`Further consolidation in tyre market likely' -- Mr Philip Eapen, Executive Director, Marketing, MRF

B. Krishnakumar

THE RECENT slowdown in the automobile sector has affected the performance of the tyre producers.

MRF, in particular, has seen a sharp decline in its profitability in recent quarters. Mr Philip Eapen, Executive Director, Marketing, MRF, discussed with Business Linehis views on the prospects and performance of the tyre industry.

Excerpts from the interview:

After robust growth in 1999, the offtake of commercial vehicles has seen a sharp decline this year. What impact has it had on your company's performance? Do you foresee an improvement in demand from the replacement market in the near-term?

Naturally, the recession in the transport sector has had an impact on our business. However, we have been able to contain it to a great extent. It is difficult to forecast any changes in the present scenario.

The price of crude oil and petro products has seen a firm trend for over a year now. What steps has your company taken to absorb the impact of the rise in production cost? Do you plan to increase product prices to minimise the impact of the rise in input cost?

The increase in the cost of inputs, particularly petro-products, had to be absorbed temporarily by us considering the recessionary nature of the market. We have not increased our prices for the last three years. We are approaching our original equipment (OE) customers to accommodate some price increases in view of the fact that they themselves are increasing the prices of their vehicles.

What impact has Bridgestone's entry had on your company's standing in the tyre and passenger car segments in particular?

Bridgestone's entry has been confined primarily to the OE market. Our customers are now comparing our products with this international brand. The suitability of our tyres for the Indian roads has clearly come out in the comparison.

What has MRF's response been to the price reduction strategy adopted by Apollo Tyres?

Apollo Radials caters to the low end of the market, where we are not aggressively competing.

Given that all along MRF has been a major player in the replacements market, do you have any major plan to make inroads into the OE segment? Who are your major OE clients?

We do have a presence in the OE segment, apart from being the lead player in the replacement market. We are the largest supplier to Maruti. Apart from being the sole supplier to General Motors' Corsa, we are also the suppliers to the Honda City, Ford Ikon and Telco Indica.

With the Government's policy of liberalising imports, have cheaper imports affected the prospects of domestic tyre producers?

On the question of cheap imports, the import of cheap truck tyres (just as cheap electronic goods and toys) has had some damaging effect on the truck tyre market. We expect this to be a temporary phenomenon since the Indian customers are unlikely to accept such low-quality truck tyres.

Do you think there is scope for consolidation through mergers and acquisition in the tyre industry? At the global level, top tyre producers have entered into strategic alliances with producers in other countries. Do you think something similar could shape up in India? Is MRF open to such alliances?

We are currently not planning any alliances. Two tyre companies have already been sold in India to existing players. Further consolidation is likely to take place.

Given the present import duty structure and the demand-supply scenario in India, do you think there is enough incentive for other global majors such as Michelin, Continental or Kumho to have a manufacturing set-up in India?

In the current recessionary economic environment, any company that sets up a manufacturing unit in India is likely to face an adverse situation as has happened to others who already have factories here.

What is the outlook for the industry in the next two years?

We do not expect any growth in the automotive tyre industry except in the two-wheeler tyres. If there is growth, it is not expected to exceed 2 per cent.