Domestic demand for tyres to grow 7-9% this fiscal: ICRA

Domestic demand for tyres is projected to grow 7-9 per cent in 2022-23 but the rise in input prices is expected to keep industry margins under pressure, according to ratings agency ICRA.

Factors like gradual easing of supply related constraints in the passenger vehicle OE (original equipment) segment, improving growth momentum in the commercial vehicle OE segment and stable replacement volumes are expected to support domestic demand growth during this period.

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In a statement, ICRA said it “estimates the domestic tyre demand to grow by 7-9 per cent in FY2023 supported by recovery in OE demand across most product segments and steady growth in replacement volumes.”

Tyre industry revenues (consolidated for ICRA’s sample of tyre manufacturers) continue to breach record high levels supported by a growth in domestic demand and exports and increased realisations, ICRA Assistant Vice President and Sector Head Nithya Debbadi said.
“While domestic demand was relatively subdued in Q3 FY2022, industry revenues grew by 12.5 per cent (year-on-year) supported by higher realisations,” she added.

ICRA said following two years of contraction led by slowdown in the auto sector and COVID-19 pandemic, tyre demand witnessed a recovery in FY22 with an estimated growth of 11-13 per cent.

However, OE demand was affected by weak two-wheeler sales, lower PV (passenger vehicles) production due to supply-side issues such as semiconductor chip shortages, and high base limiting growth in tractor demand, it added.

“Replacement demand was strong across product segments although there were headwinds in Q3 FY22 in commercial segments due to factors like inflationary costs trends, weak rural sentiments and base effect,” the ratings agency said.

As for tyre exports, ICRA said there was a robust growth in FY22 supported by healthy demand from key export destinations such as the US and European nations.

“ICRA expects prospects for tyre exports to remain favourable in the medium term given the increasing acceptance of Indian tyres in the international markets. Tyre imports continue to remain low, supported by favourable government regulations,” it said.