The growth in India’s automobile industry and the improvements in the replacement cycle will result to around a 10-11% growth in tyre sales in the country in FY2017-18, according to a CARE Ratings report.
Tyre demand is directly proportional to automobile demand, said CARE research analyst Darshini Kansara. They expect the auto industry to grow at 7-8% in FY2017-18 and this will lead to more demand for tyres by auto manufacturers, she added.
She said that replacement market will also grow in fiscal 2018 as past few years has been good for the auto industry. Kansara also said there are around 190 million vehicles in the country and every new vehicle changes its tyre in 2 years so they are expecting there placement cycle to be higher in FY2017-18.
The domestic tyre industry caters to 2 segments -OEMs and Replacement market (Aftermarket). Replacement demand dominates the tyre market contributing 56% of total size while the OEM market share is 44% 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% 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%yoy after declining for two consecutive years. This led to a marginal decline of 1.2% 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.