VINACHEM

The Indian tyre industry has been investing around 10% of its revenues in capacity expansion over the past few years. A report by ICRA says it will continue to invest around 10%-12% of the revenues in the medium term. This capex spend will be on the back of healthy demand.

According to the report, domestic tyre sales will grow 6%-8% in FY2024 thanks to replacement demand and momentum in the OEM segment. Demand momentum in the OEM segment will continue in FY2024 with an estimated growth of 8%-10% while replacement demand, which forms around two-thirds of tyre demand, is likely to witness "mid-single digit growth" in FY2024.

"Factors like improving economic activities, increasing freight movement, higher spend on infrastructure, absence of material price hikes shall support the growth in the replacement segment in FY2024" said the report even though export demand will be subdued for the next one to two quarters.

Nithya Debbadi, assistant VP and sector head, ICRA, said: "ICRA projects 7% -9% growth in industry revenues for FY2024 with domestic growth outpacing exports. Segment- wise, commercial vehicles shall benefit from the increasing traction in the infrastructure and construction segments. Strong underlying demand and preference for personal mobility will continue to drive passenger vehicles and aid in a recovery in the two-wheeler segments. Nevertheless, tyre demand remains vulnerable to potential headwinds like adverse monsoons and its impact on rural demand, supply- related issues, general inflation, and further hardening in financing rates."

The good news is that the prices of natural rubber and crude oil derivatives softened since July 2022. However, the effects A of high-cost inventory, higher OE skew in revenue mix, and fall in exports impacted margin expansion of tyre companies in Q3 FY2023.

"Nevertheless, with better product mix and stable input prices and pricing environment, industry margins will expand by 150-200 bps to around 12-14% in FY2024," said the report.

According to ICRA, the tyre industry's revenues grew by 15%-17% YoY in FY2023, supported by strong OE demand and better realisations even as replacement demand was affected by frequent prices hikes, higher interest rates and subdued rural demand in a few regions.

Following strong growth in FY2022, however, tyre exports have been gradually declining in the last two quarters amid economic slowdown and inflationary pressures in key markets like the US and the EU. – India Times –