ICRA maintains a stable outlook in the tire industry

NEW DELHI: Rating Agency ICRA On Friday he maintained a stable outlook for the Indian tire industry.

Following a 12.0% and 5.5% growth in FY2018 and FY2019 respectively, domestic tire demand is estimated to de-grow by 4-6% (volume) in FY2020 affected by sharp contraction in demand from original equipment (OE), ICRA said in a release

Vehicle production levels are currently at a minimum of several years after the slowdown in economic growth and infrastructure spending, weak consumer demand, the tight financing environment and low rural demand, among others. However, the demand for replacement, bias in the tires (~ 67% in tonnage and 56% in volumes) isolates the deep cycling industry to some extent.

While the demand for original equipment tires is likely to decrease by 12-14% (units) in fiscal year 2020 with a sustained drop in vehicle production levels, growth in demand for tire tires is expected. replacement stabilize. In terms of tonnage, the decrease in the demand for tires is linked to 5-7% with a large contraction in segments such as trucks and buses (T&B), light commercial vehicle (LCV) and tractors. With the expected recovery in demand from fiscal 2013, the five-year demand outlook remains favorable at 6-8% (volume) and 5-7% (tonnage).

Exports account for almost a fifth of the revenues of the tire industry and have been growing at a healthy rate of 14% in the last three years (CAGR ending fiscal year 2019) aided by favorable demand in foreign markets. However, with the weakening of global vehicle sales growth in the current year, Indian tire exports have stabilized in H1 FY2020. However, the long-term outlook for domestic tire exporters remains favorable. Tire imports continue to decline for the third consecutive year with the fall in demand and the impact of the anti-dumping duty (ADD) on radial truck and bus (TBR) radial tires, compensatory duties (CVD) and customs duties on TBR and CVD tires on passengers Car tires (PV).

On the supply front, the industry has spent a capital expenditure (capital expenditure) of Rs 34.5 billion in the last ten years (ending fiscal year 2019), largely towards new radial capacities in trucks and buses , particularly in recent years. Amid weak demand in the current year, major tire manufacturers have postponed part of their announced capital expenditure. However, capital expenditure remains high at more than Rs 17,000 crore (according to the announcements) during the next three years ending fiscal year 2222.

Margins in the tire industry are influenced by the movement of raw material prices (RM), namely natural rubber (NR) and other crude oil-related inputs such as synthetic rubber (MR), carbon black (CB), caprolactam, nylon fabric for tire cords and rubber chemicals. The RM price index, which reflects the general price basket for the tire industry, has largely stabilized during FY2019 and H1 FY2020. This follows a sharp 11.3% increase in the index in fiscal year 2018 due to the increase in crude oil prices that had an impact on its derivatives such as SR, caprolactam and CB.

ICRA expects the overall industry credit profile to remain stable. While the industry revenues shall witness a 4-6% de-growth and 100 bps contractions in operating and net margins in FY2020, the long-term revenue growth is projected at 9-10% (CAGR ending FY2024) with operating and net margins of 12-14% and 4-6% respectively. Amidst continued investments towards capacity additions (partly debt funded), capitalization and coverage indicators of the industry players are expected to remain comfortable supported by the stable earnings and healthy cash reserves available with most of the players.