Tyre consumers can expect a sustained rise in prices over the next several months as tyre manufacturers aim to recover the dent in margins following a steady increase in raw material costs including natural rubber.
JK Tyre and Industries, the fourth-largest tyre manufacturer in India, has already raised tyre prices once in November and warned of further increases to counter the sharp rise in input costs that occurred in the September quarter.
The rise in input costs saw JK Tyre post a 44% year-on-year (y-o-y) drop in consolidated net profit at Rs 140 crore during the September quarter, missing the Bloomberg estimate of Rs 203 crore.
Revenue from operations also declined by 7% to Rs 3,622 crore for the reporting quarter, also missing the estimate of Rs 3,888 crore due to sluggish aftermarket and OEM demand.
Speaking to the media on Tuesday after the results, Anshuman Singhania, managing director and CEO, JK Tyre and Industries, said: “So far, we have been able to raise 3.5-4% in prices. But the raw material price increase has been to the tune of 12-13%. The impact of which is 8-9%, so there is an under-recovery.”
The company further noted that on a quarter-on-quarter basis, the total raw material prices have been 6-7%. But it was able to pass on just 1-2%. “We are expecting another price increase in Q3 of 1-2%. We are going to assess the market dynamics for increasing the prices,” Singhania added.
Operating profit margins were affected by a sharp increase in natural rubber prices driven by adverse weather conditions and supply chain disruptions, as JK Tyre noted. However, the impact was partially mitigated through judicious price increases, product premiumisation, cost control measures and strategic inventory build-up.
Tyre demand from vehicle makers across segments except two-wheelers, has been soft. After-market demand has also remained sluggish, especially for the truck and bus segment and passenger vehicles.
“In the commercial vehicle segment demand moderated due to extended monsoon and slowdown in the infrastructure spending following the general elections. Improved exports helped partially offset the domestic slowdown,” Singhania added.
The demand slowdown in the September quarter and the surge in costs notwithstanding, JK Tyre is going ahead with the Rs 1,400 crore capital expenditure plan for the current year.
Resumption of government infrastructure spending, a pick up in demand during the festive period and a pick up in core sectors like cement, are signs of green shoots, the company said. Natural rubber prices have also seen a sharp correction in October.
“We are expecting a demand boost in the replacement sector in all products due to higher utilisation followed by the seasonal impact of the healthy monsoons,” Singhania added.
