Six stocks for a bear market

India has a competitive advantage as its labour cost is lower compared with Western countries. Being closer to major rubber-producing countries helps lower costs too. Here is where BIL scores. The company focuses on the production of a wide range of OTH tyres. Agricultural tyres form approximately 70% of the total sales. These include tyres for tractors, trailers, farm and forestry equipment.

Another part of BIL’s product offering is tyres used for construction and earthmoving needs such as dump trucks, loaders, mining and port equipment, etc. The company has a worldwide distribution network of 200 outlets ensuring extensive reach to over 120 countries. BIL has three manufacturing plants in India and the fourth plant in Bhuj (Gujarat) is expected to be commissioned by 2012-13.

Ninety per cent of BIL’s revenue is generated from exports. Most of it goes to Europe; the rest is exported to the US, Australia, the Middle East and Asia. The global OTH market is highly concentrated. Three companies—Bridgestone, Goodyear and Michelin—enjoy almost 50%-55% share of the market. However, BIL has a competitive advantage over these global leaders as its production cost is lower because of the availability of cheap labour in India. This has allowed it to offer its products at prices that are 30% lower than its peers’ and gradually gain market share.

Another reason for its edge over global competitors is its engineering talent and continuous investment in R&D—designing and manufacturing better tyres more quickly after precise and complex planning. BIL develops over 150-160 new sizes of tyres every year with a turnaround time of 8 to 10 weeks for new product development—claimed to be the world’s fastest.

Murugappa group company, is into coated and bonded abrasives, super refractories, electro-minerals, industrial ceramics and ceramic fibres. Abrasives are the company’s largest business segment and contributed 56% of the revenues for FY10-11; the ceramic business contributes 27%.

With a market share of nearly 35%, CUMI is among the strongest players in the Indian abrasives industry. The operations are carried out from 11 manufacturing facilities for abrasives located in India, Russia and China. The subsidiaries/related entities located in North America, Middle East and Thailand support the businesses in getting an extensive customer reach.

On a consolidated basis, the company continues to maintain a leadership position in the Indian market. In the Russian market, the company is the market leader in bonded abrasives. Customers located in over 50 countries are also serviced through the network of subsidiaries and related entities. Abrasives are used in a wide spectrum of industries. Some of the sectors where CUMI’s abrasives are used include bearings, automobile and auto ancillaries, alloy steel, foundry & forgings, fabrication and general engineering industries.

The Indian abrasives industry is highly concentrated, although many global players have entered the Indian market due to a slowdown in Europe and the US. CUMI has managed to maintain and enhance its leadership position competing against global leader Saint Gobain’s Indian subsidiary Grindwell Norton (GNL).
The Indian abrasives market has been growing at about 10% annually; CUMI and GNL together account for 70% of the market. The sales of CUMI’s abrasives in the Indian market increased by 21%, whereas the growth in the Russian market was much stronger touching 79% for FY10-11.