Slowdown to curtail tyre sector's growth

New Delhi: Ratings agency Icra on Tuesday said demand slowdown will curtail tyre industry's revenue growth to 3-4 per cent in 2019-20, and margins are expected to decline.

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, Icra said in a statement.

"Nevertheless, the long-term outlook on industry credit profile is stable," it added.

Icra Ltd Vice President and Co-Head, Corporate Ratings K Srikumar said after two strong years of growth - 12 per cent and 14 per cent in FY18 and FY19 respectively - the tyre industry revenue is estimated to grow at a lower rate of 3-4 per cent in FY20.

This is due to modest growth in OE (original equipment) tyre demand on the back of sluggish auto demand and expected moderation in tyre exports, he added.

The agency said 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.

The domestic tyre demand in terms of volume is also estimated to grow at a lower rate of 3-4 per cent during FY20 as against 6.7 per cent growth in FY2019.

"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 the period FY20-24," Srikumar said.