'The cost-push of raw materials is huge'

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India’s Rs 19,500-crore tyre industry has witnessed several recent price hikes owing to high input costs, especially that of crude oil and natural rubber. More price hikes are in the offing unless rubber prices cool off, the same way oil prices have in the last few days. But whether prices are hiked or not, the segment is bound to see growth given the economy’s expansion, says Paras Chowdhary, managing director of the Rs 2,600-crore RPG Group flagship company Ceat Ltd, in an interview with FE’s MG Arun and Shweta Bhanot. Excerpts:

Rising input costs has been an area of concern for tyre manufacturers. Is there any possibility of a let-up in the situation?

Most of the raw materials used in the tyre industry are oil based. So, we are impacted not only by inflation and interest rates, but also by what happens to crude oil prices or to derivatives of crude oil. Some derivatives have seen an increase that is higher than that of crude itself. The cost-push of raw materials alone in Q4 last fiscal and Q1 this fiscal was 15%. Between the first quarter and the second, it will go up by another 10%. The first three quarters of last fiscal were pretty steady.

The rise is huge because the raw material cost is substantial. All the large tyre companies together buy raw materials valued at Rs 10,000-12,000 crore. The industry has a turnover of Rs 19,500 crore, of which the big four have a turnover of close to Rs 14,000 crore. Some companies are impacted more, some less.

There is a correlation between natural rubber and crude prices, too. Crude is actually a driving force. Butadiene, used in a big way in synthetic rubber, is a derivative of crude oil and is in short supply—and that is driving up the price of synthetic rubber. If prices go up, then people tend to use more natural rubber.

What is the level of natural rubber use in tyre production? Is there greater scope for production using synthetic rubber?

By weight, Ceat uses around 45% natural rubber. By value, it will be more than that. Earlier, the weighted average cost of rubber was lower than the weighted average cost of other raw materials. So, if the weight of rubber was 45%, by value, it was less than 45%. Now, it is the other way round. About 46-47% of natural rubber goes into commercial vehicles.