Rating agency ICRA said that despite a robust demand for tyres in the domestic market, the profitability of manufacturers will be affected in the next 12 to 15 months due to supply gap for rubber.

ICRA in a statement said that 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.

The rating agency said that the domestic industry faces the threat of increasing penetration of Chinese tyres into the Indian truck and bus radial segment, at least partly contributed by domestic capacity constraints.

It said that 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 sensing immense potential in the industry, particularly for radials, many industry majors have announced large capital expenditure plans for the next two years.

Subrata Ray ICRA Senior VP & Head Corporate Ratings said that "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.”

It said that with no significant supply additions for rubber expected over the next 12 to 15 months, rubber prices are likely to remain high over the next four to six quarters.