The Indian tyre industry is witnessing demand headwinds from subdued OEM demand, modest replacement demand and relatively muted exports. However, the softening of raw material prices, both natural rubber and crude derivatives, provide relief to the tyre makers’ margins in the current fiscal.
Slowdown in the domestic auto industry and the weak export outlook to the European Union region is likely to curb demand growth during the current fiscal. ICRA anticipates volume growth in the OEM segment to taper off to ~4.5-5 per cent while the replacement demand is estimated to grow by 5-7 per cent. The growth is likely to be supported by the 1.5-2.5 per cent hike in realisations and the weaker INR which boosts export revenues.
Despite contraction in OEM demand, ICRA expects a moderate revenue growth of 13-14 per cent during 2012-13 on the back of modest replacement demand and export revenues (with depreciating INR). It also expects the margins to remain stable with moderating input costs and better product mix.
Mr. Subrata Ray, Sr. Group Vice President & Head – Corporate Sector Ratings, ICRA, says: “While the short-term outlook of the tyre industry remains subdued in the wake of the demand slowdown in the automotive industry, thus affecting the revenue growth, the tyre makers’ margins have been cushioned by the softening of rubber prices and other crude derived inputs. Over the medium term, while we expect the demand to revive in line with ICRA’s view for the automotive industry, the pricing power of industry players is expected to be affected by the large supply additions post 2012-13.”