Industry Overview For Two Wheeler Type Tyres

The two-wheeler tyre and inner tube manufacturing industry is labour intensive and requires consistently high quality production capability and strong product development. In the two-wheeler market, tyres are mostly designed for light load vehicles such as bicycles, motorcycles, mopeds, handcarts and vehicles meant for agricultural or industrial usage.

Overview of the global tyre market
According to the Michelin Factbook (200 8 Edition) (1), the global tyre industry is dominated by a few major manufacturers, such as Michelin, Bridgestone, Goodyear, Continental and Pirelli, which accounted for approximately 60.8% of the total global tyre sales in 2005. The global tyre market was worth approximately US$ 113 billion in 200 6. It is estimated by the Michelin Factbook (200 8 Edition) that twowheeler tyre sales was worth approximately US$4.0 billion in 2005.

Overview of the PRC tyre market
According to CRIA, in 2007, we were ranked as the fourth largest two-wheeler tyre manufacturer by revenue in the PRC. According to CRIA, approximately 516 million motorcycle and bicycle tyres and inner tubes were produced in 2005, with sales increasing by 12.9% to approximately RMB5.17 billion and net profits increasing by 18.3% to RMB0.26 billion as compared to 2004. The major contributing factor in the growth of tyre sales in 2005 was motorcycle tyre sales, which grew by over 40% whilst bicycle tyres sales declined slightly by 0.1% for the same period. Based on the two-wheeler production forecast data issued by CRIA in 2006, the demand for bicycle tyres and motorcycle tyres is projected to continue growing by approximately 4% and 8% per annum, respectively, to 2015.

At present, there are more than 450 million bicycle users, and more than 600 million bicycles in the PRC (2). Moped growth from 1998 to 2001 was modest, but in recent years, annual production of moped has increased rapidly, from 55,400 in 1998 to 12.5 million in 2005 and 18.0 million in 2006(3). This is due to the relative advantage of the bicycle over other means of transport, as the bicycle is a more convenient and economical way to travel. Additionally, the periodical renewal of bicycles and maintenance of bicycles inventories in the shops also creates significant market demand.

Overview of Chinese tyre exports
In recent years global two-wheeler manufacturers have transferred their production lines, especially the middle tier and lower-end products, to developing countries such as China. With the steadily increasing trends in export sales observed for the period from 2000 to 2004 for the export of bicycle and motorcycle tyres and bicycle inner tubes from China, China has become the world’s second largest tyre manufacturer and exporter. According to CRIA, of the total two-wheeler tyres and inner tubes sales of RMB5.2 billion in 2005, export sales amounted to RMB0.82 billion, representing an increase of 26.8% compared with 2004(1).

Prospects for Manufacturing two wheeler Tyres in China
(a) Environmental and health issues have provided an impetus to global bicycle sales. Rising obesity levels have led to people taking up cycling as a way to improve physical fitness. Further, as oil prices increase, people are taking to bicycles as an environmentally friendly, relatively cheaper and healthier mode of transport. According to the Earth Policy Institute, the significant increase in the production of bicycles annually since 2004, has been driven by, inter alia, the increasing implementation of government policies around the world which promote bicycle use as a clean and efficient alternative to the automobile, as well as the increasing popularity of electric bicycles
(b) There are approximately 600 million bicycles and 90 million motorcycles in China , representing two strong replacement markets.

(c) China is the largest bicycle manufacturer in the world and manufactures more than 40 million bicycles each year. This represents a strong OEM market for bicycle tyres.
(d) The Chinese market has witnessed a growth in motorcycle sales of 29.5% in 2005 and 12.1%
in 2006, leading to a corresponding demand for motorcycle tyres. This trend is expected to
continue into the foreseeable future due to greater affluence, higher demand for motorcycles in
the rural areas, continued expansion of road networks to the hinterlands of China and increase in affordability of motorcycles.
(e) With China’s accession to the World Trade Organisation (“WTO”) in 2001, many international automobile, construction machinery and tractor manufacturers have shifted their production bases to China to take advantage of the lower cost of production. This bodes well for the growth of the OEM market of the tyre industry and export sales.

source: Rising Tyre IPO Prospectus