The credit profile of Indian tyre industry is likely to weaken in FY2020 affected by the ongoing slowdown in domestic automotive industry, rising raw material (RM) prices and higher spend towards debt-funded capacity expansion, ratings agency ICRA Ltd. said in its latest report. Nevertheless, the long-term outlook on industry credit profile is stable, the agency said.
“Following two strong years of growth, 12 per cent in FY18 and 14 per cent and FY19, the tyre industry’s revenue is estimated to grow at 3-4 per cent in FY20, said K Srikumar, vice president and co-head (corporate ratings) at ICRA.
This is due to modest growth in tyre demand due to sluggish auto sales and expected moderation in exports, he added.
According to ICRA, subdued vehicle production due to weak consumer sentiments amidst slowing economic activities, rising cost of vehicle ownership and softened rural demand will impact the tyre demand in FY2020. Following a 6.7 per cent growth in FY2019, the domestic tyre demand is estimated to grow at a lower rate of 3-4 per cent (volume) during FY2020.
“Going forward, the industry revenue growth is projected at 6-8 per cent with operating and net margins at 12-13 per cent and 4-5 per cent, respectively, in FY20-24,” Srikumar said. The tyre industry’s capitalisation and coverage indicators are likely to remain comfortable over the long-term, although some moderation is expected in FY20/21, he said.