ICRA thinks that the credit profile of the Indian tyre market may decline in the financial year (FY) 2019-2020 due to the ongoing slowdown in the automobile industry and exhaustion in consumption demand. Following a 6.7 percent rise in FY2019, the credit rating agency anticipates the domestic tyre segment to expand at a lower rate of 3-4 percent during FY2020, primarily due to gloomy vehicle production owing to weak customer sentiments amidst slowing economic activities, increasing cost of vehicle ownership and softened rural demand in the current fiscal.
The statement mentioned that apart from weaker revenue growth, the industry profits will also be influenced by more expensive raw material prices. ICRA assumes industry-wide operating and net margins to shrink to 11-12 per cent and 3.5-4.5 per cent. Moreover, the net margins will also be affected by the growth in interest costs.
The rating agency has proposed a firm credit profile for the enterprise in the long-term. K Srikumar, Vice President and Co-Head, Corporate Ratings, 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 percent in FY2020 affected by modest growth in OE tyre demand on the back of sluggish auto demand and expected moderation in tyre exports.”
As per the statements made in recent past, tyre makers are thinking to invest Rs 17,000 crore over the succeeding three years, part of which is financed through debt. Srikumar stated that the industry capitalization and coverage symbols are likely to remain relaxed over the long-term. However, some moderation is assumed in FY2020/21.