” by the All India Rubber Industries Association from many years.
Branding
MRF has a high brand recall as compared to other tire brands in India. This is partly because of its close
association with the sport everyone likes in India – Cricket. In 1987 it started MRF Pace foundation with
a unique corporate commitment to the development of pace bowlers for Indian cricket. It has produced
fantastic bowlers since then. Sachin Tendulkar as a brand ambassador for MRF has given it a unique
identity. Now Virat Kohli, Shikhar Dhawan, Gautam Ghambir continue to promote the brand through
their association. MRF formula championship also provides much needed brand exposure and
recognitions.
810 815 820 825 830 835 840 845
MRF
JK Tyre
Bridgestone
Industry Average
Apollo Tyres
Goodyear
MRF Ranks highest in CSI by JD Power
Human Resources
MRF is the right place to join for the bright and talented young workforce. Induction and orientation
program are one of its kind to make the new entrants feel at home. Operatives are recruited and trained
by NTTF. With syllabus updated and customized to suit current requirements that helps operatives
settle into their jobs effortlessly. MRF provides leadership training to its union leaders, opinion makers
and also staff and managers to promote their development within the organization. MRF maintains
good relationship with employee union. Recent lockouts at plants in Chennai by employee union has
been resolved by proper consultation. To promote TPM(Total Productive Maintenance) culture, the
employees are encouraged to adopt ‘Kaizen Principles’. Employees are rewarded and given incentives
based on their performance. New features in SAP are developed and employees are encouraged to
continuously improve processes and operational efficiency. Many Employee benefit schemes like life
insurance, annual bonuses are provided.
Exhibits:
Revenue:
MRF revenue rose significantly in 2008-10, second only to Apollo. Also in the years of declining demand
due to global crisis, decline in MRF sales was less steep than its competitors. At present MRF and Apollo
maintains almost same quantity and growth in sales revenue.
Figure 9
Profitability:
MRF commands higher profitability as compared to its peers and overall industry average. Its current
profitability stands at 6%, which is 3 percentage points higher than its closest competitor Apollo at 3.2%.
It shows the operational efficiency and margins that MRF commands which is best in the industry.
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Figure 10
Operating profit:
MRF operating profit is way above its competitors. It mainly comes from better capacity utilization that
is critical factor in tire industry for profitability.
Figure 11
Efficiency in use of total assets:
MRF Asset turnover is one of the highest in Industry varying between 2 to 2.5. At present its in declining
stage. There may be two reasons behind it. One is decrease in profitability due to global crisis. Second
reason is MRF has invested in new plants in Tamil Nadu and Madhya Pradesh in last four years. This new
plants require heavy investment but it will take time before they reach full production scale. So it may
hurt their asset turnover ratio.
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Industry
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Apollo
Ceat
JK Tyre
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M R F Ltd.
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Value Chain:
Key Success Factors
Radialization
Radialization in truck segment in India is 21% where as the world average is 68%. There is a lot of scope
for it in near future. It is expected to grow by 35%+ over the next three years. Radial tires are usually
priced higher, about 20-25 % more than cross-ply tires. Most tire companies are expanding radial tire
capacities. Manufacturing radial tires is more capital intensive but is more profitable in the long run.
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JK Tyres
Ceat
Industry
Apollo
MRF
Radialization Trends in India:
Natural rubber prices
Natural rubber cost 60-65% of overall raw materials. Tire companies are highly sensitive to price
fluctuation. In India Rubber Industries Association play an important role in fixing Natural rubber prices.
Domestic rubber prices in India are higher than the imported price of rubber. With recent deregulation
in imports of rubber, import of natural rubber by tire companies is on increase. However, in future any
change in government policy or natural rubber demand may hurt the profitability of company.
Automobile market growth rate
India is sixth largest automobile manufacturer in the world. According to SIAM report Automobile
Industry has grown up by 12% CAGR in last 10 years. Export of vehicles is also on rise. But the growth in
automobile industry in recent years has been very grim. Slower than anticipated recovery of automobile
sales in the Indian Market has affected sales of tires.
Brand Awareness and Distribution Network
Tire is a commodity product with very low scope of differentiation. Also its major share of revenue
comes from the replacement market. So in this case good brand awareness and recall is important for
the increase sales on the company. Good brand recall has to be complemented by extensive product
availability in the market. For this reason expansion of distribution network is important.
Competitors in the tire industry:
Apollo Tires Ltd
Apollo Tires Ltd. was founded in 1976. Apollo is the second largest tire manufacturing company in India.
The corporate headquarters of the company is in Gurgaon, Haryana. The company had a turnover of
$2.34 billion during FY 12-13. During the last five years, the company has grown at a compounded
annual growth rate of 20%. With eight manufacturing facilities in Asia, Europe and Africa, Apollo is one
of the major tire manufacturers of the world. Today, Apollo Tires is a multi-brand enterprise comprising
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Passenger Cars
LCV
Trucks and Buses
of five key brands viz. Apollo, Kaizen, Maloya, Regal and Vredestein. The Apollo and Vredestein brands
manufacture tires across categories from passenger and commercial vehicles to off highway tires. Regal
and Kaizen focus on truck-bus tire segment. The Maloya brand operates in the passenger vehicle
category. Apollo Tires Ltd. is a 16,500 strong company has a worldwide market with 65% of its revenues
coming from the Indian market, 23% from Europe and 12% from South Africa. On June 12, 2013, Apollo
Tires acquisition of US-based Cooper Tire and Rubber Company, worth $2.5 billion has made Apollo the
seventh largest tire manufacturer globally.
