CRISIL’s analysis is based on the performance of the top six tyre manufacturers, representing 87% of the industry's revenue.
18 Nov 2024 | 2838 Views | By Autocar Professional Bureau
Indian tyre manufacturers are set to see revenue growth of 7-8% this fiscal year, driven by modest increases in volume and realisations. However, rising natural rubber prices and weak export demand pose challenges for the industry, says credit ratings agency CRISIL.
This uptick, spurred by a 3-4% increase in ...
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Indian tyre manufacturers are set to see revenue growth of 7-8% this fiscal year, driven by modest increases in volume and realisations. However, rising natural rubber prices and weak export demand pose challenges for the industry, says credit ratings agency CRISIL.
This uptick, spurred by a 3-4% increase in both volumes and realisations, is nearly double the growth seen last year.
However, it falls short of the robust 21% compound annual growth rate between fiscals 2021 and 2023, CRISIL said. Natural rubber prices, which constitute about 50% of raw material costs, have surged due to adverse weather in major producing nations like Thailand and Vietnam. This has limited the ability of tyre makers to fully pass on these costs, with gradual price increases planned throughout the year.
Anuj Sethi, Senior Director of CRISIL Ratings, highlighted the key drivers, stating, "Replacement demand, mainly from commercial and passenger vehicles, will drive volume growth, while OEM demand is expected to rise only 1-2% due to slow growth in commercial vehicle sales." Replacement demand accounts for two-thirds of domestic tyre sales, with the remaining from original equipment manufacturers (OEMs).
Export growth, on the other hand, is likely to remain subdued at 2-3%, hindered by weak demand in key regions like North America and Europe, which together constitute 60% of India's tyre exports. Geopolitical tensions have further exacerbated the situation, raising freight costs and prolonging transit times.
CRISIL Ratings projected operating profitability to decline by approximately 300 basis points this year, dropping from 16% to 13%. It attributed this decline to the sharp rise in natural rubber prices and subdued export demand. "With capacity utilisation at around 80%, tyre manufacturers are investing Rs 5,500 crore this fiscal, slightly lower than last year, focusing on necessary capacity enhancements and debottlenecking," Naren Kartic.K, Associate Director at CRISIL Ratings, said.
Despite these challenges, the industry's financial health remains robust, supported by strong balance sheets and prudent capital expenditure. CRISIL expects credit profiles to remain stable, with gearing and interest coverage ratios at comfortable levels of 0.3 times and 7-8 times, respectively.
The Indian government has extended countervailing duties on Chinese radial tyres for five years to shield domestic manufacturers. Coupled with prudent spending and strategic pricing, these measures aim to sustain the sector's stability amidst a challenging landscape, CRISIL said.
Looking ahead, factors such as raw material prices, evolving OEM demand, and environmental regulations, including Extended Producer Responsibility (EPR), will shape the industry's trajectory. EPR mandates tyre makers to manage waste tyres responsibly, safeguarding environmental and public health.