Overview of Indian Tyre Industry

2019-2020
May 2021
Agenda

1 Overview

2 Key Drivers

3 Challenges

4 Competitive Benchmarking
 Overview
India demand for tyre volume reached 1,973mn tons while industry sales stood at ₹603bn with a decline of 12.3% and 3.2% respectively
during FY19-20
Tyre volume (tons) grew at CAGR 2% during FY14-20 MHCV dominates industry sales coverage
Tyre industry in India reached its peak size of 2,500 15 Ot
2,250
~2.25mn tons in FY19 when the auto industry was 2,040 1,973 10
Tr he
1,941
also at its peak in terms of new vehicle sales 2,000 1,751 1,844 1,888 act rs
10.3
 In FY20, auto industry volume declined by 19% 5 ors 1
1,500 5.3 5.1
whereas tyre industry volume was down ~12%
as replacement demand remained good
2.3 2.4 2.8 0 7 LCV%
1,000 9%
 Tyre sales declined to ₹603bn in FY20 from -5 2/3%
Wh MH
₹653bn in FY19 500 -10 eele CV
Tyre industry is segmented into Medium and Heavy -12.3 rs 47%
0 -15
Commercial Vehicle (MHCV), Passenger Vehicles 12%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 PV
(PV), 2/3 Wheelers (2Ws/3Ws), Tractors, Light 24%
Commercial Vehicle (LCV) Tyre Volume (mn tons) YoY Growth% (RHS)
Domestic tyre industry’s capacity has increased at a Industry sales grew at CAGR of 3.2% over FY14-20 Industry added capacity at 14.5% over FY16-
CAGR of 14.5% during FY16-20 from 5.8% during 700 653 15 20
CAGR 14.5%
FY11-15 600
577 13.2
12.7 603
400
505 512 10 345 354
 Increase in capacity over FY16-20 has been 498 495 350 314
500
much more than the ~4% CAGR increase in 5
300 CAGR 5.8% 269
400 250
demand over the same period 5.7 206
 Increased capacity coupled with demand 300 3.4 0 200 155 156 164
1.4 150 131 147
slowdown over last 12-18 months led to fall in 200
-2 -5 100
industry’s utilization level 100
 MRF(25%), Apollo(18%), JK Tyre(13%), -7.7 50
0 -10 0
Ceat(11%), TVS Srichakra(4%) and Goodyear(3%) FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
focused on the domestic market and holds ~74%
Sales Trend (₹, bn) YoY Growth% (RHS) Industry Capacity (mn)
market share
Source: Nirmal Bang Report, Companies Annual Report, Companies Investor Presentation, Equirus Securities, Secondary resources
 Continued…
With exports growth, import restrictions and radialisation, tyre industry demand is expected to grow at a pace of 3%-5%

FY18 and FY19 witnessed strong growth due to better acceptance and favorable OEM-Replacement - Radialisation
90% Trend
demand in the export markets. Although demand contracted in FY20 due to
80% 77%
slowdown in the global economy amid trade conflicts 72% 74% 73%
Tyre export volume grew by 0.2% and declined by 0.8% in value terms in FY20 70% 68%
 India’s tyre imports (MHCV, PV & 2W) have grown over the last decade at a 60% 61%
50% 51% 53% 52%
CAGR of 7% to reach ~9.5mn units in FY20. Although in June’20, the 46% 48%
42% 44%
government imposed curbs on imports of certain new pneumatic tyres used in 40% 38%
34% 34% 33%
motor cars, buses, lorries and motorcycles to promote domestic manufacturing 30% 28% 30% 30%
25% 26% 26%
 The demand of tyres is primarily catalyzed from two end-user segments -OEMs 20% 22% 21%
18%
and the replacement segment 6%
5% 5%10%
10% 12% 12% 13%
 Radialisation in MHCVs showed a rapid pace in India and has touched over 6%
0% 2%
7%
52% in the truck & bus segment from ~33% in FY15 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
 While truck OEMs are ~77% radialised, radialisation in the truck replacement
segment is still much lower at ~46% Replacement Total OEM
 India represents the fourth largest market for tyres in the world after China,
Europe and the United States
Tyre Demand Outlook across Segments (000’ tons)
1,600 CAGR: 1441
1,200 5%-7%
1071
CAGR: 5%-7% CAGR: 3%-5%
800 CAGR: 4%-6% CAGR: 3%-5% FY21E
474 406
362 330 265
400 152 199 215 FY24E

