ICRA revises forecast on total tyre volume growth to 2-4 pc

Ratings agency Icra today revised downward its forecast on total tyre volume growth to 2-4 per cent for this fiscal from earlier projections of 8-10 per cent due to higher-than-anticipated weakness in the passenger car and truck and bus segments.
This muted volume growth comes after two consecutive years of weak demand of 5 per cent and a negative 2 per cent during the previous two fiscals, ICRA said in a release here.
The rating agency has based its forecast on the OEM demand growth and trends observed in the industry till date, it said.
According to the agency, the tonnage growth is likely to be a shade weaker as the larger truck and bus OEM tyre segment posts declines; it said adding, "In H1FY14, industry volumes are estimated to have been witnessed a marginal uptick."

Automotive industry growth revised downwards marginally from a -1-1.2 per cent to a flat growth for the current fiscal with CVs, MCEs and PVs dragging down volumes even as tractors continued their positive trend, the release said.
The agency expects the domestic automotive industry to post flat volume growths during 2013-14, the release said, adding, ICRA's market check indicates limited scope for any uptick in OEM demand over the next 6-8 months.

Overall, ICRA estimates the domestic tyre demand from the OEM segment to be largely flat for the second consecutive year during FY14, with contraction across all segments barring scooters and tractors.

However, the replacement tyre volume demand is likely to go up by 5-6 per cent in the current fiscal following a two per cent decline in 2012-13, it said.
The continued decline in the medium and heavy commercial vehicle segment and delayed replacement of vehicles by fleet owners is expected to translate into higher replacement demand for consumables, the report observed.
Icra expects that coming on the heels of the replacement tyre demand decline of the previous year there is pent up replacement demand in the two-wheeler and tractor segment.
On the revenue side, the agency forecasts about 1-3 per cent growth during 2013-14 to Rs 45, 400 crore and further by nearly 6-7 per cent in the next fiscal, it said.

While the demand outlook for 2013-14 continues to be modest, operating margins are expected to post a about 190-200 bps expansion during 2013-14 supported by a softer raw material scenario and higher export realisations, the report said.
However, companies which can tweak their product mix, by increasing focusing on the relatively high margin non truck and bus and export segments are likely to post relatively healthier margins, the release said.
The operating margin however would remain vulnerable to raw material price trends and competitive pressures (in view of large capacity additions), it added.