India's tyre sector may grow 7-9% in 5 years buoyed by demand, lower crude; domestic margins to improve

Mumbai: The Indian tyre industry may log 7-9 percent growth over the next five year backed by favourable outlook for the domestic automotive industry, rating agency ICRA said in a note on Monday.

ICRA, in the note also forecast the industry to see a capital expenditure of around Rs 20,000 crore during this period.

Besides, the domestic tyre industry margins, which declined by 120 bps year-on-year in the September quarter, are expected to improve in the second half of the current fiscal due to the falling crude prices and stable prices of the natural rubber, it said.

“Tyre demand is estimated to grow by 7-9 percent over the next five years (FY2019-23) supported by favourable outlook for the domestic automotive industry,” ICRA said.

The rating agency also said said it has a stable outlook on the Indian tyre industry. Amidst continued investments towards capacity additions (partly being debt funded), the liquidity position, capitalisation and coverage indicators of the industry players are expected to remain comfortable largely supported by the stable earnings and healthy cash reserves available with most of the players, ICRA said in the note.

According to an industry report, the domestic automobile industry, which is currently the fourth largest in the world, is expected to become the third largest by 2021.

The industry (including component manufacturing) is expected to grow at a compounded annual growth rate of 5.9 percent and reach $251.4-282.8 billion by 2026, thereby becoming the fastest growing industry in the country, as per the report.

The domestic tyre industry has benefited from strong growth in both original equipment (OE) and replacement segments in the ongoing fiscal, according to ICRA note.

“While there have been some headwinds like Kerala floods, tightened financing, insurance related regulatory changes impacting two-wheeler (2W) demand, rising fuel and interest costs, among others, the YTD (year-to-date) sales growth across most segments have been robust leading to healthy OE tyre demand growth,” it said.

Replacement tyre demand, especially in the truck and bus segment, too has recovered sharply in the last one year supported by post-effects of Goods and Service Tax (GST), pick-up in infrastructure activities, and healthy consumption driven demand, it said.

Besides, tyre exports have been steadily increasing in the last one year with recovery in tyre demand from overseas markets and rising competitiveness of Indian tyre makers, both in terms of quality and pricing, ICRA stated.

The tyre industry in the country has witnessed large capacity additions in the last decade with a cumulative spend of around Rs 27,800 crore, of which about 70 percent was spent in the last six years.