0
MHCV LCV PV 2/3W Tractors

Source: Nirmal Bang Report, Companies Annual Report, Companies Investor Presentation, Secondary resources
Agenda

1 Overview

2 Key Drivers

3 Challenges

4 Competitive Benchmarking
 Key Drivers
Growth in automobile sales, expansion of automobile industry, radialisation, various government reforms, rise in national disposable
income, expected increase in demand for personal vehicles in the post-COVID are the key drivers which will fuel the growth of tyre sales

Ease of liquidity expected in 2021 which will result in Vehicle scrappage policy will lead to increase in
substantial increase in demand for automobiles demand of new vehicles

Given the global phenomenon of radialised tyres, there Increase in number of international auto brands which
is an enormous scope for radialisation in India and are now manufactured within India
increased investments in radial capacities are
expected to yield significant benefits for this industry Increase in demand of Taxi Aggregators such as Uber,
Government thrust on agriculture rural development to Ola, Meru would increase sales of new automobiles
drive tractor sales and on infrastructure (roads,
railways & irrigation) spending will generate increased Requirement of vehicles for last mile connectivity
demand for tyres
Substantial fund allocation by government on policy
With rise in income, lack of good public transport and
measures for road sector on projects like – NHDP,
safety of women, there is perceptible inclination
Bharatmala, PMGSY etc.
towards PV and 2 wheelers
The young population has a great propensity for PV
and 2 Wheelers that have a strong potential to drive Rapid increase in sales of MUV & 2/3 wheelers due to
the growth of the automobile and tyre industries rise of income in rural sector

COVID-19 has changed the preferred mode of New preference for EVs among the consumers as an
commute among passengers to personal vehicle over alternative-powertrain vehicle and expected boost in
a public or shared transport commercial vehicle segment due to BS VI pre-buying

Source: Whitepaper – India on the move, Companies Investor Presentation, ET Auto.com, Secondary resources
Agenda

1 Overview

2 Key Drivers

3 Challenges

4 Competitive Benchmarking
 Challenges
The tyre industry in India, has several opportunities to grow; however, it still has a long way to go in order to compete in the current
scenario and to showcase their presence in the global marketplace

Trade Agreements, Corporate Imports , Capacity under

Duty Structure & License Quality of Infrastructure
Tax & Raw Material Price Utilisation & Interest Rates

• Trade agreements have affected the • Indian tyre industry has a greater • The inverted duty structure for the tyre • The Global Competitiveness Report of
domestic industry as concessions are dependence on the imported natural industry which adds pressure to the 2019- 20 depicts India poorly among the
provided on customs duty on finished rubber due to a mismatch between players BRICS and other developing countries
tyres from countries with which India has an production and consumption of domestic • The duty structure needs to be corrected by on the quality of infrastructure with, and
FTA (Free Trade Agreement) but not on natural rubber increasing the customs duty on tyres to ranks it 68th among 141 countries
natural rubber • Due to a slowdown in the Chinese economy, keep it at par with the duty attracted by • Lack of adequate physical infrastructure
• Natural rubber falls under the negative their tyre manufacturers often dump natural rubber, which will help the domestic (roads, ports, airports, railways, water and
list and therefore it increase the cost of their products in the Indian market which industry to be competitive • energy, etc.) has been identified as one of
tyres made in the domestic market affects the domestic industry • Inverted duty structure is where the key raw the biggest challenges that India faces. The
• The corporate income tax in India is • Although the government has imposed anti- material attracts higher customs duty than mid-term appraisal of the 11th Five-Year
higher than many other countries, which dumping duty, but that is based on loss of the finished product. In this case natural plan noted that the country has been
reduces competitiveness in the Indian tyre profit and is not a deterrent rubber attracts more customs duty than adversely impacted on an average by 1-2%
industry • Illegal or illicit imports has become a the completely built tyres points due to infrastructure bottlenecks
• In terms of raw material, both natural major cause for concern • Import of natural rubber needs a prior • The manufacturing sectors that are largely
rubber and crude are controlled by the • The share of imports from China has license and declaration, which increases dependent up on the availability of
external environment and little can be gone up to over 50% from just about 20% holding costs making the tyre industry infrastructure are hurt. Indian states with
done to control the raw material price in the last five years, as per ATMA non-competitive poor infrastructure have not performed
movement • Due to rising imports, the domestic industry well in the manufacturing sector
• Many tyre manufacturers are unable to has been lingering with decline in
pass on higher raw material prices to production and the capacity utilisation of
OEMs, due to bulk demand fearing loss of plants has remain subdued
market share • Capacity expansion was majorly funded by
debt and RBI has been increasing interest
rates due to macro issues. The expected
rise in rate could increase the finance
costs of the companies
Source: Whitepaper – India on the move, ET Auto.com
Agenda

