ET Motor Vehicle Bureau.

New Delhi: Ratings agency ICRA expects the Indian tire industry to grow at a compound annual growth rate (CAGR) of 11%-12% over the next three years (2014-17), with revenues reaching Rs. 623 billion in 2016-2017. The size of the domestic tire industry is expected to grow by 8% from 2014 to 2015 to reach ₹20 billion. Domestic sales grew by 6% to $493 billion, although falling raw material prices forced tire companies to shift profits to alternative markets.

“The decline in natural rubber (NR) crude oil prices may provide some benefits to consumers, but inflationary pressures on advertising, employees and other consumer goods have increased significantly in some countries over the past two years. Despite the pressures, ICRA expects the company’s operating margins to remain at 13-14% in 2014-15 The sharp decline in natural rubber prices has impacted margins.

Subrata Ray, Senior Vice President and Co-Head of Valuation, Corporate Division, ICRA Ltd, said, Net margins increased by about 100 basis points to 13.8% and 6.5% respectively.

The industry has continued to invest over the past few years, especially in radial production capacity, but with the enhancement of existing capacity (greenfield and brownfield land in India) and new capacity, the capex is expected to improve significantly from FY2015 to FY2017. countries such as Hungary and Bangladesh.

This will be based on strong performance over the last three years and will be financed through expected future revenue growth and balance sheet flexibility to improve the capital structure and coverage metrics of the industry. Mr. Subrathare said, “Consistent with past expectations, the cash build-up could lead to more announcements about future capacity in the industry.”

Demand for tires is expected to grow by 1% from 2013 to 2014, mainly in the two-wheeler and tractor segments, but demand is declining in the light commercial vehicle and photovoltaic segments. Subsequently, the sector declined by 2% per annum in 2012-13 due to fall in production of two-wheelers and tractors.

ICRA expects demand for tires to increase by 6-8% per annum in 2014-15, mainly for trucks and buses (TB), promotion of solar and scooters. Demand for TB alternatives is expected to increase as domestic economic activity recovers and freight volumes are expected to increase.

According to ICRA, tire exports grew slowly in 2013-14 and the first quarter of 2014-15 due to the global demand situation, although the depreciation of the rupee partially offset the demand impact. India’s tire exports (in value terms) grew by about 7.5% in 2013-14, mainly due to the weakening Indian rupee, though tire purchases from Brazil, UAE and Philippines declined. U.S. exports to India’s largest tire export destination grew by 5.8% in 2013-14.In 2014-15, tire exports (by value) were flat in the first quarter due to continued weak demand and relatively stable exchange rate trends.

br The industry has benefited from lower investment costs, which is reflected in a healthy expansion of industry margins in the Future 18-24. As the demand increases over the months, investment costs are expected to increase in India and globally. Smart sourcing opportunities and prudent inventory management will be critical to maintain profitability in the medium term.