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BLIP ON THE RADAR

BLIP ON THE RADAR

TA News Bureau

India’s Automotive Mission Plan 2016–26 says it expects the automotive sector’s contribution to the country’s GDP to touch 12 per cent. But the current situation shows that it is facing a downturn which is also impacting the tyre sector.

However, despite the negative factors, there are reports suggesting that tyre demand may grow 7-9% in 5 years buoyed by strong growth in both original equipment (OE) and replacement segments.

“Double-digit growth numbers projected last year for FY19 had proved wrong,” says Rajeev Singh, Partner and Automotive Sector Leader, Deloitte India. “However, the current downturn may be a blip on the radar as the growth may bounce back in next three quarters.”

He has statistical data to prove the point. “When we look at production data of tyres in the past decade (ATMA numbers) the CAGR from 2008-09 to 2017-18 stands at 9 per cent. Both OEM and replacement segments will continue to drive growth in the sector.

There are reports that suggest that Indian tyre exports are steadily increasing in the last one year, mainly because of rising demand. “India-manufactured tyres are being exported to more than 100 countries including the US and Europe, says Singh.

“The US is the largest export destination for India-manufactured tyres. They account for 13 per cent of the total export turnover. Germany is the second largest with more than 7 per cent share. ASEAN region is also emerging as a key market for Indian tyres,” he indicated.

It is said that the Indian tyre industry is likely to see a capital expenditure of around Rs 200 billion over the next five year backed by favourable economic outlook for the domestic automotive industry. It is a well known fact that Indian industry is likely to break into the top three auto markets by 2022/2023.

Fast acceleration

The growth targets are achievable.“This growth momentum was earlier projected to take place by 2020. But considering the current slowdown we can assume a delay of two to three years. Also the investment by companies entering India and launching automobiles such as – Kia Motors, MG Motors and PSA group – will add more demand for locally manufactured tyres,” says Singh.

Optimism is growing stronger about India’s automobile industry, which is currently the fourth largest in the world. It’s expected to become the third largest by 2021. “This optimism still holds true but with a delay of two to three years considering the weak demand this fiscal year,” he notes.

Commenting on the impact of goods and service tax (GST), the pick-up in infrastructure activities, drop in crude oil prices etc on India’s tyre and automotive sectors, Singh is of the view that all these indicators signal positive.

Says Singh: “On the whole, GST has augured well for the tyre industry. Business has got more organised from the raw material / supply chain. GST has started giving returns as logistics industry has been reorganised. With these changes taking shape, hopefully in the future, tyres will be bought, sold, and evaluated at cost/km basis and not on the price of the unit.”

Speaking on the current shortage in domestic production of natural rubber that has negatively affected the tyre industry, he said that while few imports may help in the short term, it is important to plan for the long term as well.

“The Indian tyre industry is not against imports as our industry is also competitive and has world-class quality. The threat is more from clandestine imports of wrongly classified tyres and products from China, which are not complying with our BIS specifications,” Singh believes.

He suggests that the government could strictly enforce anti-dumping rules. “With the continuation of our industry-friendly government, these issues will be addressed,” Singh affirmed.

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