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Tyre makers’ capital expenditure likely to increase to Rs 5,000 crore in FY23: CRISIL

12 May 2022 Evaluate

Credit rating agency CRISIL in its latest report has said that the capital expenditure of tyre makers is expected to increase to around Rs 5,000 crore this fiscal (FY23) as against around Rs 3,700 crore annually in the preceding two fiscals on the back of improving demand. It said the demand is likely to be driven by segments such as replacement, commercial, and passenger vehicles (CVs and PVs), along with exports, and added that credit profiles of tire makers are expected to remain ‘stable’.

However, the report said with capacity utilization still below 70-75 percent, Capex this fiscal will be lower than the annual average of around Rs 6,200 crore between 2018 and 2020. It said the moderation will be on account of growth last fiscal benefiting 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. It noted that demand from the replacement market is expected to normalize to around 4 percent this fiscal from around 12 percent last fiscal. Original equipment manufacturer (OEM) demand should grow around 12 percent, driven by CVs owing to higher government spending on infrastructure and improving fleet utilization.

The report stated that OEM demand from 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. According to CRISIL, exports are seen growing at 13-15 percent on a high base of over 45 percent growth last fiscal, owing to factors such as cost-competitiveness, benefits of the China+1 strategy of global OEMs, and buoyant demand for off-road tires in the US and Europe. 

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