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SRI LANKA
Ruviru Looks at Higher Volumes
Samudhi Surviving on Low Production
K G R P Perera, Managing Director, Ruviru Dag Tyre Company
The mid-level retreaders are expanding their capacities as they believe this is the right strategy to counter the competition posed by the market leaders in a low margin business. “We have already ordered a new eight tyre chamber from the Coimbatore based Rajmahaal to double our capacity,” informed K G R P Perera, Managing Director of Ruviru Dag Tyre company. The company has a number of tyre shops around Colombo under the Perera Tyre Service (Pvt) Ltd banner. The South Colombo based firm is retreading 800-1000 tyres a month in the Rajmahaal plant. With the installation of the new tyre chamber the production is likely to be doubled to 2,000 tyres per month. The company plans to install the ordered chamber at the existing plant and it is likely to be operational by April 2012.
Perera strongly believes that without expansion, it is difficult to survive in the highly competitive low margin Sri Lankan market. “The margins vary around 5-10 per cent and it is so difficult to meet the overheads with this kind of margin,” he said. Moreover, rubber prices are increasing and have been maintaining an upwards trend for sometime but retreaders cannot revise prices to keep pace with increasing rubber prices. “The price of tread has already increased by 15 per cent since last year, while market leaders like Richard Pieris and AMW are not increasing the prices of tyre retreading and they also make tread for their own consumption. How can it be possible for us survive like this,” questioned Perera. Ruviru uses all
kinds of tread, sourcing from Treadsdirect, AMW or MRF according to the paying capacity of the client.
The small and mid-level operators believe that the representative body of retreaders, the Sri Lanka Tyre Retreaders Association, may not be willing to respond positively to the demands of the industry. “The market leaders control the representative body and they do not intend to rescue the smaller businessman. Instead they create all kinds of problems for our businesses,” Perera complained.
Previously, Ruviru was the sole distributor of Omni patches and flaps but has recently parted ways with the Indian company as one of the competitors was importing the same brand and supplying in the market. “We distributed and set up the market for Omni but we believe two parties cannot survive in this small market. Omni has good quality but is highly priced, whereas, people prefer low-end patches,” he explained. The company has started importing Singura patches from Bangalore and the price difference is 10-15 per cent compared to Omni. It has received the first consignment and finds the response okay in the market.
Major players are moving ahead with their plans, opening up new plants in order to consolidate their share in the growing Sri Lankan retreading market while middle level and smaller players are struggling and moving cautiously. “Retreading is no longer a profitable business in Sri Lanka as the price of retreaded tyres has not increased as much as the new tyres,” stated Mr Gamini Rathnayake, Managing Director, Samudhi Group of Companies, which operates a retreading plant, Samudhi Precured Retreads (Pvt) Ltd, located near the Bandaranaike International Airport at Minuwangoda in Colombo. Samudhi set up the retreading plant in 1998.
Samudhi retreads between 1,000 to 1,500 tyres per month operating much below its installed capacity. “We have a capacity to retread 4,000 per month but we are operating below capacity as market conditions have become really tough in the past few years due to increasing competition,” said Gamini. Samudhi’s production reached a peak of 2,500 tyres per month in 2009-10, when the number of retreaders was half that compared to 2011. "It is just viable to operate the plant at the current level considering the tough market scenario," believes Gamini. The retreader is treading a cautious path and once the market picks-up, it plans to steadily increase the production. Samudhi is an MRF client sourcing around 8-10 tonnes of tread every month. The Minuwangoda based plant has two tyre chambers, “We have a seven tyre chamber of Elgi make and an 11 tyre chamber from Rajmahaal," he informed.
The number of retreaders has doubled in the last five years. The new players entering the market tend to churn out high volumes to stay afloat in the low margin
market. “These new entrants cut prices, creating problems for us. It is really difficult to survive like this,” said Gamini. Moreover, Sri Lanka is a small country and retreaders in Kandy drive down to Colombo to pick-up tyres. "And Colombo based retreaders travel to far-off corners of the country in search of tyres," he stated. Meanwhile, the price of retreading has nearly doubled in the last two decades, whereas, new tyre prices have increased by almost four fold. For instance, the new tyre price of size 900/20 was 8,000 Sri Lankan Rupees in 1991 compared to 3,000 Rupees for retreading the same size. "Whereas, the new tyre price has been hiked to almost four times to 30,000 Sri Lankan Rupees for the 900/20 size and retreading price has increased to just 6,000 Rupees,” said the concerned Gamini. He also added, "We cannot increase the prices on our own untill the leading players increase and they are not increasing their prices as they are content with playing with small margins and big volumes. Whereas, we have smaller volumes as well as margins making us unviable to operate,’ Gamini explained. Samudhi used to source tread from Treadsdirect until 2000 and later shifted to MRF tread and remains its customer right up to date.
The mid-level retreaders are fighting on many fronts in the almost 100 per cent credit business prevalent in the Sri Lankan retreading sector. Retreading is a 100 per cent credit business, credit goes up to 90 days. "The valuable capital of a small retreader trapped in the market for so long that it has become unviable to move smoothly and grow," Gamini rued. Samudhi also collects tyres from the tyre dealers, its pick- up driving to about 180 dealers around various parts of Sri Lanka in search of casings.
Gamini Rathnayake, Managing Director, Samudhi Group of Companies
32 Retreading Business