Financial Daily from THE HINDU group of publications
Saturday, Mar 13, 2004
`Cheap Chinese imports hurting domestic tyre cos' MRF looks to raise exports to 50 pc of sales
Mr K. M. Mammen
Chennai , March 12
CHEAP Chinese imports are hurting the Indian tyre industry.
What hurts the industry even more is that Chinese tyre companies are able to buy rubber from India at prices much lower than that available to domestic tyre companies. And, in turn they dump tyres in India at almost half the price, according to the top management of a leading tyre manufacturer.
Says Mr K.M. Mammen, Chairman and Managing Director, MRF Ltd, "The rubber planters are not only killing themselves, but are also killing the tyre industry." He says that rubber prices have hit the highest ever. This is mainly because of the lobbying by politicians from Kerala, the major rubber grower in the country. Because of this lobbying, the Centre provides a subsidy for exports.
"Chinese companies are buying the rubber at a lower price than what I can buy and they export tyres into India at half the price than what is available here," Mr Mammen says and adds that tyre prices have not been increased for almost eight years now, when raw material prices have shot up.
"We sell tyres (truck tyres) at Rs 9,000 while Chinese companies are selling at Rs 5,000. They can wipe out the whole industry." Rubber prices have gone up from Rs 27-29 a kg to about Rs 56 now.
In an interaction with Business Line here today, Mr Mammen felt that one solution for the problem would be to make rubber available to Indian companies at the same price as is sold to the Chinese. The other option would be to initiate anti-dumping proceedings.
However, Mr Philip Eapen, Executive Director - Marketing, added that anti-dumping was a laborious process and the Automotive Tyre Manufacturers' Association would look into it.
Mr Mammen said that nonetheless Indian tyre manufacturers had to look out for themselves. The weak ones would not survive for long, he said and pointed out that not all tyre companies were doing well. However, MRF had been able to withstand the pressures mainly because of the brand preference it had built for itself in the market. Today, tyres had become a commodity, like steel, and MRF had survived thanks to planning and lot of brand advertising.
Asked if import of rubber was not a solution to counter the high domestic prices of the raw material, both Mr Mammen and Mr Eapen did not think so. MRF imported raw material only for its exports.
Over the next four to five years, MRF expected its exports to account for 50 per cent of sales, against about 30 per cent now. It exported tyres to almost 65 countries, Mr Mammen said.
To a question, Mr Mammen said capacity would be increased as and when needed. The company spent about Rs 150 crore a year on capital expenditure with the money coming in from internal generation.
To a question on whether MRF had completed testing as an original equipment (OE) supplier to Hyundai Motor India, they said the process was on. Mr Eapen said OE supplies were not always remunerative with the vehicle manufacturers beating down the tyre manufacturers on price. "In some cases, we do not even recover the raw material price," he said.
On MRF's proposal to set up a test track, Mr Mammen said the company had sought the State Government's help to acquire about 1,000 acres of land in the vicinity of Chennai. The track was needed to test the company's tyres, which were now being tested on the roads in various Indian cities.
On whether the company felt the need for a joint venture partner, especially since a number of multinational tyre manufacturers had entered the country, both Mr Mammen and Mr Eapen felt that MRF had enough strength to meet the competition on its own. Its R&D was as good as any other company, they said without specifying how much the R&D expenditure was. Moreover, Mr Eapen pointed out that Japanese tyre manufacturers too did not have any joint venture partners. His point was that if the Japanese could become big without any collaboration, why not Indian companies. In this context, Mr Mammen agreed with the view of Mr Suresh Krishna, Chairman and Managing Director, Sundram Fasteners Ltd, that joint ventures would not help in the growth of Indian multinational companies.
Lauding both Mr Suresh Krishna and Mr Venu Srinivasan, Chairman, TVS Motor Co, Mr Mammen said a joint venture could be successful when both partners gave equally to the venture. There needed to be a feeling of give and take, which was not often the case with joint ventures.
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