Indian tyre industry likely to post 7-8% growth in FY2016

The credit metrics of the Indian tyre industry are slated to remain strong with the industry-wide revenues estimated to grow by 7-8% during 2015-16, up from 5.8% during 2014-15.

By Autocar Pro News Desk

23 Jul 2015

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Tyre curing underway at the Apollo Tyres' plant.

The credit metrics of the Indian tyre industry are slated to remain strong with the industry-wide revenues estimated to grow by 7-8% during 2015-16, up from 5.8% during 2014-15. This forecast comes from ICRA in its latest research update on the Indian tyre industry.

Domestic tyre demand grew by 10-12% during 2014-15 supported by 7-7.5% growth in the Original Equipment Manufacturer (OEM) segment and 12-15% growth in the replacement segment.

The demand growth was partly affected by the sharp rise in tyre imports (up 19% YoY) and falling exports (down 3%-6% YoY) in 2014-15. With the recovery in the Medium and Heavy Commercial Vehicles (M&HCV) segment, expected stability in the passenger vehicle segment and strong prospects for the scooter segments, domestic tyre demand is likely to grow by 4-8% over the next three years (FY2016-18). Muted demand from the motorcycle and tractor OEM segments remains a concern, even as exports stay challenging due to subdued global demand conditions and threat of tyre imports persists.

Softer natural rubber and crude oil prices continued to favour the domestic tyre industry during 2014-15 with the profit margins reaching all-time highs in the quarter ended March 2015. ICRA also says there has been a large build-up of cash triggered continuous investments in capacities by most of the tyre majors in a bid to stay competitive and achieve product diversification. These investments are expected to continue, part of which is likely to be towards conversion of under-utilised bias capacities into radials and speciality tyres.

Over the medium term, ICRA expects the competitive intensity in the industry to rise with expected on-streaming of several greenfield and brownfield capacities by domestic as well as international players. On the margin front, the ratings firm expects the industry-wide profit margins to correct to a more sustainable long-term level with contraction in natural rubber supply gap (due to higher consumption) and demand-driven inflation.