Tyre companies in India are likely to invest ₹20,000 crore in the next five years in capacity addition to meet the growing demand, according to credit rating agency ICRA.

“The tyre industry in India has witnessed large capacity additions in the last decade with a cumulative spend of ₹27,800 crore; of which 70% was spent in the last six years.

“With tyre demand remaining favourable, supply addition in the industry is expected to remain high going forward,” ICRA said in a report.

It said based on the announcements, tyre industry was likely to see a capacity addition of ₹20,000 crore over the next five years.

Stating that the outlook for the Indian tyre industry would remain stable, ICRA said tyre demand would grow by 7-9% over the next five years supported by favourable outlook for the domestic automotive industry.

“In FY2019, the domestic tyre industry benefited from strong growth in both original equipment (OE) and replacement segments.

Robust sales

While there have been some headwinds such as the floods in Kerala, tightened financing, insurance-related regulatory changes impacting two-wheeler demand, rising fuel and interest costs, the year-to-date sales growth across most segments have been robust leading to healthy OE tyre demand growth,” ICRA said.

It said the replacement tyre demand, too, had recovered sharply in the last one year supported by post-effect of Goods and Service tax (GST), pick-up in infrastructure activities and a healthy, consumption-driven demand. “Specifically, there was a strong demand rebound in truck and bus segment (where replacement share is high at 70%),” it said.

ICRA said tyre exports from India have been steadily increasing in the last one year with recovery in demand from overseas markets and rising competitiveness of Indian makers, both in terms of quality and pricing.

Imports dwindle

On the other hand, tyre imports had dwindled in the last one year following the re-imposition of anti-dumping duty (ADD) on import of new Chinese truck and bus radial (TBR) tyres for a period of five years effective from September 18, 2017 and increase in customs duty by 500 bps to 15%, effective April 1, 2018.

“This has supported the domestic TBR (truck and bus radial) players as the large capacities added in recent years are now being effectively utilised,” the rating agency said.