The Indian tyre industry is expected to be adversely hit due to estimated lower rubber output by 18-20% following the Kerala floods, a report said on Thursday.
According to rating agency Icra's report, the natural rubber which accounts for 35% of the overall input costs in values for manufacture of tyres, is expected to witness considerable shortage due to the inundation resulting in pressure on operating margins for tyre manufacturers.
Natural rubber accounts for over 20% of Kerala's total area under cultivation and the southern state contributes the largest share of 84% of output in the country followed by Karnataka, Tamil Nadu and North-Eastern states like Assam, Tripura, Meghalaya etc.
"We expect the natural rubber output to decline by 1.2-1.4 lakhs MT (or) 18-20 per cent fall during FY2019. With the natural rubber being a critical raw material, the sharp fall in output will have consequent impact on the Indian tyre industry. It accounts for 32 per cent and 35 per cent of total inputs, in volume and value terms, respectively," agency's Vice President (Corporate ratings) K Srikumar said.
India is the second largest consumer, consuming 8% of global natural rubber output, after China.
Despite India also being one of the key producers contributing to over 5% of global output, it remains a net importer.
"During FY2018, India produced 6.9 lakh MT of natural rubber but consumed 11.1 MT, with the supply gap being fully met through imports from Indonesia, Thailand, Vietnam, etc, the agency said.
Imports have accounted for 40% of consumption in the last five years and the same is expected to reach 50% during the current fiscal with the shortfall envisaged in output.
With demand exceeding supply, domestic natural rubber prices have increased by over 10% during the period April-August 2018, including an increase of over 5% in the last one month.
"As the domestic prices continue to increase due to supply shortage concerns, domestic tyre makers continue to import with the current landed costs lower than domestic prices. However, with the expected rise in both domestic and global prices, exacerbated by the depreciating rupee, the tyre manufacturers are likely to witness pressure on margins. We expect a 100-bps contraction in operating profit margins for FY2019," Srikumar said.