FCC

Icra Reports: India's tyre demand to grow 6-8% in FY24

2023-07-14

According to a recent report by rating agency Icra, India's demand for tyres is predicted to grow between 6-8 per cent in the Financial Year 2023-24 (FY24). This growth is attributed to both replacement needs and the requirements of original equipment manufacturers (OEMs).

Icra forecasts that the tyre industry's margins will expand by 200-300 basis points in FY24, thanks to an improved product mix and stable input prices. In FY23, the industry recorded operating and net margins of around 11 per cent and 4 per cent respectively. However, these margins were adversely affected by high input prices and rising freight costs in FY22 and the first half of FY23. Nevertheless, they saw a recovery in the second half of FY23.

In FY24, the OEM segment is expected to grow between 7-9 per cent year-on-year (YoY). While Icra anticipates stable demand for passenger vehicles (PVs), it notes that the commercial vehicle (CV) segment experienced sluggishness in the first quarter of FY24 due to pre-buying ahead of the transition to BS 6.2 emission norms. However, CV demand is supported by infrastructure and construction activities. The recovery of the two-wheeler segment will depend on the performance of the monsoon in the upcoming quarters.

Icra states that after a significant 26 per cent expansion in FY2022, the revenue of the domestic tyre industry saw a healthy growth of 19.5 per cent in FY2023. However, Icra expects the revenue growth to moderate to 5-7 per cent YoY in FY24. This is primarily due to an estimated 6-8 per cent YoY growth in domestic tyre demand, a likely decline in exports, and flat average realisations.

In the replacement segment, Icra predicts mid-single-digit growth in FY24. After two years of pent-up demand and price increases, volume growth is expected to stabilise during the fiscal year.

The volume of tyre exports contracted by 7 per cent YoY in FY23 due to reduced demand from key markets affected by the global economic slowdown and inflationary pressures. Icra anticipates weak export demand for the next few quarters.