Interview with Rajiv Budhraja, Director General, Automotive Tyre Manufacturers’ Association (ATMA)

Company Description: The Automotive Tyre Manufacturers’ Association (ATMA), based in New Delhi, is a representative body of ten large tyre companies in India accounting for over 90pc of tyre production. ATMA works towards promoting and safeguarding the interests of the tyre industry in India primarily by acting as a conduit between the government and the industry. The association strives to be an active participant in policy making process and holds frequent meetings with the government departments to discuss the challenges being faced by the industry in the ever-changing economic environment. The association acts as the industry’s interface with the media, opinion leaders, NGOs and other industry associations around the world so as to present the perspective of Indian tyre industry on different issues.

What are the current capacities in the Indian tyre industry and the utilisation levels at this moment? Are any further investments expected? And by 2020 what would be its total size?

The current utilisation, in terms of percentage, is anywhere between 85-90pc. But in the overall scenarios, it is 80-85pc utilisation. In terms of production, we have done about 1,250 lakh tyres during FY-2011-12. In the last three years, there has been a major capacity addition in the tyre industry in India. Never before in the history of the tyre industry in India have we seen such kind of investments taking place. For the last three years, we have witnessed investments worth 18,000-20,000 crore. By 2013-end, we could be seeing a major block of investments having come into this period. Once that utilisation level takes place, then probably with a lag effect of 5-7 years by say 2020, we can have a fresh set of investments happening.

While foreign brands like Michelin, Yokohama, Bridgestone, et al are making big ticket investments in India, domestic players Apollo, JK Tyres, etc have foreign tie-ups and acquisitions? Does it mean that the Indian firms have arrived in terms of technology?

Yes, of course. I think in the present context, to assume that any company is going to be lagging behind on technology or product innovation is not believable. So each player wants to be going global today.  With the shrinking of the tariffs with the greater exchange of trade between the countries, it is very important that the tyre industry assumes almost a global stature of its own. That is the reason the leading Indian tyre players want to have a global footprint. Since India is one of the fastest growing markets after China both for automobiles and tyres, it is imperative for overseas firms to have a manufacturing presence in India.

As there would be new OEMs coming in like PSA Peugeot Citroen, John-Deere-Ashok Leyland, Scania AB, KTM, Datsun, Triumph, Lexus etc, can the industry expect enhanced business opportunities?

Yes, in fact that is the reason practically all the large Indian tyre majors have gone in for expansion because they have realised that India is going to be a manufacturing hub for automobiles because of the inherent competitive advantages that India would continue to enjoy. So I think that each company is looking at a bigger picture. And the bigger picture is over the next 10-20 years. So there will definitely be more and more global automotive players serviced by Indian tyre firms.

Will there be more overseas acquisitions by Indian players in the next few years? What are the primary reasons?

As you can appreciate, tyre manufacturing is actually shifting from the West to the East. That is a trend that is happening. So in this kind of a shift, some of the Indian tyre companies are looking at inorganic growth by way of these global acquisitions also. So yes, it is quite possible and probable that Indian companies would be reaching outside the boundaries of India for tyre plants outside.

How important has the LCV industry turned out for tyremakers? And is it witnessing unprecedented growth?

Yes, to answer to your second part of the question first. It is witnessing unprecedented growth. But one has to realise that the LCV is not the conventional segment as it used to be earlier. That is also now breaking into two distinct segments of which one is the small LCV segment which comprises light trucks of upto 1 tonne. And then there is the conventional LCVs which consists of products in the range of one to seven-and-a-half tonnes. It is the lower tonnage which is experiencing unprecedented growth.

Is there a trend towards buying rubber plantations by Indian tyre making companies, something of backward integration of sorts?

Yes, there is such a trend happening. First of all, we have to appreciate that there is currently a demand-supply gap between domestic production and consumption of rubber. This gap is only going to grow in the future. And if tyre companies are setting up new capacities, it is important for them to also procure raw materials. And one possible way is by backward integration Indian tyre companies would like to secure the raw material supplies for their future production requirements.

It’s a known fact that a number of Chinese tyremaking companies are dumping tyres in the country? Is ATMA lobbying with the government to keep a check on it?

Dumping is an unfair trade practice. We have to appreciate that anything which is unfair needs to be brought to the attention of the government. ATMA, as an industry body, would like the government to be abreast of all the trends which are happening in the industry. Particularly, if there are any such unfair practices or inconsistencies or anomalies both from the domestic and trade fronts. So yes, we do bring such instances to the attention of the government. We also take effective steps under the overall ambit of the law, which is to go for anti-dumping measures as they are prescribed under the law.

How much, in terms of percentage, is the Indian CV industry radialised? And what are your projections for the same in the next few years?

Radialisation has gathered momentum, particularly in the last three years with the coming up of these investments and capacities that I had just mentioned about. And that is the reason we have seen a quantum jump in radialisation from 4pc to around 17-18pc (in the CV industry). Going forward, over the next two-three years, radialistaion could be seen at almost 25pc (of the total CV industry).  So again once it reaches 25pc, there will be another faster acceleration of 40-45pc after which it will again level off.

Does ATMA support Free Trade Agreement (FTA) with Europe and other nations?

We are in favour of free trade agreements with other nations provided they are on an equal level playing field. It should be both for raw material and finished products. But you cannot call it a fair treatment if your access to raw material is not allowed. In other words, if India is allowing import of tyres into the country at a cheaper tariff under some concessional trade agreement, we would also like access to raw materials at a cheaper rate. But unfortunately, it has not happened in the case of our raw materials. For instance, for ASEAN, which is a very major trade bloc, rubber is one product which is not been allowed for import at a concessional rate. In fact, the three major rubber producing countries like Thailand, Indonesia, and Malaysia are all in the ASEAN region. And these countries are not allowed to export rubber to India at concessional rates. While raw materials are not being allowed into India despite domestic shortage in the country, it would be unfair on the part of the government to allow overseas players access to Indian market for our finished product i.e. tyres.

With fuel prices rising sharply, does it mean a double blow for the industry?

 A fuel price increase is a serious matter of concern for the tyre industry. This is because the fuel is the single largest operational cost for a transporter followed by tyres. So you can imagine that if the fuel cost is moving up, it immediately impacts the second rung of the expenditure i.e. on tyres. It only defers the purchase of a tyre because a truck has to run and the fuel has to be filled in. So a consumer can only postpone the buying of the tyre by a month or two. To that extent, it leads to a deferred demand. He would like to use the tyres to its last mile. He would not change unless it is absolutely essential. Because of increased fuel expenditure, a trucker might end up buying retreaded tyres instead of a new tyre. And as you know, a number of raw materials like synthetic rubber, butyl rubber, styrene-Butadien Rubber (SBR), Polybutadienc Rubber (PBR), carbon black, etc are derivates of crude oil in one way or the other. And yes, if crude oil or fuel prices going up, the raw material chain of the tyre industry gets impacted. So we take a dent on both the sides i.e. tyre side as a finished product as well on our raw materials.

What is the current turnover of the tyre industry in India? And going forward, what are your projections for the same?

The Indian tyre industry has reached a level of 42,000 crore. So going forward, you could see this touching about 50-55,000 crore over the next two years. Out of the total revenue, exports will account for around 10pc. So out of 42,000 crore turnover, around 4,200 crore is contributed by exports.