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Indian Tire Industry Financial Analysis
Indian Tire Industry Financial Analysis
and Analysis
Indian Tire Industry
Product Categories
The domestic tyre industry is in modernization phase and largely driven by demand and supply
conditions, rather than government regulation as it was earlier. The domestic tyre industry can
be classified on the basis of its design, markets and vehicle category, which have been evolved
over the years.
Markets
Tyre demand in India is from two categories i.e., OEMs and the replacement .Consumption by
OEMs is dependent on new automobile sales trend while the replacement segment is linked to
usage patterns and replacement cycles.
Demand from the replacement segment dominates the Indian tyre market contributing about
56% of demand. The major reason for high replacement share is due to the fact that the number
of registered vehicles/annual sales remains at about 10x at close to 20 crore registered vehicles
(industry estimates) visà-vis ~2.4 crore annual vehicle sales.
The export category is about 18% of the total units sold in the domestic market. The industry
registered sales of around 151,026 (000 units) in the domestic market while the total exports of
tyres during the year was 26,699 (000 units) in 2015-16. Therefore, the total tyre sales during
the year was 177,724 (000 units) registering a marginal growth of about 4% y-o-y.
PESTEL Analysis
• Political- The custom duty rate on tyres is 10-15% where as custom duty on Natural
Rubber is 31.35%. Thus, making it hard to compete with external competitors.
• Economic - As the rupee is getting devalued the cost of raw materials in increasing. Thus,
leading to pressure on profit margins and also to increase in price of tyres. The rupee
reached all time low 71.92% on 5th September 2018
• Social - Explosion in the number of the nuclear families has lead to rapid growth in the
automobile industry and also tyre industry
• Technical - As more and more international companies have entered indian market.
They are spending huge on solving technological problems and technological
enhancement. Further , this has lead to adoption of radial tyres in india in last few years.
• Environmental- Disposal of scrap tyres is about to become the latest headache of the
industry. New ways to be found to dispose or reuse the scarp tyres.
• Legal- Excise duty on tyres is high. Ultimately consumers have to pay more price. Tyre
industry is also delicensed.
Competitors
Balkrishna Industries
Headquartered in Mumbai, Balkrishna Industries Limited (BKT) is a leading manufacturer in
the Off-Highway tire market. Balkrishna Industries Ltd was incorporated on November 20
1961. The company set up its first plant at Aurangabad. The company focuses on the production
of range of off-highway tires that includes agricultural industry material handling forestry lawn
and garden construction and earth moving tires.
BKT sells its products in 130 countries worldwide through a network of national distributors.
The company has a worldwide distribution network ensuring extensive reach and penetration.
The company derives majority of its revenue from exports. The company has five state-of-the-
art production sites in Aurangabad, Bhiwadi, Chopanki, Dombivali, and Bhuj.
The company has four subsidiaries in Europe and North America viz. BKT Europe S.r.l. in
Seregno Italy BKT Tires USA Inc. in Akron Ohio BKT Tires Canada Inc. in Toronto and BKT
Tires Inc. Its subsidiaries in India are Balkrishna Paper Mills, Balkrishna Synthetics and
Balkrishna Tires.
Over 95% of the tire production is exported under the BKT brand, with the main export markets
being countries in Western Europe, North America and Australasia including original
equipment manufacturers. In the domestic market, the company supplies to all the major
construction equipment manufacturers and has a presence in the replacement market of the
road construction sector.
Being India’s largest exporter of “Off –Highway Tyers”, the company exports ~92% of its topline
to diverse geographies including Europe, South America, Latin America, Africa, Russia, Asia
etc. It has a market presence in over 130 countries. Supported by a strong distribution network
of more than 200 distributors, BIL has a product portfolio of 1900 SKUs to offer.
Balkrishna Industries Ltd. is a large cap company having a market cap of Rs 22,638 Crore
operating in Tyres sector. Balkrishna’s key products/revenue segments include
• Tyres which contributed Rs 3,722 Crore (98.25 % of Total Sales)
• Export Incentives which contributed Rs 57.24 Crore (1.51 % of Total Sales)
• Scrap which contributed Rs 7.51 Crore (0.19 % of Total Sales)
• Other Operating Revenue which contributed Rs 1.41 Crore (0.03 % of Total Sales) for the
year ending 31-Mar-2017.
JK Tyres & Industries Ltd.
JK Tyre & Industries Ltd was incorporated in the year 1951 as a private limited under the name
JK Industries Pvt Ltd. Until March 31, 1970, the company was engaged in the managing agency
business. Thereafter the company decided to undertake manufacturing activities and obtained
a letter of intent in February 1972 for the manufacture of automobile tyres and tubes. The
company name was changed into JK Industries LTD with effect from May 24, 1974 consequent
upon conversion of the company into a public limited company.
JK Tyre & Industries Ltd is one of the leading automotive tyre manufacturers in India. The
company is engaged in manufacturing of automobile tyres, tubes and flaps. They manufacture
Radial and Bias 4-wheeler tyres for trucks, buses passenger cars, LCVs, tractors etc. The
company's customer base covers virtually the entire Original Equipment Manufacturers in
India together with Replacement Market for four wheeler vehicles, Defense and State Transport
Units. They sell their products under the brand name 'JK Tyre'.
They have four plants located in Rajasthan, Madhya Pradesh and Karnataka. The company
markets its products and services through a network of approximately 300 JK Steel Wheels
retail outlets, approximately 60 JK Xpress Wheels retail outlets, and 40 JK Truck Wheels retail
outlets, as well as 28 JK Retread Centers and 17 Tyre care centers. It also exports its products
to North America, Latin America, Africa, and the Middle East.
