Tyre demand in India to grow by 6-8% in FY24, says Icra report

Stable input prices to help industry's margins, says the agency

India’s tyre demand is expected to grow 6-8 percent in Financial Year 2023-24 (FY24) due to replacement and the needs of original equipment manufacturers (OEM), said rating agency Icra in a recent report.

Improved product mix and stable input prices are projected to contribute to a 200-300 basis points expansion in the tyre industry’s margins in FY24. The industry recorded operating and net margins of approximately 11 per cent and 4 per cent, respectively, in FY23. Margins were affected by high input prices and rising freight costs in FY22 and the first half of FY23 but recovered in the second half. Margins will expand by 200-300 basis points in FY24, said Icra.

The OEM segment is expected to grow by 7-9 per cent year-on-year (YoY) in FY24. Icra estimated that passenger vehicle (PV) demand will be stable, but highlighted that the commercial vehicle (CV) segment witnessed sluggishness in the first quarter of FY24 due to pre-buying ahead of BS 6.2 emission norms transition. CV demand is supported by infrastructure and construction activities. The two-wheelers segment’s recovery will depend on the performance of the monsoon in the upcoming quarters.

“Following a sharp 26 per cent expansion in FY2022, revenues of the domestic tyre industry witnessed a healthy 19.5 percent growth in FY2023. We expect the revenue growth to moderate to 5-7 per cent YoY in FY24, led by a 6-8 per cent YoY growth in domestic tyre demand, likely decline in exports, and flat average realisations,” said Nithya Debbadi, assistant vice president and sector head–corporate ratings, Icra.

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

Tyre export volumes contracted by 7 per cent YoY in FY23 due to reduced demand from key markets affected by global economic slowdown and inflationary pressures. ICRA expected export demand to remain weak for the next few quarters.