Press Release

Production volume growth of tyre makers seen halving to 6-8%

Operating margin to recover from a 10-year low of last fiscal; capex to be stepped up

Production volume growth at tyre companies is set to halve to 6-8% this fiscal to ~2.5 million tonnes, compared with 12-14% last fiscal. Demand will be driven by segments such as replacement, commercial and passenger vehicles (CVs and PVs), and exports.

The moderation will be because growth last fiscal had benefited 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.

Operating margin should rise to ~12% this fiscal, up 200 basis points from last fiscal’s decadal low of ~10%, as price hikes ease the pressure of high raw material costs.

The credit profiles of tyre makers are expected to remain stable. Better cash accruals should help fund higher capital expenditure and keep debt metrics healthy, a CRISIL Rating analysis of India’s top six tyre makers, which account for ~80% of the Rs 75,000 crore revenue of the sector, shows.

The sector derives 60% of its volume1 from the replacement market, 27% from original equipment manufacturers (OEMs), and the balance from exports.

Says Anuj Sethi, Senior Director, CRISIL Ratings, “Demand from the replacement market is expected to normalise to ~4 per cent growth this fiscal from ~12 per cent last fiscal. OEM demand should grow ~12 per cent driven by CVs owing to higher government spending on infrastructure and improving fleet utilisation. OEM demand for 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.”


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