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)
 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

i
 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

ii
 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.

iii
 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.

iv
 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

v
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.

vi
 LIST OF TABLES

Table Particulars Page no.

no.
3.1 Table OF Raw Materials Using by Value and Weight 23
3.2 Table of Consumption Patterns of Major Raw 25
Materials
3.3 Table of Production, Consumption & Imports of 26
Natural Rubber

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 76
industry
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
vii
5.4 Projected balance sheet 112
5.5 Projected cash flow 114

viii
 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

ix
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
 CHAPTER 1

INDUSTRY PROFILE

1
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.

2
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.

3
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.

4
1.4 INDUSTRY SEGMENTS

Vehicle categories

Exports

-ply tyres

5
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.

6
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.

7
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.

8
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.

9
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.

10
 CHAPTER 2
MAJOR PLAYERS

11
 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.

12
 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.

13
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”.

14
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.

15
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.

16
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.

17
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.

18
 CHAPTER 3

MACRO ANALYSIS

19
 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

20
 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.

3.4GOVERNMENT 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.

21
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.

22
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.

23
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

24
 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 Total Tyre Non Tyre Total Tyre Non Tyre

Materials Cons. Sector Sector Import Sector Sector
Cons. Cons. Imports Imports
Natural 944700 63% 37% 177637 95% 5%
Rubber
SBR 174855 66% 34% 115520 100% -
PBR 125305 85% 12% 45000 - -
Carbon 412640 - - 46700 - -
Black
Nylon 115000 - - 58000 - -
Tyre Cord
Rubber 35000 - - 20000 - -
Chemicals
Steel Tyre 30000 - - 20000 - -
Cord
Butyl 40000 - - 40000

25
 Rubber

3.3 Table of Production, Consumption & Imports of Natural Rubber

(in Tonnes)
Year Production Consumption Total Imports

Tyre Sector Non Tyre Sector Cons. Total

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

26
 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.

27
 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:

28
 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.

29
3.1 CATEGORY WISE PRODUCTION (2010-11)

BY MARKET:

 OEM
 Replacement
 Export
Production Segment wise Percentage supply
(Nos.) (as % of Total Production)
2010-12
Category
(April- Replacement
OEMs Export
September) Market

Truck/Bus
7799228 65 21 14

30
 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.

31
 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.

32
 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

33
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

Raw Material Cost(%)

6%
Natural Rubber
5%
5% Nylon Tyre Cord Fabric
4%
44%
5% Carbon Black

12%
Rubber Chemicals
Butyl Rubber
19% PBR
SBR
Others

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,

34
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.

35
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.

36
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.

37
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

38
 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.

39
 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 Restricted from April,
tyres: 2006

40
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.

41
 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.

42
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,

43
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 .

44
 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.

45
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.

46
 3.3 MICHAEL PORTER'S FIVE FORCES MODEL ON TYRE INDUSTRY

Supplier Power-High
The demand of most raw material
especially rubber is high, while
supply is restricted

Barriers to New Competitive Threat of Substitutes-

Entrant-High Pressure- Low
High
Capital- intensive Import Especially from
Distribution Network Top six players enjoying China.
Low operating Margin over 80% of total market China is a great substitute for
Branding share Indian tyre industry

Buyer Power- High

High competition pressure due to
high bargaining power of OEMs and
wide brand choice in the replacement
market.

47
 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.

48
 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.

49
 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:

50
 (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)

Critical Success APOLLO MRF CEAT JK GOOD

Factor 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 0.13 3 0.39 1 0.13 2 0.26 3 0.39 2 0.26

Competitiveness

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

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

51
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.

52
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

53
  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.

54
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

(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%

3.4 CHART OF STRATEGIC GROUP MAPPING:

30%

25%
CEAT APOLLO
20%
MRF

15%
JK

Y-market share
10%
GOOD YEAR

5%

0%
-100 0 100 200 300 400 500 600 700

Net profit in cr.

55
INTERPRETATION:

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

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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.

57
 3.7 POLITICAL FACTORS

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

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%

58
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)

59
 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.

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 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

61
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

62
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.

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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

Market Share (%)

MRF

24 20 Apollo tyres
Goodyear
2
3 Continental
18
4 Pirelli
4
7 Sumitomo
17
Yokohama
Cooper
Others

64
 3.6 CHART: MARKET SHARE COVERED BY LEADERS IN INDIA

Market Share (%)

4 4
7 20 MRF
Apollo tyres
J k inds
17 CEAT
18 Goodyear
Others

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

65
 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.

66
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.

67
 CHAPTER 4

FINANCIAL ANALYSIS

68
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.

69
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.

70
 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 Indian
2008-09 2009-10 2010-11 2011-12 2012-13 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

71
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.

72
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

73
 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:-

40000
35000
30000
25000
20000
15000 sales turnover

10000
5000
0
2008-09 2009-10 2010-11 2011-12 2012-13

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.

74
4.2.3. PROFIT AFTER TAX TREND ANALYSIS:-

1600

1400

1200

1000

800
PAT
600

400

200

0
2008-09 2009-10 2010-11 2011-12 2012-13

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.

