‘ADD’ boost for domestic TBR players
Reason for report: Sector update
Directorate General of Anti-dumping & Allied Duties (DGAA) has recommended imposition of anti-dumping duty (‘ADD’) of US$245-452/MT on truck and bus radial tyres imported/produced from China, potentially minimising the threat of market share loss to cheaper Chinese radial tyres. This ‘ADD’ would correspond to 10- 15% increase in landed prices for Chinese TBR tyres. Coupled with increased transaction cost due to stricter tax compliance post-GST (28% applicable rate on top of 10% customs duty), the ‘ADD’ could largely eliminate the price differential between India-made and Chinese TBR tyres. We believe this could lead to a reduction in share of imported Chinese tyres (currently 15-20% of domestic TBR demand) and could boost volumes for the domestic players. The pickup in imports of cheap Chinese TBR tyres (~10x increase in volumes since FY12), has coincided with the radialisation trend in the Indian trucking business. Thus, on a segmental basis, we believe the slide in TBB segment could be arrested as its price attractiveness vis-à-vis domestic TBR tyres is restored.
Cheap Chinese imports were proving to be a big threat:
As per the petitioners (domestic players:
a) The landed price of tyre imports from China was below the selling price and cost of sales of the domestic industry.
b) Though current exports of China to India amount to only 1.8% of China’ overall exports, their domestic market share had already reached 25-30% of domestic replacement TBR demand.
c) Only 115 Chinese exporters have exported TBR tyres to India. However, there are another 1,994 exporters who have exported TBR tyres to various parts of the world and, with increasing number of BIS licenses being given by GoI to the Chinese exporters, indicates that the volume of imports from China was likely to increase.
d) Thus there was a fear that surplus Chinese capacities coupled with its government incentives could be utilised for flooding the Indian market. Even an incremental 1% diversion of Chinese tyre exports could have a significant impact on both pricing and market share.
‘GST’ to strengthen tax compliance and further reduce price differential:
As per our channel checks, a significant share of the imported cheap Chinese tyres had lower tax compliance (e.g. VAT) which aided the price attractiveness vs incumbent offerings. Post-GST (28% applicable rate on top of 10% customs duty), which is likely to strengthen tax compliance, the price differential between the cheap Chinese tyres and India-manufactured TBR tyres is likely to come off and recent channel checks suggest that this is already happening.
Our view: A shot in the arm for the domestic TBR players
In our view, the imposition of the ‘ADD’ of US$245-452/MT on truck and bus radial tyres imported from China could be a positive for the industry grappling with rampant import of Chinese tyres at uncompetitive prices. Coupled with GST, the imposition of the ‘ADD’ could largely eliminate the price differential between the landed price of Chinese tyres and that of locally produced tyres. We believe the primary beneficiaries of the ‘ADD’ could be players with higher revenue share of truck and bus segment in their business mix. Benefit could accrue to: a) domestic players who have cheaper TBR offerings (recent launches by a few players), and b) manufacturers with higher TBB market share, as some of the demand could roll back to the TBB segment as its price attractiveness vs cheap Chinese TBR imports is restored.
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