Pune: ICRA expects the credit metrics of the Indian Tyre Industry to benefit from improvement in tyre demand and superior product mix over the next 12 months. Softness in natural rubber (NR) and crude oil prices, benefits of which will continue to trickle in during the following quarters, is expected to support the profit margins although the same would be partly compensated by price cuts, discounting, and indexation clauses with OEM customers.
ICRA expects the domestic tyre demand to grow by 6-8% during 2014-15, driven by a 5-6% growth in Original Equipment Manufacturer (OEM) segment and 6-7% growth in replacement segment. Over the next three years (FY2015-17), the industry revenues is likely to grow by a CAGR of 9%-12% led by improved volumes. Medium and Heavy Commercial Vehicles (M&HCV), Scooters, Motorcycles and Passenger vehicle segments are likely to support the growth while negative growth is expected from tractor and Light Commercial Vehicle (LCVs) segments. In tonnage terms, we expect a 3-4% growth for 2014-15 due to the higher skew of product mix towards the Two-Wheeler segment. With favourable tyre demand, we also expect capital investments in the industry to increase going forward, supported by healthy cash accruals generated over the last 1-2 years.
During 2014-15, the industry continued to benefit from lower NR prices and sharp correction in prices of other crude-linked raw materials, the benefits of which were partly passed to the end consumers through moderate price cuts in the last 1-2 quarters. Growth in tyre exports, which decelerated in the last two and half years due to the relatively subdued demand conditions in overseas markets, is expected to grow by 4-6% for 2014-15, partly supported by the imposition of anti-dumping duty by USA on Chinese tyres. However, with Chinese imports into USA falling, the surplus Chinese capacities are being diverted to India. Tyre imports have already surged by 15% YoY during H1, 2014-15
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