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While tyre demand in 2013-14 is estimated to have grown by a muted one per cent, market research firm ICRA expects demand for tyres to grow by 6-8 per cent during the current fiscal, driven by truck and bus (T&B), passenger vehicle (PV) and scooter segments.
The marginal demand growth last financial year was largely aided by the two wheeler and tractor segments, even as demand from the light commercial vehicle (LCV) and PV segments faltered. This comes close on the heels of a two per cent de-growth witnessed by the industry during 2012-13 due to contraction in the high volume two wheeler and tractor segments. Overall demand from the replacement segment was largely flat while original equipment makers (OEM) demand grows by a modest 2-4 per cent.
However, ICRA expects demand for tyres to grow by 6-8 per cent during 2014-15. "Replacement demand for T&B is also expected to grow as the economic activity in the country revives, thus leading to increased goods movement," the report said.
Industry wide revenues grew at around 5.6 per cent during 2013-14 aided largely by the improvement in product mix, limited price discounting despite the falling input costs and higher realisations in the export markets.
"The softer input costs regime over the past one year has proved highly favourable for the industry with industry wide operating profit margins (OPM) climbing to historic peaks. With the industry in the midst of a large capital expenditure phase, the benefits to the OPM have not directly trickled down to the net margins (NPM). However, the high cash accruals of the past two years have lent flexibility to the industry leading to substantial cash build up," the report explained.
It feels that sufficient capacities in the T&B radial (TBR) segment and the outlook for relatively softer input costs over the next 12 months places the industry in a sweet spot to capitalise on the next demand wave in the automotive industry.
