by Editor News
ICRA believes that the credit profile of Indian Tyre Industry may weaken in the financial year (FY) 2019-2020.
With the current slowdown in the auto industry and fall in the demand, ICRA believes that the credit profile of the Indian tyre industry may weaken in the financial year (FY) 2019-2020.
With a 6.7 per cent growth in FY2019, the domestic tyre sector is expected to grow at a lower rate of 3-4 per cent during FY2020. This will happen majorly due to less vehicle production due to less demand, rising cost of vehicle ownership and softened rural demand in the current fiscal.
K Srikumar, Vice President and Co-Head, ICRA Ltd said: “Following two strong years of growth (~12 per cent and ~14 per cent in FY2018 and FY2019 respectively, tyre industry revenue is estimated to grow at a lower rate of 3-4 per cent in FY2020 affected by modest growth in OE tyre demand on the back of sluggish auto demand and expected moderation in tyre exports.”
Besides lower revenue growth, the industry will be also affected by the increasing prices of raw materials. ICRA expects industry-wide operating and net margins to contract by ~200 bps and 300 bps respectively to 11-12 per cent and 3.5-4.5 per cent respectively. The margins will also be affected by the rise in interest costs.
Tyre companies are also planning to make an investment of over Rs 17,000 crore over the next three years, part of which is funded through debt.
“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 FY2020-24," said Srikumar.
He further added that the capitalization of the industry and coverage indicators are likely to remain comfortable over the long-term, although some moderation is expected in FY2020/21.
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