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Tyre manufacturers mulling price hike as input costs soar

On its part, Continental is providing extended warranties of up to 1 year from the date under ‘ContiSure’ and offering 75% of the tyre cost in case of Ultra High-Performance (UHP) tyre failures to win customers.

Apart from NR, the other key raw materials include crude derivatives such as synthetic rubber (SR), carbon black, nylon tyre cord fabric and rubber chemicals among others.
Apart from NR, the other key raw materials include crude derivatives such as synthetic rubber (SR), carbon black, nylon tyre cord fabric and rubber chemicals among others.

Tyre manufacturers are mulling further price hikes of about 8-12%,following a rise in raw material and commodity prices due to ongoing political issues, including the Ukraine-Russia crisis.

The domestic prices of natural rubber (NR), a key raw material for the industry, rose 20% in the financial year 2022 and that of crude derivatives rose by 50%. With input costs remaining high, margins of tyre manufacturers would contract by 600-800 basis points (BPS) in fiscal 2022 (data is being collated for the year)industry experts said.

Apart from NR, the other key raw materials include crude derivatives such as synthetic rubber (SR), carbon black, nylon tyre cord fabric and rubber chemicals among others.

“Due to the ongoing geopolitical scenario, there has been a sharp increase in prices of almost all major commodities, hurting the whole supply chain. NR prices have surged to a six-year high in India, and the rising input-cost inflation has led tyre manufacturers to go for price realisation from the consumers,” Samir Gupta, Managing Director (India and Head of Central Asia Region) at Continental Tires told FE.

“We have seen a double-digit price increase in the last financial year and the trend seems to continue even in this financial year. Further, supply chain disruptions caused due to ongoing unrest between Ukraine and Russia have added to the headwinds across industries, including the tyre industry,” Gupta added.

On its part, Continental is providing extended warranties of up to 1 year from the date under ‘ContiSure’ and offering 75% of the tyre cost in case of Ultra High-Performance (UHP) tyre failures to win customers.

“Almost all input prices have been on an uptrend in the last 15-18 months, with domestic prices of NR, which represent over 30% of total raw material costs, rose by over 20% year-on-year during FY2022, while other crude-linked inputs increased by over 50%,” Nithya Debbadi, Assistant Vice President and Sector Head (Corporate Ratings) at ICRA said.

“While the industry players have been passing on the rise in input prices in the last few quarters, the extent of price hike has been at varied levels among tyre makers and did not commensurate with the extent of cost inflation. This is reflected in the margins of the tyre industry, which is likely to contract by 600-800 basis points on YoY for FY2022,” she said.

“That said, FY2021 was an exceptional period for the industry given the softened raw material prices. As the input prices remain at elevated levels, we expect the margin profile of industry players to remain under pressure in the next 1-2 quarters. Going forward, raw material prices shall remain vulnerable to the movement in oil prices and with consequent impact on margins,” she added.

Domestic NR prices gained support from factors like improving consumption, supply shortage issues, indirect impact of oil price movements among others. However, since domestic rubber output meets only one-third of the domestic tyre demand, the dependency on imported rubber is significant. The prices of NR, now at Rs 165-170 per kg, shall remain range-bound due to supply-related challenges, analysts said.

The prices of oil have been on the rise for the past two years, which also led to a rise in input costs of SR and carbon black among others. Tyre manufacturers are expected to hike prices by 8-12% in this fiscal, but on a staggered basis, they added.

For Apollo Tyres, while there were no huge supply chain disruptions, its third-quarter earnings were impacted by rising raw material costs. For the tyre manufacturer, the pricing environment was steady, enabling it to hike product prices in the third and fourth quarters too.

“There is softness in the demand environment from November onwards, and this coupled with continued raw material inflation, impacted our operating performance in the third quarter. On the positive side, in spite of a weak demand environment, the pricing environment remains stable. We have taken small price increases across categories in the replacement segment, but we need to take further price increases going forward to fully pass on the raw material cost inflation,” Apollo Tyres’ Chief Financial Officer Gaurav Kumar said during the company’s third quarter earnings call.

“Going forward, we will keep a close eye on the markets, and we intend to take further price actions at the opportune time to reach our targeted margin range,” Apollo Tyres’ Vice Chairman and Managing Director Neeraj Kanwar added.

SOARING INPUT COSTS

* Natural rubber prices rose 20% in FY2022
* Prices of crude derivatives rose by 50%
* NR prices expected to remain range-bound due to supply-related challenges
* Oil prices have been on the rise for the past two years
* Industry which took small hikes, intends further price actions

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