Tyre companies are expecting to benefit from the stability in raw material prices and gradual improvement in replacement demand following revival of rural markets and increased spending by the government on infrastructure and other sectors.
Frequent price hikes by tyre companies during FY23 had deterred buyers in the replacement segment, which makes up more than half of a tyre company’s turnover. Vehicle owners were inclined to sweat their tyres longer than usual, leading to demand softening in the replacement segment.
But following a series of developments in the infrastructure segment, tyre demand in the replacement segment, especially for the commercial vehicle segment, has gathered pace.
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Replying to FE query, Satish Sharma, president, Asia Pacific, Middle East and Africa, Apollo Tyres said, “High interest rates and tightening of credit supply led to the softening in replacement market demand. Having said that, we are seeing a gradual uptick in demand in the replacement segment as well.”
Demand from the replacement segment makes up 80% of the sales at Apollo Tyres, India’s second largest tyre maker by tonnage. The same is 60% for Ceat and JK Tyre and Industries.
According to the tyre companies, the increase in raw material prices has been as much as 50% in the last two years. For the fear of losing demand, tyre companies absorbed some part of this cost pressure before passing on the rest to the consumer.
Saurav Mukherjee, senior vice-president, Global Sales and Supply Chain, Ceat, said, “The industry experienced huge spikes in raw material cost for a larger part of FY23, and a part of this had to be passed on to the consumer. Demand overall is expected to inch up beyond pre-Covid levels in FY24.”
Despite the volatility in crude prices, natural rubber prices have remained steady which should help in improving operating margins for Q4FY23 and the first half of FY24, said tyre makers.
Sanjeev Aggarwal, chief financial officer, JK Tyre and Industries said, “Input prices have been friendlier which is why we have seen improvement in margins. If we continue to see this kind of a trend in raw material prices, I see we will be able to improve further. Crude oil prices have increased but natural rubber prices are expected to be stable.”
With the comeback in replacement demand and uptick supplies to the vehicle makers, tyre makers have either completed their production enhancement actions or are planning to make fresh investments in product and capacity.
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Bridgestone, one of India’s biggest passenger vehicle makers, is investing Rs 600 crore towards increasing capacity at its Pune plant, spread over three years. French tyre maker Michelin is exploring options to make passenger vehicle tyres in India. JK Tyre is investing `900 for expanding capacity over two years.
“The OEM (original equipment manufacturers) demand momentum is expected to remain healthy, on the back of increased infrastructure spending by the Government. The demand, though muted in the replacement segment for the past one or two months, is now picking up. Overall, we are hoping for a positive first half of the fiscal year,” Sharma added.
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