1 Overview

2 Key Drivers

3 Challenges

4 Competitive Benchmarking
 Revenue Analysis
Decline in automotive industry due to week consumer sentiments, increased ownership costs arose from higher insurance cost, BS VI
upgrade, NBFC liquidity crisis, and lockdown resulted in decrease in FY20 revenue for all the tyre players
Historical Revenue Growth Y-o-Y (FY18-20) FY20 Avg. = (6.3)%

27.0% CAGR 3.8% 2.6% 1.5% 1.9%

18.0% 15.7%

7.0% 23.5%
9.0% 6.2% 4.3%
2.9% 1.0% 1.0% (15.8)%
0.0%
(0.9)%
(3.7)%
(9.0)% (6.8)%
(18.0)%
Apollo MRF CEAT JK
FY18 FY19 FY20

APOLLO: Higher ownership costs due to rise in Insurance cost, BS VI upgrade, higher financing costs due to NBFC liquidity crisis along with headwinds of
lockdown from corona virus in Q4, resulted in (6.8)% decrease in revenue on Y-o-Y basis
MRF: Increased sales from 3 wheelers segment offset by negative growth of 3% in commercial vehicle tyres segment, decline of 3% in SCV segment, 10%
decline in passenger and SUV segment followed by 6% decline in farm segment resulted in overall growth of 1 % in FY20 revenue. Lockdown due to corona
virus, high insurance costs, BS VI norms and higher financing costs resulted in decline in revenue of all business segments
CEAT: Revenue in FY20 has decreased by (3.7)% due to unfavourable volumes, largely impacted by shutdown of plants by OEMs in March 2020
JK: Slow economic growth and shutting down of operations due to corona virus resulted in decline in sales for FY20. While overall revenue decreased, 2/3
wheeler segment reported a robust growth due to company’s focus on replacement tyre segment

Source: Companies Annual Report, Companies Investor Presentation

 Operating Margins
Apollo enjoys higher Gross Margin among the players, however it’s Operating Margin and Net Profit Margin declined in FY20…

Gross margin % (FY18-FY20)(a) EBIT margin % (FY18-FY20)

FY20 Avg. = 41.1%
52.0% 15.0% FY20 Avg. = 7.6%
43.8% 43.6%
41.3% 41.5% 12.2%
39.1%40.5%
40.3% 40.4%
39.4% 37.5% 38.8% 12.0%
11.7%
39.0% 35.5% 10.5%

9.0% 8.2% 8.5%

7.9%7.3% 7.6% 7.5%
7.0% 7.3%
26.0%
6.0% 5.1%

13.0%
3.0%

0.0% 0.0%
Apollo MRF CEAT JK Apollo MRF CEAT JK
FY18 FY19 FY20 FY18 FY19 FY20

EBITDA margin % (FY18-FY20) Net Profit margin % (FY18-FY20)

