Aided by growth in the automobile industry and improvement in the replacement cycle, tyre sales are estimated to grow by about 10-11 per cent in FY 2017-18, trailing the performance of the automobile industry during the year, a CARE Ratings report said.
Darshini Kansara, research analyst at CARE said, "Tyre demand is directly proportional to the automobiles demand. We expect the auto industry to grow at 7-8 per cent in FY2017-18 and this will lead to more demand for tyres by auto manufacturers,"
She added that replacement market will also grow in fiscal 2018 as past few years has been good for the auto industry.
"There are around 19 crore vehicles in the country and every new vehicle changes its tyre in 2 years. In Fiscal 2017-18, we expect replacement cycle to be higher," Kansara said.
The domestic tyre industry caters to 2 segments -OEMs and Replacement market (Aftermarket). Replacement demand dominates the tyre market contributing 56 per cent of total size while the OEM market share is 44 per cent as of 2015-16.
Profitability of tyre manufacturers is also stated to improve as rubber prices have seen the correction after the Month of February. "The operating margin and net margin for manufacturers which remained range-bound in the first three-quarter of FY17 my slightly improve in the FY18. Rubber price constitutes 60-65 per cent of the overall raw material cost of the industry," the analyst said.
"During April 2016 to Feb 2017 period, domestic natural rubber prices have increased by a sharp 19 per cent y-o-y after declining for two consecutive years. This led to a marginal decline of 1.2 per cent in aggregate operating profits of the 9 companies for 9 month period in 2016-17," the report said.
The report also stated that significant CapEx of about Rs 70 billion worth projects is to be completed in the next two years (FY18 and FY19) adding about 12 million unit capacity to the industry.
However, high import duties, Chinese dumping (especially in the T&B sector) and a big gap between domestic rubber production and demand will continue to remain a concern for the industry.
BW Reporters
The author is Senior Correspondent with BW Businessworld
