iifl-logo

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

sidebar image

ICRA: Elevated input prices to pressurize tyre industry margins, domestic demand could grow by 7-9% in FY23

21 Apr 2022 , 01:12 PM

ICRA estimates the domestic tyre demand to grow by 7-9% in FY2023 supported by recovery in OE demand across most product segments and steady growth in replacement volumes. Factors like gradual easing of supply related constraints in passenger vehicle OE segment, improving growth momentum in Commercial Vehicle OE segment and stable replacement volumes are expected to support domestic demand growth during this period.

Following two years of contraction led by slowdown in auto sector and Covid-19 pandemic, tyre demand witnessed a recovery in FY2022 with an estimated growth of 11-13% Y-o-Y. OE demand was affected by weak 2W sales, lower PV production due to supply-side issues (semiconductor chip shortages), and high base limiting growth in tractor demand. Replacement demand was strong across product segments although there were headwinds in Q3 FY2022 in commercial segments due to factors like inflationary costs trends, weak rural sentiments, base effect etc.

Ms. Nithya Debbadi, Assistant Vice President and Sector Head, ICRA says, “Tyre industry revenues (consolidated for ICRA’s sample of tyre manufacturers) continue to breach record high levels supported by growth in domestic demand and exports and increased realisations. While domestic demand was relatively subdued in Q3 FY2022, industry revenues grew by 12.5% (Y-o-Y) supported by higher realisations. However, the industry margins continued to contract sharply amidst significant inflation in input and freight costs. While the industry has seen some price hikes, we expect the operating margin to contract by 600-800 bps YoY for FY2022. Given the elevated levels of raw material prices, margins are expected to remain under pressure for the next two quarters as well despite the price hikes by most tyre manufacturers in the recent months.”

Tyre exports from India have seen a robust growth in FY2022 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 give the increasing acceptance of Indian tyres in the international markets. Tyre imports continue to remain low, supported by favourable Government regulations.

Tyre industry has been investing around 10% of its revenues in capacity expansion over the past few years. ICRA expects industry to continue to invest ~10-12% of the revenues in the medium term. While part of the capex shall be debt-funded, credit profiles of tyre manufacturers would be supported by healthy earnings and cash reserves.

Nevertheless, the industry is expected to adopt a wait and watch strategy in the near term towards new capex announcements given the uncertainty on earnings amidst the high-cost inflation. 

Related Tags

  • Commercial Vehicle
  • ICRA Ltd
  • Nithya Debbadi
  • OE demand
  • tyre industry
  • tyre Sector
sidebar mobile

BLOGS AND PERSONAL FINANCE

Read More
Knowledge Center
Logo

Logo IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000

Logo IIFL Capital Services Support WhatsApp Number
+91 9892691696

Download The App Now

appapp
Loading...

Follow us on

facebooktwitterrssyoutubeinstagramlinkedintelegram

2025, IIFL Capital Services Ltd. All Rights Reserved

ATTENTION INVESTORS

RISK DISCLOSURE ON DERIVATIVES

Copyright © IIFL Capital Services Limited (Formerly known as IIFL Securities Ltd). All rights Reserved.

IIFL Capital Services Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
ARN NO : 47791 (AMFI Registered Mutual Fund Distributor)

ISO certification icon
We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.