GOI restricts imports of certain categories of tyres!

Last updated: 26 Jun, 2020 | 10:09 am

GOI restricts imports of certain categories of tyres!
  • In a bid to make India “self-reliant”, GOI took another small step by changing the import policy on tyres (used in motor cars, busses, lorries, bicycles and motorcycles) from free to restricted.
  • Consequently, the importers of these products would now be required to obtain a license for the same by the Directorate General of Foreign Trade (DGFT).

Move targeted at curbs on Chinese imports

  • The chart below shows the total imports of tyres in the categories targeted are ones where the import share of China has been steadily growing (from 24.8% to 31.1% over the last year).
  • Clearly the move seems aimed towards curbing growth of imports in these categories from China.
  • Imports from China are over 40% for Truck & Bus Radial (TBR) and Passenger Car radial (PCR) tyres, In case of tractor tyres, Chinese import is three-fourths of total import.
  • Government’s recent move of putting restrictions on tyre imports will help curb outflow of nearly $400 million a year. Even with an economic slowdown, tyres worth $385 million landed in India in the first 11 months of FY20.

However, Imports are a tiny portion of total tyres sold in India

  • Imports contribute a mere  4% to the existing domestic consumption therefore it will aid the demand but the impact will not be as big as expected. 
  • Given our domestic manufacturing capacity, our country does not require to import tyres. Companies like MRF, Apollo tyres, CEAT, Goodyear India, Balkrishna Industries are best suited to benefit incrementally from this curb on imports.
  • The major contribution would still have to come from existing local consumption and a recovery in the auto sector. 

The potential larger implication of these curbs

  • The post COVID world is going through a process of de-globalization i.e. less cross border trade and higher domestic manufacturing and consumption.
  • In India alone, trade across goods and services is down over 30% in the last quarter.
  • The Auto sector as a whole is in desperate need of measures to stimulate revenue growth and demand. 
  • About 30% of India’s requirement of Auto ancillary products (everything from electrical parts to fuel injection and steering) come from imports- primarily China
  • While replacing China as a source of these crucial parts is not possible, the calibrated movement of sourcing these products from domestic manufacturing will help spur growth and jobs.
  • Indian exports, which are expected to experience tailwinds from the fallout of US-China over trade, majorly consists of export of automotive parts by OEMs (Original equipment makers) of 2 wheelers and 3 wheelers that the likes of Bajaj, Hero Motocorp export. Demand for these is unlikely to fall.

INDwealth Analysis

  • The automotive industry has been facing a major fall in demand in the last few quarters.
  • Calibrated movement of imports in parts of the sector towards domestic manufacturing will help spur growth and jobs.
  • Further, low commodity prices across the board could provide a boost for margins within the industry.
  • The sector is extremely fragmented and our stock analysis model is bullish on several stocks within this sector.

Amongst tyre manufacturers, Our VGQM model has a BUY rating on Balkrishna Industries Ltd. and a HOLD rating on MRF, Apollo Tyres and JK tyres.

Amongst 2 wheelers, Our VGQM model has a BUY rating on Bajaj Auto Ltd.

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