Demand outlook for tyre industry stays favourable: ICRA

The tyre industry’s demand is poised to grow at 13-15 per cent and 7-9 per cent (in tonnes) in FY2022, after two years of contraction, aided by a stable growth in both the original equipment manufacturer (OEM) and replacement segments, said an ICRA note.

The growth, it said, will be aided by a sharp recovery in OEM tyre demand, lower base effect of FY2021, improving pace of vaccination, continued preference for personal mobility and healthy rural cash-flows amid a normal monsoon forecast.

Mr. Srikumar Krishnamurthy, Vice-President and Co-Group Head, ICRA, said: “ICRA expects domestic tyre demand to increase at a CAGR of 7-9 pc (in units) between FY2022 and FY2025, aided by stable replacement demand, a pick-up in OEM demand and exports.”

Exports, which constitute nearly one-fifth of the tyre industry’s revenues, grew by 10 pc in value and 8 pc in volume terms in FY2021 after a marginal contraction in FY2020. Healthy demand from top export destinations such as the US and the European nations supported exports in FY2021, primarily led by agri-construction segment. Going forward, tyre exports are expected to be supported by increased acceptance for Indian tyres.

Imports, on the other hand, declined by 77 pc in volume terms and 51 pc in value terms in FY2021 as the Director General of Foreign Trade (DGFT) placed all categories of tyre imports under the restricted category. .

With improving domestic and exports demand, capex executions have resumed in the last few months after a hiatus. Based on projected demand growth, ICRA estimates capital expenditure of over Rs. 20,000 crore between FY2022 and FY2025, which would be partly debt funded. Nevertheless, the credit profiles of tyre manufacturers would be supported by healthy earnings and cash reserves. The ratings agency continues to maintain a Stable outlook on the tyre industry.