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Tyre-makers shine as car owners replace bald rubber

Reuters, Mumbai
REPLACEMENT tyres are buoying Indian tyre companies as a sputtering domestic economy hits vehicle sales, crimping orders from automakers.
India's top six tyre-makers by value are forecast to see average revenue growth of 11.8 percent in the fiscal year that started this month, according to Thomson Reuters SmartEstimates. That would be the fastest expansion in three years.
Tyre-makers including Apollo Tyres Ltd, India's biggest by revenue, are leaning on car and truck owners replacing worn-out tyres on vehicles bought during the 2009-2011 boom to insulate them from slower demand for original tyres. The margins for replacement tyres are up to 10 percentage points higher than those for originals, analysts say.
"Even if you were to make less number of tyres or sell less number
of tyres, if you sell more in the replacement (segment), then your balance sheet gets stronger," said Satish Sharma, president for Asia Pacific, Middle East and North Africa at Apollo Tyres, declining to elaborate on the company's margins.
The automakers are stuck in the slow lane as the industry suffers its second consecutive year of weak sales, hurt by high interest rates and rising fuel prices. While a prolonged downturn in new vehicle sales would eventually cut tyre replacement demand, for now it is proving a boon.
Replacement tyres accounted for 67 percent of Apollo's India revenue in the nine months through December. In the fiscal year ended in March 2012, which marked the end of car sales boom, replacement tyres made up 56 percent of its revenue.
Demand for replacements in recent months has also been lifted by the general elections, said Rajiv
Budhraja, director-general of Automotive Tyre Manufacturers Association (ATMA), as political campaigning spurs orders for roadworthy wheels in the country's vast rural areas.
Favourable monsoon rains last year, which put more money into farmers' hands, have also helped boost tyre replacement sales.
Mumbai-based Angel Broking expects tyre replacement demand will grow 10 percent over fiscal years 2013 to 2015, assuming a vehicle life of 10 years and that tyres are replaced every three years. It said demand from automakers will be subdued for the same period.
Shares in Apollo have jumped 56 percent in 2014, while CEAT Ltd is up 23 percent and MRF Ltd has risen 16 percent, outpacing a 6 percent gain in the main index.
Local manufacturers sell $8 billion worth of tyres a year and compete with global players such as Continental AG and Bridgestone Corp.