India Ratings and Research (Ind-Ra) believes the aggressive capacity additions planned by tyre manufacturers in India would impact their credit metrics over FY19-FY21, keeping them above 2.5x-3.0x, as a large part of the capex would be debt-funded. Nevertheless, since the companies’ capacity utilisations have reached peak levels, these expansions are imperative for the players to meet the expected growth in demand and to maintain their market positions. Also, once the capex is completed, the metrics of tyre companies are likely to improve substantially over the subsequent two years, supported by the gradual ramp-up of the new capacities.

Replacement demand accounts for around 55% of the total tyre industry’s volumes, and approximately 62% of the total industry revenue, making the replacement market the largest contributor to the tyre industry’s revenues. Although vehicle sales are likely to slow down in FY20, Ind-Ra believes replacement demand will support the tyre industry’s growth over the medium term.

Notwithstanding the slowdown in auto sales during 3QFY19 and 4QFY19, the robust growth in both PVs and CVs over the better part of the previous decade has set the stage for a sustained growth in tyre replacement demand from both segments. While both PV and CV segments witnessed considerable growth up to FY18, the consumption-driven economic growth provided a particularly strong fillip to CV sales. Given that the replacement cycle for CV tyres is relatively short, the agency expects the momentum from CV replacement demand to continue in FY20. Over the medium term, however, growth in replacement demand from the CV segment might be affected by the continued pressure on fleet utilisation levels, emanating from modest level of economic activity, slowdown in international trade and moderating consumption levels.

Sales to original equipment manufacturers (OEMs) contribute a relatively small portion of about 28% to the tyre industry’s revenues. Ind-Ra expects the CV industry’s growth to moderate in FY20 compared to last year, while the growth rate in passenger vehicles (PVs) and the two-wheeler (2W) segment might remain modest in single digits. A prolonged slowdown in auto demand or substantial raw material cost pressures could delay the deleveraging process, thereby exacerbating the downside risks for tyre manufacturers. 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

DISCLAIMER

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.

Applicable Criteria

  • Rating criteria not avaiable.

Analyst Names

  • Kanika Goyal

    Analyst
    India Ratings and Research Pvt Ltd 601-9 Prakashdeep Building 7 Tolstoy Marg New Delhi 110001
    011 43567288

    Richa Bulani

    Senior Analyst
    +91 22 40001712

    Shruti Saboo

    Associate Director

    Vivek Jain

    Director
    +91 11 43567249

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121