20.0% FY20 Avg. = 12.9% 10.0%
8.7% FY20 Avg. = 4.4%
16.8%
16.8%
16.6%
16.0% 8.0% 7.2%6.9%
11.8% 12.2%
12.1% 11.6%
11.4%
12.0% 11.3% 6.0%
10.0%9.7% 4.8%
8.0% 4.4%4.2%4.1%
3.9%
8.0% 4.0%
3.0%

4.0% 2.0% 1.6%1.6%

0.7%
0.0% 0.0%
Apollo MRF CEAT JK Apollo MRF CEAT JK

FY18 FY19 FY20 FY18 FY19 FY20

Notes: (a)For gross margin, COGS has been computing by adding cost of materials consumed, purchase of stock-in-trade and changes in inventories
Source: Companies Annual Report, Companies Investor Presentation
 Expense Benchmarks
… primarily due to increased ‘D&A expense as % of revenue’ in FY20, coupled with overall higher ‘employee expense as % of revenue’ as
compared to other players
Employee expense as % of revenue (FY18-FY20)(a) Depreciation & Amortization expense as % of revenue (FY18-FY20)
FY20 Avg. = 10.5%
20.0% 8.0% FY20 Avg. = 5.4%
7.1%

16.0% 15.4% 6.4% 6.1%

14.4%
14.1%
5.1%
4.7% 4.6%
12.0% 10.6% 4.8% 4.3%
9.7% 4.0% 3.9%
8.8% 3.6%
8.3% 3.0%
8.0% 7.1% 7.2% 7.2% 7.6% 3.2%
6.5% 2.5% 2.6%

4.0% 1.6%

0.0% 0.0%
Apollo MRF CEAT JK Apollo MRF CEAT JK

FY18 FY19 FY20 FY18 FY19 FY20

R&D as % of revenue (FY18-FY20) Capital expenditure as % of revenue (FY18-FY20)
2.0% 1.8% 1.8% 1.9% FY20 Avg. = 1.4% 25.0%
FY20 Avg. = 13.4%
1.6% 20.8%
1.5% 1.4% 20.0%
1.5% 17.6% 17.1%
1.3%
15.6%
15.5%
1.0% 15.0% 13.3%
0.9% 1.0% 12.4%
1.0% 10.1%
0.7% 0.7% 10.0% 8.9%
6.3% 5.4%
0.5%
5.0% 3.2%

0.0% 0.0%
Apollo MRF CEAT JK Apollo MRF CEAT JK
FY18 FY19 FY20
FY18 FY19 FY20
Notes: (a) Employee expense salaries and wages, contribution to provident and other funds and staff welfare cost
Source: Companies Annual Report, Companies Investor Presentation
 Balance Sheet Benchmarks
JK has highest return on Equity among players

Return on Equity (FY18-FY20)(a)(b) Net Debt / Equity (FY18-FY20)(a)(b)

FY20 Avg. = 9.0%
15.0% 0.7 0.7
12.2% 0.6
12.0%
12.0% 11.2%11.0% 0.6 0.5
10.7%
0.5
9.1% 9.1%
9.0% 8.5% 0.4
8.0%
6.9% 0.3
0.3
6.0% 4.8% 0.3

2.6% 0.1
3.0% 0.1 0.1 Not
NA Available
0.0% 0.0
Apollo MRF CEAT JK Apollo MRF CEAT JK

FY18 FY19 FY20 FY18 FY19 FY20

Net Debt / EBITDA (FY18-FY20)(a)(c)

3.5
3.0
2.8 2.6
2.2 2.2
2.1
1.5
1.4 1.2

0.7 Not Not

Available Available
0.0
Apollo MRF CEAT JK

FY18 FY19 FY20

Notes: (a) Figures as reported in annual report of the company, (b) MRF did not reported Net Debt/ Equity ratio in FY18, (c) Information on Net Debt/ EBITDA is not available for MRF and JK
Source: Companies Annual Report, Companies Investor Presentation
THANK YOU