The tyre makers in India are likely to see revenue growth of 7-8 per cent this fiscal (FY25), driven by a 3-4 per cent increase in both realisations and volume, according to a report on Monday.

Revenue will grow in single digit for the second straight year (albeit nearly double that of last fiscal) and after logging a compound annual growth rate of 21 per cent between fiscals 2021 and 2023, said a Crisil Ratings report.

Domestic demand accounts for 75 per cent of the industry’s sales (in tonnage terms), while the rest is exported.

“About two-thirds of the domestic demand is from the replacement segment and the rest is from original equipment manufacturers (OEMs),” said Anuj Sethi, Senior Director, Crisil Ratings.

This fiscal, replacement demand, mainly from commercial and passenger vehicles, will drive volume growth, while OEM demand is expected to rise only 1-2 per cent due to slow growth in commercial vehicle sales, he added.

With capacity utilisation at 80 per cent, tyre manufacturers “rated by us are investing Rs 5,500 crore this fiscal,” the report added.

“To support domestic tyre manufacturers, the Indian government has extended the countervailing duty on Chinese radial tyres for five years to ease competition,” said Naren Kartic.K, Associate Director, Crisil Ratings.

Realisation growth will be staggered throughout this fiscal as tyre makers are raising prices gradually to offset the surge in the price of natural rubber, which constitutes about half of the raw materials needed.

Volume growth, meanwhile, will be driven by replacement demand, according to the report.

It further stated that strong balance sheets and gradual capacity expansion will keep the credit profiles of tyre makers stable.

On the exports front, growth is expected to be muted at 2-3 per cent this fiscal due to weak demand in key markets such as North America and Europe, which make up about 60 per cent of India’s total exports.

Moreover, supply-chain disruptions due to geopolitical concerns have led to higher freight costs and longer transit times, weighing on export demand, the report mentioned.

Meanwhile, the sharp rise in natural rubber prices is due to a global shortage caused by inclement weather in major producing countries such as Thailand and Vietnam, which account for about half of the global production.