Analysis: BKT targets OTR value-segment

Mumbai, India – The Poddars of Balkrishna Industries Ltd – Arvin and Rajiv, father and son and joint managing directors – are betting the farm, so to speak, that the route to success for their firm runs off road toward bigger, more robust tires.

The Poddars are on record as saying they expect their company, more commonly known as BKT Tires, to double in size to a billion dollars or more in the coming three to four years.

To get there they crafted a strategy to become the go-to supplier of off-road tires – from 12-inch industrials to 57-inch earthmover behemoths – in what they describe as the value segment, offering Tier 1-type quality at Tier 2 prices.

Thus the company hopes to exploit a niche between the top tier – where Bridgestone Corp., Group Michelin, Goodyear, Titan International Inc. and Yokohama Rubber Co. Ltd. operate – and the lower, more entry-level tier that’s the domain of the Chinese, according to Rajiv Poddar, speaking with ERJ’s sister title Tire Business in early December during a visit to the company’s new plant near Bhuj, Gujarat, in northwest India.

The company invited dozens of key customers and journalists from around the world to an event it called the “Game Changer,” where the Poddars likened their strategy to a chess game to illustrate the complexities of crafting a comprehensive business plan.

Planting the seed

It was then up to the management to convince the board to OK an investment of $500 million – nearly equal to the company’s annual sales at that time.

With a rated capacity of 140,000 metric tons per year, the plant features internationally sourced state-of-the-art equipment – from raw materials intake to final inspection – and is essentially self-sufficient, with its own coal-fired power and steam-generation plants, water supply, research and development facility, captive rubber-mixing capacity and on-site worker housing.

Some of the self-sufficient measures are necessary because of where the plant is located – namely in a remote, arid region plagued by high winds and susceptible to earthquakes. The company also discovered that the site’s black soil was of volcanic origin, considered unsuitable for supporting the weight of a full-scale tire factory. As a result, contractors had to remove the soil, in places up to 25 feet deep, and replace it with more suitable soil, BKT said.

Other measures included laying a five-mile-long pipeline from the closest water source to the factory and installing electrical lines from the nearest power source nearly 10 miles away.

Rajiv Poddar estimates measures taken to strengthen the factory’s structure – making it able to handle earthquakes up to 9 on the Richter scale and raging desert winds, for example – accounted for up to $25 million of the plant’s construction cost. He also stressed that BKT covered the costs of the associated infrastructure improvements.

The tire maker justified its selection of the 300-acre site because it sits several days journey closer to the port of Mundra, on the Gulf of Kutch, than BKT’s other plants farther inland, Mr. Poddar said, thus reducing the time and cost to transport tires for export. International business represents 85 percent of BKT’s annual revenues.

The multi-level R&D centre will house about 150 technicians when finished next year, according to P.K. Mathur, a technical marketing specialist at BKT who was among a dozen BKT executives escorting journalists and customers around the sprawling Bhuj complex during the December ceremonial opening of the plant.

The new centre will complement BKT’s existing R&D facilities in Chopanki and Mumbai, India. The former hosts several laboratories cooperating closely together at every stage, according to company documents – an analysis laboratory, a chemical laboratory, a physical laboratory as well as an area for rigorous tire testing, while the latter, at BKT headquarters, coordinates all R&D activities.

The Bhuj R&D centre is being built adjacent to a 25-acre outdoor testing facility for tractor and OTR tires. The factory also has three testing wheels – 1.5, 3 and 5 meters in diameter – on site.

Giant move

The company’s steady move into the giant radial OTR sector will continue in 2016 with the addition of a 51-inch size, company officials disclosed at the opening tour.

BKT’s largest tire now is the 27.00R49, used in mining and quarry applications. The company has a dedicated tire building and curing area within the factory complex for the giant sizes. This production line can turn out three such tires a day, based on the current complement of equipment in this area.

This existing building area can be adjusted to make the 51-inch sizes, according to Dilip M. Vaidya, president and director, technology. BKT sourced the dedicated building equipment for giant tires from China’s Tianjin Siaxiang Technology Co. Ltd.

BKT also is evaluating the market for the possible development of a 57-inch size, Mr. Vaidya said, noting that the company calculates it would take about two years to develop and bring to market a tire of this size once the decision is made to move ahead.

Mumbai, India-based BKT does not see market conditions at this time as supporting such a decision, Vaidya said, but management is monitoring the situation.

The company has all but ruled out a move to add a 63-inch radial, he added, saying the market is not currently large enough to justify BKT’s investing in this segment.

Targeting sales areas

As the factory ramps up toward its projected capacity, BKT’s attention now turns toward selling all the tires that soon will be filling its warehouse.

A key element of that strategy will be increasing sales in three targeted geographical areas, Poddar said — North America, Russia/CIS and India. Intriguingly, BKT’s home market accounts for only about 15 percent of the firm’s annual sales.

Likewise, BKT expects sales of industrial, construction and mining tires to grow more rapidly than those for agricultural tires, to the point that the two sectors should hit equilibrium by 2020, vs. 60/40 currently in favour of agricultural.

From a production point of view, overall output should nearly double to 280,000 metric tons a year by 2020.

If all goes according to plan, BKT expects to reach a 10-percent market share globally in the off-highway sector by 2017/18, Poddar said, up from 6 percent currently.