JK Tires& Industries Ltd:
JK Tires started manufacturing tires in 1977 with a capacity of 0.5 million tires per annum. JK Tires
manufactures passenger car radial tires, truck and bus tires and radials, tires for light and small
commercial vehicles, off the road highway tires and tires for farm vehicles like tractors. JK Tires’ vision is
to be amongst the most admired companies in India and committed to excellence. The company is
based in Delhi with three manufacturing plants in Mysore and one each in Chennai, Kankroli and
Banmore. The company also has three manufacturing plants in Mexico. It is the third largest tire
manufacturing company and the largest radial tire manufacturers in India. JK Tires had a turnover of
6015 cr. during FY 12-13. It has 138 selling points in India and a network of 4000 dealers. The company
recently commissioned the Greenfield capacity in Chennai which has brought the current overall
production capacity of the company to 20 million tires per annum. JK Tires has global presence with a
customer base in over eighty countries.
CEAT Ltd
CEAT Ltd. is the fourth largest tire manufacturing company in India. It is based in Mumbai. Originally
founded in Italy, CEAT established its first presence in India in 1958. CEAT controls about 20% of the
market share in local truck and tire truck market in India. In India, the company has manufacturing
plants in Mumbai, Nasik and Halol besides three plants in neighbouring Sri Lanka. CEAT produces more
than 6 million tires annually. It has a network of 37 regional offices, 8 Zones, over 3,500 dealers and
more than 100 C&F agents. CEAT exports to more than 110 countries globally including US, Australia,
Africa and Asia. CEAT had a turnover of over 4900 cr. during FY 12-13. CEAT is India’s first tire
manufacturing company to get the ISO/TS 16949:2002 certification by the International Automotive
Task Force (IATF) and Japan Automobile Manufacturers Association (JAMA) for quality management.
CEAT manufactures tires in a diverse range of segments including heavy-duty trucks and buses, LCVs,
tractors, SUVs, cars, earthmovers, scooters etc.
Future of the Tire Industry:
According to a recent research report, tire production in India is set to reach 191 million units by the end
of FY ’16. A major proportion of new investment coming into the tire industry is expected to go towards
radial tire expansion. The fall in the prices of rubber has been a major boost to the Indian tire industry.
Tire manufacture is a raw material intensive industry and the fall in rubber prices has significantly
boosted margins for Indian tire manufacturers. Rubber surplus in the global market is expected to
continue to help falling rubber prices. The Indian government has also gone back on a move to hike
import duty on rubber bringing cheer to the tire industry.
One of the major changes happening in the tire industry is the introduction of green tires. Green tires
could help slash fuel consumption by up to 7 percent for vehicle owners. Tire manufacturers including
MRF, JK Tires, CEAT etc. have set up several green field projects over the course of the last few years to
meet the growing demand of the Indian tire industry. Further, tubeless tires are also being increasingly
adopted by Indian automobile manufacturers. Tubeless tires are expected to see a compounded annual
growth of 24% over the course of the next few years. Recently, the Goodyear Company has developed
self-inflating tire technology which is slowly making its way to the Indian market. Run flat tires (RFT)
developed by Bridgestone are also being accepted in the Indian market. RFTs are most widely used by
BMWs.
CEAT Ltd is increasing its capacity in passenger tire production and focusing on two wheeler and SUV
segment as the margins are higher in it. Apollo by acquiring US based cooper tires to scale up its
international presence and reduce dependencies on Indian market. It is planning to open up
manufacturing plants and sales offices in Europe and South East Asia. JK tire invested $230 million in
expanding its capacity of Chennai plant by 66%. It is also investing in Radial tire technologies to meet the
future radial tire demand in India.
Conclusion
Tire industry in India has top 4 players contributing 70% of the total market share and top 10 players
with more than 90% market share. Replacement market constitutes the major market share of Tire
Industry with about 65% followed by OEM with 25%. Tire manufacturing in India is expected to reach
191 million units by FY16.
Tire industry is raw material intensive with raw materials constituting about 70% of the revenue. Recent
decline in the Natural rubber prices as brought down the operational costs and increased the margins.
Government regulations on import and export duties, trade policies, and increasing middle income
groups and their buying power and technological changes like radialization etc determine the
profitability of this industry in future. In OEM segment tie ups with manufacturers is the key to success.
Porters five forces analysis shows that this industry is moderately profitable. Moderate rivalry between
existing competitors, low threat of substitutability because of non availability of any substitutes, High
buyer power because of less switching cost, moderate supplier power due it is a raw material intensive
industry and low threat of new entrants(high entry barriers) define this industry.
MRF commands dominant position in the tire industry and has presence across the entire value chain of
the automobile sector. Key success factors for MRF are its strong brand recall and quality products, and
nationwide Strong distribution network of about 10,000 dealers. MRF value chain shows how it is able
to reap the benefits of having huge manufacturing capacity and wide distribution network. MRF spends
heavily in marketing and advertisement and its close association with cricket and formula championship
has given it edge over its competitors in high brand recall. MRF has a very strong presence in
replacement market with 75% of its revenue coming from this market. On account of higher efficiency in
asset utilization it has better than industry EBITDA margins. MRF with High Customer Satisfaction Index
has become a reliable, well known tire brand in India.
Future of Indian tire industry shows that there is in an increasing trend in radialization of LCV and
MH&CV segment in India. Radial tires offer more mileage, better grip and are more durable. Tire
manufacturers have identified this opportunity and are investing in new technology. Going ahead MRF
also should focus on Radial tire technology and increase capacity. Future Growth in Automobiles market
in India will increase the demand for tires.
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? Jonathan abblett, A. B. (2007). The Bird of Gold: Rise of Indian consumer
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? Reaserch, C. (2013). Tire Industry. CRISIL.
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