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ICRA Curtails Tyre Industry Revenue Growth for FY'20

Auto News - Published on Thu, 08 Aug 2019

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With ongoing slowdown in the auto industry and weakness in consumption demand, ICRA believes that the credit profile of Indian tyre industry may weaken in financial year (FY) 2019-2020. Following a 6.7% growth in FY2019, the credit rating agency expects the domestic tyre sector to grow at a lower rate of 3-4% (volume) during FY2020, majorly due to subdued vehicle production owing to weak consumer sentiments amidst slowing economic activities, rising cost of vehicle ownership and softened rural demand in the current fiscal. However, the rating agency has projected stable credit profile for the industry in the long-term.

Mr K Srikumar, Vice President and Co-Head, Corporate Ratings, ICRA Ltd said in a statement that “Following two strong years of growth (~12% and ~14% in FY2018 and FY2019 respectively, tyre industry revenue is estimated to grow at a lower rate of 3-4% 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 earnings will be also affected by higher raw material prices, the statement mentioned. ICRA expects industry wide operating and net margins to contract by ~200 bps and 300 bps respectively to 11-12% and 3.5-4.5% respectively. The net margins will also be influenced by the rise in interest costs (on debt taken towards expansion in tyre capacities).

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Posted By : Mohan Sharma on Thu, 08 Aug 2019
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