New Delhi, Jul 6 (IANS): The Indian tyre industry's demand is poised to grow at 13-15 per cent in FY22 after two years of contraction, said ratings agency ICRA.

The agency in a note said that this trend is aided by a stable growth in both the original equipment manufacturer (OEM) and replacement segments.

Accordingly, the note cited that growth will be aided by a sharp recovery in OEM tyre demand, lower base effect of FY2021, improving pace of vaccination, continued preference for personal mobility and healthy rural cash flows amid a normal monsoon forecast.

"Tyre demand has been relatively more resilient compared to other auto components as the replacement demand in the tyre industry insulates it from cyclicality to a large extent. Vehicle production fell by 13-15 per cent in the last two years (ending FY2021) on account of weak consumer sentiments and subdued economic activities while domestic tyre demand contracted by 8 per cent," said Srikumar Krishnamurthy, Vice President and Co-Group Head, ICRA.

"In line with the overall auto industry, tyre demand contracted sharply in Q1 FY2021 due to the nationwide lockdown, but recovery in tyre demand was stronger and faster as tyre volumes reached the pre-Covid levels in Q2 FY2021 and witnessed a healthy growth in the subsequent two quarters."

Besides, ICRA expects domestic tyre demand to increase at a CAGR of 7-9 per cent (in units) between FY2022 and FY2025, aided by stable replacement demand, a pick-up in OEM demand and exports.

Furthermore, it said exports, which constitute nearly one-fifth of the tyre industry's revenues, grew by 10 per cent in value and 8 per cent in volume terms in FY2021 after a marginal contraction in FY2020.

"Healthy demand from top export destinations such as the US and the European nations supported exports in FY2021, primarily led by agri-construction segment. Going forward, tyre exports are expected to be supported by increased acceptance for Indian tyres," the note said.

"Imports, on the other hand, declined by 77 per cent in volume terms and 51 per cent in value terms in FY2021 as the Director General of Foreign Trade (DGFT) placed all categories of tyre imports under the restricted category (against free category earlier), thus necessitating DGFT's permission for all tyre imports."

In addition, the note said that with improving domestic and exports demand, capex executions have resumed in the last few months after a hiatus.

"Based on projected demand growth, ICRA estimates capital expenditure of over Rs 20,000 crore between FY2022 and FY2025, which would be partly debt funded," the note said.

"Nevertheless, the credit profiles of tyre manufacturers would be supported by healthy earnings and cash reserves. The ratings agency continues to maintain a stable outlook on the Indian tyre industry."