Demand slowdown to curtail tyre industry revenue growth to 3-4% in FY20: ICRA

New Delhi: Ratings agency ICRA on Tuesday said demand slowdown will curtail tyre industry’s revenue growth to 3-4 percent in 2019-20, and margins are expected to decline. The credit profile of Indian tyre industry is likely to weaken in FY2020 affected by the ongoing slowdown in the domestic automotive industry, rising raw material (RM) prices and higher spend towards debt-funded capacity expansion, ICRA said in a statement. “Nevertheless, the long-term outlook on industry credit profile is stable,” it added. [caption id=“attachment_2660580” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] ICRA Ltd Vice President and Co-Head, Corporate Ratings K Srikumar said after two strong years of growth - 12 percent and 14 percent in FY18 and FY19 respectively - the tyre industry revenue is estimated to grow at a lower rate of 3-4 percent in FY20. This is due to modest growth in OE (original equipment ) tyre demand on the back of sluggish auto demand and expected moderation in tyre exports, he added. The agency said subdued vehicle production due to weak consumer sentiments amidst slowing economic activities, the rising cost of vehicle ownership and softened rural demand will impact the tyre demand in FY2020. The domestic tyre demand in terms of volume is also estimated to grow at a lower rate of 3-4 percent during FY20 as against 6.7 percent growth in FY2019. “Going forward, the industry revenue growth is projected at 6-8 percent with operating and net margins at 12-13 percent and 4-5 percent respectively, in the period FY20-24,” Srikumar said. The industry capitalisation and coverage indicators are likely to remain comfortable over the long-term, although some moderation is expected in FY20/21, he added.