The tyre industry is poised for a steady 7-8% topline growth in 2024, bolstered by a 3-4% increase in realizations and volume, as reported by Crisil Ratings. This marks a second consecutive year of single-digit expansion, following a remarkable 21% compound annual growth rate (CAGR) from 2021 to 2023. Amid rising raw material costs and global market challenges, the industry remains resilient. Let’s explore the factors driving this growth and how manufacturers are navigating the landscape.
Navigating Rising Rubber Costs with Strategic Pricing
Natural rubber, a vital component in tyre manufacturing, has seen a significant price surge. To combat this, tyre companies are implementing gradual price increases to balance cost pressures while staying competitive in the market.
Replacement Demand: The Backbone of Growth
Replacement tyres, especially for commercial and passenger vehicles, are the primary growth drivers, accounting for nearly two-thirds of domestic demand. In contrast, original equipment manufacturers (OEMs) contribute a modest one-third, with their demand expected to grow by just 1-2% due to subdued commercial vehicle sales.
Domestic Demand vs. Export Challenges
The domestic market dominates with 75% of sales, driven by robust replacement demand. However, export growth is projected at a muted 2-3%, hampered by weak demand in key markets like North America and Europe. These regions account for 60% of India’s tyre exports but face geopolitical tensions and supply chain disruptions, leading to higher freight costs and longer transit times.
Profitability Under Pressure
High raw material costs and limited pricing flexibility are expected to compress operating margins by approximately 300 basis points this fiscal year. Despite this, the industry anticipates healthy cash flows to sustain essential investments.
Strategic Investments in Capacity and Efficiency
Tyre manufacturers are channeling Rs 5,500 crore this fiscal year towards capacity enhancements and operational efficiency. With capacity utilization around 80%, these investments are critical to meeting demand and maintaining profitability.
Industry Insights from Experts
Anuj Sethi, Senior Director at Crisil Ratings, emphasized the resilience of domestic demand: “Replacement tyres remain the cornerstone of industry growth, supported by gradual price increases and careful capital planning.”
Naren Kartic K, Associate Director at Crisil Ratings, highlighted the strategic approach of manufacturers: “Prudent investments and measured pricing strategies are vital to overcoming sluggish demand and preserving margins.”
Key Strategies for Tyre Manufacturers
- Focus on Replacement Demand: Strengthen marketing and distribution channels in the replacement segment to leverage domestic demand.
- Gradual Price Increases: Implement incremental price adjustments to offset rising costs without alienating customers.
- Enhance Technology and Capacity: Invest in cutting-edge technology and capacity optimization to stay competitive.
- Diversify Export Markets: Reduce reliance on North America and Europe by exploring emerging markets and new geographies.
The Road Ahead
The tyre industry in 2024 is a testament to resilience and adaptability. By focusing on domestic demand, optimizing investments, and responding to global market shifts, manufacturers are positioned to achieve sustainable growth despite ongoing challenges.
Source: Business Standard