Despite a robust demand for tyres in the domestic market, the profitability of manufacturers will be affected in the next 12-15 months due to supply gap for rubber, rating agency ICRA said today.
Rising raw material costs as well as increased debt and higher interest and depreciation charges are likely to keep industry profitability under pressure over the medium term in spite of a strong growth potential, ICRA said in a statement.
The domestic industry faces the threat of increasing penetration of Chinese tyres into the Indian truck and bus (T&B) radial segment, at least partly contributed by domestic capacity constraints, the rating agency said.
The industry is currently at a structural inflexion point in the T&B segment, with the Indian market converging towards the global trends of radials in the commercial vehicle segment, it said.
It said sensing immense potential in the industry, particularly for radials, many industry majors have announced large capital expenditure plans for the next two years.
"While demand is expected to be robust going forward, cost pressures, particularly from natural rubber, remains a challenge. Ability to successfully pass on the input cost to the end customer increases, which will be critical for the industry," ICRA Senior VP & Head Corporate Ratings Subrata Ray said in the statement.
With no significant supply additions for rubber expected over the next 12-15 months, rubber prices are likely to remain high over the next four-six quarters, it said.