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Tyre makers' capital expenditure to rise to Rs 5,000 cr in FY23: CRISIL

The report is based on the analysis of the top six domestic tyre makers, who account for 80 per cent of the Rs 75,000 crore of the sector, CRISIL said

Topics
Crisil report | Tyremakers in India | Tyre industry

Press Trust of India  |  Mumbai 

tyres

The capital expenditure of tyre makers is expected to increase to around Rs 5,000 crore this fiscal on the back of improving demand, as against around Rs 3,700 crore annually in the preceding two fiscals, according to a .

The demand is likely to be driven by segments such as replacement, commercial and passenger vehicles (CVs and PVs), along with exports, the credit ratings agency said, adding that credit profiles of tyre makers are expected to remain "stable".

The report is based on the analysis of the top six domestic tyre makers, who account for 80 per cent of the Rs 75,000 crore of the sector, CRISIL said.

However, with capacity utilisation still below 70-75 per cent, capex this fiscal will be lower than the annual average of around Rs 6,200 crore between 2018 and 2020, it said.

Meanwhile, production volume growth at tyre is set to halve to 6-8 per cent this fiscal to around 2.5 million tonnes, compared to 12-14 per cent last fiscal.

According to ratings agency, the moderation will be on account of growth last fiscal benefiting disproportionately from the low-base effect created by the preceding two fiscals, when volume had contracted due to economic slowdown and the COVID-19 pandemic, it said.

"Demand from the replacement market is expected to normalise to around 4 per cent this fiscal from around 12 per cent last fiscal. OEM demand should grow around 12 per cent, driven by CVs owing to higher government spending on infrastructure and improving fleet utilisation.

"Original equipment manufacturer (OEM) demand from PVs should be healthy given the rise in personal incomes and strong consumer preference for personal mobility. However, demand from the two-wheeler and tractor OEM segments will continue to be modest," said Says Anuj Sethi, Senior Director, CRISIL Ratings.

According to CRISIL, exports are seen growing at 13-15 per cent on a high base of over 45 per cent growth last fiscal, owing to factors such as cost-competitiveness, benefits of the China+1 strategy of global OEMs, and buoyant demand for off-road tyres in the US and Europe.

As per the report, in fiscal 2022, operating margins crimped to an estimated 10 per cent -- a level last seen in fiscal 2012 -- as the price of natural rubber surged over 20 per cent, and that of crude-based inputs such as carbon black and nylon tyre cord jumped 40-50 per cent. However, price hike was not completely passed on since demand was reviving after two weak years, the report added.

These account for 70 per cent of the raw material cost of tyre makers.

"Better accrual, along with higher revenue and operating margin, should support capex funding and keep balance sheets healthy, ensuring stable credit profiles for CRISIL-rated tyre makers," said Rajeswari Karthigeyan, Associate Director, CRISIL Ratings.

This fiscal, CRISIL expects gearing and interest coverage ratios at around 0.5 time and 5-6 times, respectively, a tad better versus the 0.6 time and 4-5 times seen last fiscal, he noted.

CRSIL cautioned that further waves of the pandemic, continuing shortage of semiconductors (which can impact demand for passenger vehicles) and the trend in raw material prices would bear watching.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Wed, May 11 2022. 15:05 IST
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