75
4.2.4 SHARE CAPITAL TREND ANALYSIS:-

share capital
2500

2000

1500
share capital
1000

500

0
2008-09 2009-10 2010-11 2011-12 2012-13

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

76
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: 417.69 497.54 548.71 624.89 736.08 2824.91

depreciation

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.

77
 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.

78
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

79
 350

300

250

200
eps
150

100

50

0
2008-09 2009-10 2010-11 2011-12 2012-13

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.

80
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 Total Average

year

2008-09 1.108
1.06 1.43 1.14 0.78 1.13 5.54
2009-10 1.128
0.99 1.52 1.16 0.78 1.19 5.64
2010-11 1.086
0.76 1.75 0.89 0.81 1.22 5.43
2011-12 5.05 1.01
0.72 1.48 0.75 0.84 1.26
2012-13 5.12 1.024
0.78 1.43 0.73 0.85 1.33

81
 1.14
1.12
1.1
1.08
1.06
1.04
average.current ratio
1.02
1
0.98
0.96
0.94
2008-09 2009-10 2010-11 2011-12 2012-13

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.

82
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

12

10

8
intesr covereg
6 ratio

0
2009 2010 2011 2012 2013

Graph 4.6 interest coverage ratios

83
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.

84
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

35

30

25

20

Average. ROCE
15

10

0
2008-09 2009-10 2010-11 2011-12 2012-13

Graph 4.7 return on capital employed ratio

85
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.

86
RONW: Net Profit / Shareholder capital + Retained earnings

Table 4.8

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

35

30

25

20

15 RONW

10

0
2008-09 2009-10 2010-11 2011-12 2012-13

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..

87
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

88
 3.1

2.9

2.8

2.7 FATR

2.6

2.5

2.4
2008-09 2009-10 2010-11 2011-12 2012-13

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.

89
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

90
 12

11.5

11

10.5

10 I.T.R
9.5

8.5
2009-10 2010-11 2011-12 2012-13

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.

91
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

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

35

30

25

20
ROE
15

10

0
2008-09 2009-10 2010-11 2011-12 2012-13

Graph 4.11 return on equity ratio

92
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

93
 1.6

1.4

1.2

0.8
D/E ratio
0.6

0.4

0.2

0
2008-09 2009-10 2010-11 2011-12 2012-13

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.

94
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

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

Graph 4.13 debtors turnover ratio

20
18
16
14
12
10
debt turnover
8
6
4
2
0
2008-09 2009-10 2010-11 2011-12 2012-13

95
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

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

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.

96
 14

12

10

6 gross profit

0
2008-09 2009-10 2010-11 2011-12

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.

97
 CHEPTER 5
BUSINESS PLAN

98
 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.

99
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:-

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.

3.NAME: ZIGZAG TYRE REMOULDING

5. Raw material:
TAGLINE: - Rubber.
The Service which driver trust
CONTACT DETAIL: - (382210) 255377 MOB: 9933675432
ADDRESS: - 37, sahajanand estate, behind lalji-mulji transport office, sarkhej – Gandhinagar
6. Environment impact: - the project is an environment friendly activity. There
highway, Ahmadabad Pin code-382210.
will be no ecological imbalance and pollution hazard the localities because of
E-MAIL ID: zigzag_tyre remoulding@yahoo.com
the project. The project may help in checking the destruction of rubber.
LOGO:

7. Time frame for selection & completion of selection of project: - within a

period of 12 month.

100
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

101
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 SALARY Total Yearly

PERSON salary 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

102
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.

103
  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.

104
 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.
105
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.

106
  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.

107
5.2 Financial aspect:-
 Fixed Assets
Sr. No Description Amount

1. Service equipment

a. Tyre retreading machine 15,70,000

Add : Retreading tools
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

108
 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

109
 5.3 PROJECTED PROFIT/LOSS A/C

Particulars 1st year 2nd year 3rd year 4th year 5th year

Income :-

Service & labor 40,00,000 42,00,000 47,00,00 54,000,00 68,00,000

income
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

110
Depreciation on 3,47,700 295545 251213 242031 280876
machinery
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 2,24,300 3,80,000 7,06,787 12,82,969 35,27,714

& tax:-
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

111
 5.4 PROJECTED BALANCE SHEET

Particulars 1st year 2nd year 3rd year 4th year 5th 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 1200000 1200000 1200000 1200000 1200000

bank)
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 15,70,000 -100000 -500000

machine

112
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 80,000

television
Total fixed assets 2318000 1970300 1674755 1613542 1872511

Less : depreciation 347700 295545 251213 242031 280876

@15%
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

113
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 -2318000 -1970300 -1674755 -1613542 -1872511
investing activities
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 1080000 1080000 1080000 1080000 1080000

financial activities
A+B+C=Net cash flow -680619 -280755 189405 627478 1911334
+/-
Current assets 550000 1190000 1259700 1216000 1516000

Net increase / decrease -130619 909245 1449105 1843478 3427334

cash flow

114
 CHAPTER 6
CONCLUSION

115
 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.

116
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.

117
 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.

118
 CHAPTER 7
BIBLIOGRAPHY

119
 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

120