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COVID-19 UPDATE
single taxation system.
“The retreading industry in India has been struggling for the last couple of years. Starting with demonetisation and GST, volumes in our factory have been declining steadily,” Sanghi admitted.
Challenging phase ahead with fixed overheads and squeezed cash resources
The lockdown is expected to put retreaders under immense pressure to survive in a difficult market scenario. “It is difficult for retreaders with a lot of fixed expenses like rent and EMIs to survive, but retreaders could survive with lower volumes without giving too much credit and control expenses,” says Varughese, who produces the Midas brand of tread rubber from the company’s Kottayam based site in the South Indian state of Kerala.
Indian retreaders are always struggling with collecting payments from the market and the scarcity of liquidity due to demonetisation and
GST squeezed their financial resources in last few years. The industry largely feels that the credit scenario will further worsen, with a lot of outstanding payments either delayed further or never retrieved from the market.
“The bigger challenge has been the delay in payments, already overdue from last year. With the long shutdown, the payment scenario is further deteriorating as bus operators, trucks and LCVs are not functioning during the lockdown. Normalcy in their business will return only after some time. Retreading volumes will further shrink and outstanding payments would be forced to be written-off,” complained Sanghi.
But Varughese was hopeful about recovery if the government moves swiftly and announces support for the transport sector. “If there are no further shocks and the government does something positive for the transport industry, the industry will recover in the future.”
A huge challenge is awaiting the struggling retreading industry as the key is to manage cash flows and paying salaries and suppliers on time besides collecting money from customers. “We have to turn down credit business. But how do you refuse credit to the transport industry that has not worked and has no money,” questioned Sanghi. Retreading becomes more organised In the near future the retreading industry is expected to get more organized and move towards CPK (cost per km) or PPK (price per km). Elgi believes big fleets will be looking for total solutions from tyre management with the lowest possible cost and moving further towards total solutions for vehicle management at a later stage. “In such a scenario only quality retreaders with wide networks, and having highly productive automated retreading plants can survive by offering low CPK/PPK to the fleets.”
Interestingly, Elgi pointed towards collaborative relationships among the
small and big retreaders with the changing market dyanmics. “Further there will be a possibility of small retreaders associating with big retreaders to offer quality retreads, reduce their overheads and eliminate labour and production costs. As far as the new tyre companies are concerned they will have to ensure that their tyres are retreaded many times to make total CPK/PPK competitive,” thinks Shankar. Retreading is largely an unorganised sector in India, about 16 million bus/truck tyres are sold annually. Around half of them - around 8 million tyres - are retreaded each year. Indian tread makers cumulatively produce about 60,000 tons in the organised sector and another 36,000 tons in the unorganised sector annually. The whole Indian retreading industry is estimated to be worth about $1 billion yearly with about 20,000 retreaders spread all over the country.
Paulose Varughese
Karun Sanghi
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