A business case for entry into the tire business

Abstract

Tata Motors Ltd is currently focusing on entire range of spare parts pertaining the Tata Vehicles - with twin objectives of vehicle support and revenue growth for the organization. However, the proprietary products such as Tires, batteries and Oils were never dealt by the business so far. Non Vehicle Business line of Commercial Vehicle Business Unit has focused on Spare parts and Aggregates Businesses during last 5-6 years to enhance the revenues from nonvehicle business in a big way. While this resulted in acquiring the larger market share in these areas, it is felt internally that for next step growth on revenues, TML may need to look at those attractive products - Tires, Oils and batteries. This study establishes the business case for TML to enter into this arena for next phase of revenue growth from Nonvehicle business line. The tire industry in India is a two tiered industry dominated by four big players in the commercial vehicle space. The market size of the tire industry is close to Rs 15 500crores. This includes the market for all kinds of vehicles - commercial vehicles, passenger cars, tractors etc. Commercial vehicle market holds the major share of the overall tire market since in this space tires cost more and the turnover is high. Among the sales segments, replacement market earns the maximum margin and the companies thriveon this opportunity. The potential market for Tata range of commercial vehicles in the replacement market stands at Rs 4826 crores which TML can look forward to for capturing a sizeable share. The current tire industry is dominated with four large tire makers who have almost even market shares and offer similar products in a fixed range of prices. There is little product and price differentiation and the companies try to obtain an edge by building their brands. Nylon tires dominate the market and have so far worked successfully given the Indian conditions. The market is slowly moving towards radials but the process is hindered by the cost factor. Chinese radials have started making inroads in to the Indian market and are getting good market response in some regions of the country. Issues like no billing and lack of warranty and support hinder the sale of Chinese radials and a large percentage of customers are hence averse to this proposition. Given the growing appetite in the market for radials, there is a good opportunity for any player who can offer radials at a cost effective price. TML can successfully enter the tire business by bringing in superior radials at a cost effective price. Being the market leaders in the vehicle space, they can initiate a transformation in the market towards radialization and grab a market share in the process themselves. The report enunciates how TML can successfully enter this business by sourcing and re branding radials from China. With this approach, TML can leverage on the technically superiority and cost effective production of Chinese tires and sell them in India in an organized fashion while ensuring quality through the Tata brand .TML can add value to tire sales by providing beneficial finance options routed through Tata Motors Finance LTD (TMFL) and offering service/support through their already existing well spread network of dealerships and service stations. Given the enhance product plus value added offering, TML can command a respectable share in the market which is posed for a major transformation. The following report contains the detailed outlay of key aspects such as demand / volume forecasts, product strategy, channel plan, pricing, promotional plan and factors to differentiate TML from the existing players to make market place impact followed by the estimated sales projections.