The rating agency, ICRA, has maintained its domestic tyre demand growth forecast at 6-8 per cent for FY24 on the back of favourable demand from the original equipment manufacturer segment and expected revival in replacements.

An improved product mix and range-bound input costs are expected to enhance the margins by 200-300 bps in FY24.

The OEM segment is expected to grow by 7-9 per cent in FY24 on the back of favourable prospects for most of the product categories. Easing of supply-related headwinds, preference for personal mobility, and rising disposable income of consumers are likely to support passenger vehicle demand.

Commercial vehicle demand continues to be supported by infrastructure and construction activities, although some sluggishness was seen in Q1 with pre-buying ahead of BS-6 2.0 emission norms transition. Demand recovery in the two-wheelers segment has been gradual, and the momentum in the next few quarters will depend on the monsoon performance.

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ICRA expects mid-single-digit growth in the replacement segment. Following two years of pent-up demand and an increase in prices, volume growth is likely to witness some stabilisation. The demand was subdued to some extent in the last 2-3 months, although the same is likely to recover with improving urban and rural sentiments. However, the impact of an unfavourable monsoon distribution and El Nino occurrence on rural demand will remain under focus.

Tyre export volumes contracted by 7 per cent in FY23 owing to reduced demand from key markets on the back of economic slowdown and inflationary pressure. ICRA expects the export demand to remain subdued for the next couple of quarters.

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Nithya Debbadi, Assistant Vice President and Sector Head – Corporate Ratings, ICRA, said, “Following a sharp 26 per cent expansion in FY22, revenues of the domestic tyre industry witnessed a healthy 19.5 per cent growth in FY23. This was supported by strong demand from OEMs, moderate replacement demand, and favourable realisations on the back of a better product mix and pass-through of the increase in raw material prices. We expect the revenue growth to moderate to 5-7 per cent in FY24, led by a 6-8 per cent growth in domestic tyre demand, likely decline in exports, and flat average realisations.”

On the supply side, capacities added in the last year are gradually being utilised. This coupled with the expectation of lower growth in domestic tyre demand (compared to the last two years) and weak export demand, will result in some moderation in the pace of supply addition in the near term.

Nevertheless, over the medium term, the industry will continue to invest in capacity addition and research and development activities related to tyre quality improvement, along with opportunities around vehicle electrification.

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