Tyre sales likely to rise by 7 per cent

Mumbai: It’s aache din for the domestic tyre demand which could see a  6-7 per cent volume growth, supported by a broad based revival in automotive original equipment (OE) demand, and pick up in rural expenditure on OEs for the rural centric two-wheeler (2W) and tractor segments. However because of the increasing influx of cheaper Chinese tyres and uncertain input price trends there has been no major capacity addition plans over the past few months.

The industry is in a consolidation phase expecting to complete projects worth over Rs 8,000 crore undertaken 2-3 years earlier, over the next 12 months. It would help tyre makers gear up to meet the likely rise in demand, said Icra in a research  on the industry.

“The Truck & Bus Radial segment has seen Rs 35,000 crore worth capacities over the last five to six years – this segment may get impacted if imports from China increases further”, says Subrata Ray, senior Gr vice president, ICRA Ratings. Revenues in the domestic tyre industry de-grew by 2 per cent, led by a 6 –8 per cent fall in realisations although volumes grew by 4-5 per cent.

In 2016 the industry benefited significantly as in input costs of natural rubber prices fell by 15 per cent leading to a 470 bps operating margin expansion to 19.1 per cent. This was despite the increase in employee expenses. “While industry wide revenues are expected to grow by 9 per cent during FY2017, supported by around 6-7 per cent growth in volumes, operating margins are expected to contract by 250-300 bps with a modest increase in raw material prices, hike in wage costs and increased fixed costs (with large capacities getting commissioned),” says Mr Ray.