Tyre brands step up R&D to match global peers

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After several years of neglect, Indian tyre companies are now propping up research & development (R&D) activities in the wake of intensifying competition due to entry of global players, increasing radialisation and changing customer demands. Domestic brands are now vying to match their R&D spend as that of their global counterparts.

While global brands spend about three per cent of their revenues on R&D, Indian companies’ expenditure was always modest at below one per cent. However, the scenario is changing now, perhaps not dramatically, but definitely in a noticeable level.

Currently, though Ceat leads the R&D table with highest spend (as a percentage of turnover), Apollo Tyres and J K Tyres are ramping up their R&D expenditure in a significant manner. Ceat’s R&D spend was 0.95 per cent, highest among Indian brands during 2011-12, while MRF was ranked lowest in the table with R&D spend of just 0.2 per cent of the turnover during the year (ended September 30, 2012). Ceat’s spend significantly increased from 0.16 per cent in 2010-11 to 0.95 per cent in FY12.

Apollo Tyres and J K Tyre have charted out aggressive plans to boost their R&D in the coming years. With the planned corporate restructuring activity and global manufacturing presence, Apollo is gearing up for the emerging competitive landscape. “Apollo management has increased the R&D budget to about three per cent of total sales, benchmarking themselves against the industry leaders. This augurs well for the future as focus on R&D would result in products that would be able to compete with international peers and industry behemoths,” said Nishant Vass of ICICI Securities.

J K Tyre also said it is increasing R&D spend and embarking on new initiatives. “We have three R&D operations across Udaipur, New Delhi and Chennai. These three centres are actively focusing on development works in terms of materials, improvements in life of tyres and higher mileage products, among others. We are very consciously focusing on development of both commercial vehicle and passenger vehicle segments. The R&D spend will be more than one per cent,” Arun K Bajoria, president & director, J K Tyre & Industries told Financial Chronicle.

With increased spend, Ceat’s R&D is focusing on developing truck radials for super heavy load applications, all terrain and highway terrain tyres for growing SUV market and a new range of winter tyres for developed markets like Europe, among others.

For long, Indian tyre industry was dominated by domestic firms (barring the presence of Bridgestone and Goodyear in the passenger car segment), by accounting for over 85 per cent of the volumes. Earlier, the premium charged by international brands for their relatively superior products didn’t receive strong acceptance in the highly price-sensitive Indian markets, mainly due to poor road conditions which curbed the benefits of these tyres in terms of higher durability, lower emissions and safety. Further, the dominance of cross-ply tyres in the Indian markets also discouraged global majors from entering into domestic markets, pointed out industry experts.

However, aggressive entry of global majors like Michelin and Bridgestone, increasing levels of radialisation in truck and bus segment (which is now estimated at over 22 per cent), improvements in road infrastructure and launch of advanced vehicle platforms have spurred the demand for premium tyres where global majors have an edge over domestic counterparts. Thus, to match global brands’ efficiency levels and quality, Indian brands are ramping up their R &D as also to protect their market share.


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