Apollo Tyres Limited
Apollo Tyres Ltd, with its corporate headquarters in Gurgaon, India, is in the business of
manufacture and sale of tyres since its inception in 1972. The company has manufacturing
presence in Asia, Europe and Africa, with 8 modern tyre facilities and exports to over 100
countries. Powered by its key brands — Apollo and Vredestein, the company offers a
comprehensive product portfolio that includes passenger car, sports utility vehicle, multi utility
vehicle, light truck, truck-bus, agriculture, industrial, two wheeler, specialty, bicycle, and off
highway tires; retreading materials and tires; and alloy wheels.
They are the first Indian tyre company to launch exclusive branded outlets for truck tyres and
also the first Indian company to introduce radial tyres for the farm category. Apollo Tyres
currently has four manufacturing facilities in India -- two (including a leased facility) in the
rubber-producing state of Kerala and one each in Gujarat and Tamil Nadu. Outside India the
company has a manufacturing facility each in The Netherlands and Hungary.
They are the first Indian tyre company to launch exclusive branded outlets for truck tyres and
also the first Indian company to introduce radial tyres for the farm category. Apollo Tyres
currently has four manufacturing facilities in India - two (including a leased facility) in the
rubber-producing state of Kerala and one each in Gujarat and Tamil Nadu. Outside India the
company has a manufacturing facility each in The Netherlands and Hungary.
Financial Statement Analysis
Profitability Ratios
The term profitability means the profit earning capacity of any business. Profitability ratios
measure a company’s ability to use its capital or assets to generate profits. Improving
profitability is a constant challenge for all companies and their management. Evaluating
profitability ratios is a key component in determining the success of a company.
EBITDA Margin
For a manufacturing industry, the EBITDA margin measures the operational profitability of a
company. EBITDA margins are important because they help evaluate the company’s
performance without having to factor in financing decisions. Balkrishna Industries has clearly
out-done its competitors in terms of margin, primarily attributed to its core revenue derived
from foreign operations where it sells for higher prices while producing at domestic level at low
labour costs and other costs.
EBITDA Margin
36% 37%
40% 32%
25% 27%
30%
20%
10%
0%
2014 2015 2016 2017 2018
Return on Equity
Return on equity is the measure of book returns earned by shareholders on their investments.
Preferred shares and dividend yields are excluded from the calculation. Return on equity is the
net income of business as a percentage of the total equity of the business. Balkrishna Industries
has provided investors ROE in line with peers but has witnessed a declining trend over years.
Since the company in the last two years has paid out higher dividends, it leaves behind lesser
income. Although the company has maintained its net income margin, the decline in ROE could
then be attributed to the increase in dividend payments.
Return on Equity
30% 26%
25% 21% 20% 20%
18%
20%
15%
10%
5%
0%
2014 2015 2016 2017 2018
Return on Assets
Return on assets measures how efficiently a company can manage its assets to produce profits
during a period. Naturally, a higher ratio would be preferred. Balkrishna Industries again has
been in line or outperformed its peers in the last five years.
Return on Assets
14% 12% 13%
12% 10% 11%
9%
10%
8%
6%
4%
2%
0%
2014 2015 2016 2017 2018
Current Ratio
2.0x
1.4x 1.4x
1.5x 1.3x
1.1x 1.1x
1.0x
0.5x
0.0x
2014 2015 2016 2017 2018
Quick Ratio
The quick ratio is a liquidity ratio that measures the ability of a company to pay its current
liabilities when they come due with only quick assets. Quick assets are current assets that can
be converted to cash within 90 days or in the short-term. Cash, cash equivalents, short-term
investments or marketable securities, and current accounts receivable are considered quick
assets. Short-term investments or marketable securities include trading securities and
available for sale securities that can easily be converted into cash within the next 90 days.
Marketable securities are traded on an open market with a known price and readily available
buyers. In terms of quick ratio again Balkrishna Industries has maintained a ratio better than
the peers however near about 1.0x. A ratio close to 1.0x or lower indicates that in times of
distress, the company might not be able to provide for all its current liabilities with its quick
assets. This may not be a favourable scenario.
Quick Ratio
1.1x
1.2x 1.0x
1.0x 0.8x 0.9x
0.8x
0.8x
0.6x
0.4x
0.2x
0.0x
2014 2015 2016 2017 2018
Solvency Ratios
Solvency means the company’s ability to repay its debts in the long-term. The ratios are
therefore not restricted to the current assets and current liabilities but rather deal with the
total assets and total liabilities.
The solvency ratios give an estimate of the structural safety of the company by calculating the
ratio of internally sourced finance to externally sourced finance. Internally sourced finance is
more expensive but yet a low risk source of finance (owners’ ordinary or preference share capital)
versus externally sourced finance, which is cheaper but yet a riskier source of finance (loans
from the bank, debentures etc.).
It assesses the company’s ability to meet its long-term obligations, remain solvent, and avoid
bankruptcy. It measures how well a company’s cash flow covers its short-term financial
obligations. Lenders evaluate these ratios to determine the degree to which a company could
become vulnerable when faced with economic downturns. A company with a high level of debt
poses a higher risk to lenders and investors.
Total Debt to Equity
Debt/Equity Ratio is a debt ratio used to measure a company’s financial leverage, calculated by
dividing a company’s total liabilities by its stockholders’ equity. It is closely monitored by
lenders and creditors, since it can provide early warning that an organization is so overwhelmed
by debt that it is unable to meet its payment obligations. This form of D/E may often be referred
to as gearing. Balkrishna Industries has maintained a safe debt to equity ratio declining over
time. This is indicative of the decrease in debt as the company has repaid its long-term debt
over the years.
150.0x
100.0x
6.0x
4.0x
2.0x
0.0x
2014 2015 2016 2017 2018