The industry was facing increasing technology requirement in terms of quality, consistency and longevity necessitating additional investments in modernisation, Crisil said in a statement here today.

Larger working capital requirements were also expected on account of the stiff demand conditions prevailing in the industry, it added. The rating agency believes that increasing technology needs of the industry, especially with respect to radial tyres, is likely to emerge as a key area in future.

Crisil expects that in the long term, radialisation of truck tyres would emerge as a key success factor in the industry giving international tyre majors like Bridgestone and Goodyear a key advantage in the future.

According to Crisil, the recessionary nature of the economyhas resulted in stagnant demand in the auto-tyre industry, which derives 70 per cent of its demand from the commercial vehicle segment especially in the replacement market.

The tyre industry, which has generally witnessed overcapacity over the past few years, has become extremely competitive and thereby negatively affecting sales realisations. However, in the long term, given the potential existing in the Indian economy as well as the likely importance of the road transport segment, Crisil expects this sector to have adequate demand in future.

The industry is also faced with a situation wherein an increasing number of players have been forced to shut down and relatively stronger players have acquired these closed units.

The rating agency believes that the increasing financial needs of the business would cause a further consolidation in the industry. The steep fall in the prices of rubber has provided some support to their profitability, given the competitive pressures on margins. However, any increasein rubber prices or that of any other raw material like fabric, may impact the industry's fortunes adversely.