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Tyre industry revenues to grow by 4-6% in FY17: Report

After a healthy 15% volume growth in 2014-15, the domestic tyre demand is estimated to clock a muted 0-2% growth during the current fiscal on the back of a 2-2.5% growth in the original equipment manufacturer (OEM) demand and 1-1.25% growth in the replacement segment. Going forward, however, the domestic tyre industry is likely to do better in the coming three years, when demand would grow in the range of 4-6%.

As per a latest report by rating agency ICRA, domestic tyre production was affected by the deluge in tyre imports (up 12-14% FY16 expected) and falling exports (down 13-15% FY16 expected). ICRA expects the domestic tyre demand to grow by 4-6% over the next three years (FY2016-18).

What's more, the industry-wide revenue growth is estimated at 4-6% for FY 2017 as against an estimated negative growth of 2-4% for FY 2016.

It also adds that the profit margins are likely to remain at elevated levels with bearish outlook on rubber and crude oil prices, but current levels are unlikely to be sustained over the next 12-18 months.

Continued weakness in OE demand in certain key segments, weak agricultural activity and consequent subdued rural demand; and relatively muted infrastructural activity for most of the year affected tyre demand during FY 2016.

The report further highlights that domestic tyre production was also affected by the deluge in tyre imports (up 12 -14% FY16e) and falling exports (down 13-15% FY16e). 

Imports of two-wheeler and truck and bus radials (TBR) surged; two-wheelers on capacity constraints in the local market and TBR post the February-15 sunset of an anti dumping duty (ADD) against China.

Continued softness in input material prices: natural rubber (NR) and crude oil, has kept the industry profit margins at elevated levels throughout FY16. With the build-up of accruals and expectation of demand improvement, tyre manufacturers are expected to continue to invest towards capacity expansions, particularly in the two wheelers (2W) segment which suffers from capacity shortage. 

Around 60% of the proposed capacity additions (in volume terms) are focused on the 2W industry, while in value terms over 45% of the investments are being made in the TBR segment.