Tyre sector volumes will grow around 7% in FY17, India Ratings says.

COIMBATORE: The overall tyre volumes (in numbers) would grow around 7% in FY17 (2016-17) due to steady demand from original equipment manufacturers (OEMs) and an improvement in replacement demand, India Ratings and Research has estimated. However, revenue growth for companies might be lower than the overall growth in volumes due to an increase in imports as well as pricing pressure, it said.

Volumes in the truck & bus segment (T&B) are expected to grow around 4% year-on-year (y-o-y) in FY17 (around 1% in FY16), driven by an improvement in replacement demand and strong growth in the T&B radial segment. Volumes in the passenger car radial segment are expected to grow around 10% y-o-y with growth in OEM (original equipment manufacturers) auto volumes.

Two-wheeler volumes are expected to grow around 6% y-o-y (around 4% in FY16) in FY17, driven by higher volume growth in the scooter segment (around 15%) along with an improvement in volumes in the motorcycle segment (around 3%).

India Ratings expects volumes in the T&B radial segment to grow around 16% higher than the overall T&B segment. "The growth in tonnage volume would be lower due to a higher contribution of low tonnage two-wheeler tyres (around 50%) to the overall volumes for the industry," it said.

"Rising imports could continue increasing the pressure on the volumes of domestic manufacturers in FY17. Import volumes in both passenger car radial and truck & bus radial segments grew 22% and 40% y-o-y, respectively, in the first quarter of FY17," the agency stated.

The T&B segment accounts for around 55% of the industry revenues and a continued increase in imports in this segment could lead to a revenue decline for domestic tyre companies. Domestic T&B production declined 2% y-o-y in FY16 to 16.8 million tyres, driven primarily by a decline in production in the truck & bus bias (TBB) segment.

India -Ratings' analysis showed that 20%--30% of the revenue of the top players in the industry is contributed by the TBB segment. "Increased radialisation due to low--cost imports could lead to these companies seeing a rapid volume and revenue decline in this segment. Lower capacity utilisation of the existing domestic TBB capacity could exacerbate the pricing pressures," it said.

"The revenue growth of major tyre manufacturers is likely to be in the range of 3%-6% (below negative 2.5% to positive 2.5% in FY16) in FY17, with higher volume growth negating the y-o-y decline in pricing," India Ratings, which is part of the Fitch Group, said.

"Companies could see a moderation in EBITDA (earnings before interest, taxes, depreciation and amortisation) margins, due to the recent increase in input costs as well as pricing pressures," it said. EBITDA margins reached historical peak levels in FY16.

Source : timesofindia.indiatimes.com