InvestorQ : How has been the pick-up in tyre industry demand and what does that bode for players like Apollo Tyres, JK Tyres and Ceat?
Moii Chavate made post

How has been the pick-up in tyre industry demand and what does that bode for players like Apollo Tyres, JK Tyres and Ceat?

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Tisha Malhotra answered.
5 months ago
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We have seen something of an anomalous situation in the year 2020. Even as the overall auto industry has struggled to revive, the tyre industry is not so badly impacted. How is that possible. For that you need to understand the break-up of the tyre demand coming from the OEM market and the replacement market.

What exactly are the OEM and the replacement market. The original equipment maker or OEM market is the segment of tyres that is sold directly to auto manufacturers to be affixed to cars or scooters or trucks. The replacement market is the routine demand for tyres and a typical car needs around 3 tyre changes in 8 years of usage, on an average.

It is the way this dichotomy between the OEM market and the replacement market for tyres has worked that has resulted in a decent performance by tyre companies. Even as auto demand struggles to pick up, tyre companies are seeing capacity utilisations improve, on the back of replacement market demand.

Let us look at the numbers. Tyre production fell by 30% during the first half of FY21 due to the lockdown and restrictions on mobility which hampered production. However, after the relaxation, the industry got a boost from the tyre replacement market. For example, in FY20, OEM sales fell by 16.3% but the replacement market sales fell by just 2.6% YOY.

In FY20, the replacement market share improved to 58%. Replacement market demand was the story for most of the large tyre companies like JK Tyres, Apollo Tyres and Ceat. This trend was visible across all demand segments including two-wheelers, HCVs, passenger cars, LCVs etc. Most tyre companies also hiked prices in tandem with rising input costs.

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