Removal of anti-dumping duty on Chinese tyres, which are 20 per cent cheaper than domestic tyres, will vitiate the competitive environment in the Indian tyre industry, says Mr Koshy Varghese, Executive Vice-President, MRF Ltd.
Unfair competition from China, coupled with slowdown in the auto sector, will put pressure on the tyre industry in the coming months, he says.
More from Mr Varghese…
Input costs have gone up in the last one year. How did MRF manage the cost push?
The cost push has been very significant over the last one year with rubber prices going up from Rs 140 a kg to Rs 235. Global prices have also been high. Today, after the recession, we don’t benchmark only against Indian prices.
Managing the cost push has not been easy as one cannot pass on the entire push to customers. This is why the last quarterly results have been dismal. Most tyre companies were in the red.
The industry had to increase prices or else, it would have been worse off. We hiked prices in regular doses, in a calibrated manner. We cannot take high doses as the market is highly competitive. The price hike was between 1.5 and 2.5 per cent. The situation may not change even this quarter because high cost continues.
What about availability of rubber?
Availability issue is probably the reason why prices went up. The pressure would not have been high had there been adequate availability of rubber. When the auto industry got out of recession, there was a lag. There is a 7-year lag between plantation and production. This lag effect will be there for a couple of more years.
Apollo Tyres has acquired land in Laos for rubber plantation… Will you look at such opportunities?
We are not averse to looking outside India if an opportunity comes up. We are always on the lookout in ASEAN and South-East Asian countries where we have a footprint. But it has to make business sense and fit into our overall strategy.
What other challenges do you foresee this year?
Removal of anti-dumping duty on Chinese tyres will vitiate the competitive environment. Chinese tyres are 20 per cent cheaper than domestic tyres. Hence, our ability to increase prices will become even more limited. We are worried about unfair competition. The tyre industry, which operates on very thin margins, will be under pressure in the coming months.
Our demand is also driven by the automobile industry. There is a sentiment drop across the industry. Six months ago, everybody gave figures that were gung-ho. But now everybody has revised growth rates. Who would have known interest rates would go up! We have to wait and watch. The next three months are crucial. One can’t commit even if one wants to. You can have wishful thinking, but the reality is different.
How is your aviation tyre business doing?
We are getting regular orders from HAL and Defence for helicopter tyres. We supply 400-500 units a month, from our Medak plant. This was as a result of a request from the Government of India, as strategically, it was dangerous not to have a domestic manufacturer for tyres. We are also in discussions with the Government for supply of military aircraft tyres.
When will this materialise?
Even our helicopter business took two years. The lead time in such a business is long as making tyres for aircraft is complex as the speed and pressure at which the tyres hit the tarmac is extremely high.
What is your investment and expansion plan for this year?
Investments will be in tune with market conditions. Last year, we made heavy investments at a unit in Medak for passenger car and two-wheeler tyres. It started production eight months ago and is ramping up. A plant in Trichy is coming up. These investments will start yielding results this year.
Most of the expansion this year will be in the truck radial and passenger car segments, which account for 60 per cent of our total revenues. There will be both new products and product substitution. Especially in the case of trucks, where nylon and bias tyres are getting substituted to radial. World over, it is more of radial. In India, radialisation is slowly happening.
Today, most of our sales today is skewed towards domestic market. We also want to focus on exports, which account for 10 per cent of business. That mix will not change overnight. But we would like exports to grow.
MRF witnessed labour unrest in 2010 and 2011… Are you concerned?
There have been labour issues across the country, North and South. Labour issue keeps coming up; it is not industry or region specific. Many times it comes up when labour agreements are due. Things have been amicably settled now and all our plants are running.
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