The influx of imported radials is an area of concern

Written by Sunam Sarkar | Updated: Jun 28 2009, 04:09am hrs
The tyre industry in India went through a rough patch last year with the prices of natural rubber, its key raw material, going through the roof. In this interview, Sunam Sarkar, chief financial officer, Apollo Tyres, tells FEs Alokananda Chakraborty how the company is coping with the cost pressures. Excerpts:

The tyre industry consumes nearly 50% of the natural rubber produced in the country and the domestic prices of natural rubber registered significant increase last year. What does this mean for the Indian tyre industry

An increase in rubber prices rarely bodes well for the tyre industry where it is a key raw material. Currently, domestic rubber, hovering around Rs 100 per kg, is at a premium when compared to imports, which are around Rs 80 per kg. Having said that, there has been a level of price stabilisation, which is a positive sign, and we hope that this trend will continue, barring the seasonal ups and downs. As you are aware, when prices were at their peak in July 2008, our margins had come under tremendous pressure due to a spike in our operational costs. The impact of any such spike is high for us since the industry works on very thin margins.

In 2002, over 1,10,000 passenger car tyres were imported. This constituted about 2% of total radial passenger car tyre production in the country. However, with the reduction of peak custom duty, the import of tyres has increased substantially. This is double trouble for the domestic tyre industry, right

I wont term it as trouble, though the influx of imported radials in the Indian markets is an area of concern. Definitely, the Indian tyre industry has so far been plagued by an inverted duty structure, where its cost-effective to import tyres. The tyre industry is probably one of the last remaining sectors to still have an inverted duty structure. As you mentioned, while the volumes are still low, they are consistently on the rise. As an industry and a leading manufacturer, we have no issues with imports. Our only concern is when it is not a level playing field and that they adhere to the same quality and service standards that Indian products deliver.

The huge raw material costs have resulted in pressures on realisation and hence players have had to increase prices. But due to competitive reasons, they have not been able to pass on the entire increase on to customers. How does the industry propose to tackle this

Different players would tackle this in different manner depending on their inherent strengths. While we might not be able to pass on the entire cost to the customer, some costs are passed on. For us at Apollo, profitable growth is a must. The rest we have to find ways to absorb. What has helped us often when facing such a situation is our continuous initiatives in reducing costs and improving manufacturing and operational efficiencies. What also stands us in good stead is our speed in reacting and implementing processes to tackle a certain situation.

What are your expectations from the upcoming budget

We are optimistic with the governments plans to invest in infrastructure, rural health and education. The age of sops to industry is really over. Good governance is what we seek from any party coming into power both at the centre and the states.