As input costs increase, tyre companies mull price hikes

Surging natural rubber prices are likely to push up costs for Indian tyre companies, forcing them to raise their prices in the coming days.     

Natural rubber prices have risen about 50 per cent to Rs 10,500/100 kg in the last six months, according to Rubber Board data. Rubber accounts for about half of the total raw material cost of tyre companies.     

"We will hike tyre prices by 2-4 per cent at any time (this week) or by next week owing to rise in input costs. These are likely to increase further in the near future," JK Tyre & Industries, Director (Marketing), A S Mehta, told reporters here today.     

With prices of natural and synthetic rubber increasing substantially in the last 4-5 months, the company is compelled to increase its tyre prices, Mehta said.     

JK Tyre & Industries is one of the leading automotive tyre manufacturers in India and the 17th largest in the world. The company has four tyre plants located in Rajasthan, Madhya Pradesh and Karnataka.     

The company's net profit surged 101.3 per cent to Rs 40.75 crore on a 5.7 per cent rise in net sales to Rs 897.67 crore in the quarter ended June 2009 over the quarter ended June 2008.     

Some tyre producers such as Ceat Limited have already increased prices of two-and-three-wheeler tyres by 2 per cent.

"There is a possibility of a price increase by 2-4 per cent in the tyres of heavy commercial vehicles," Ceat's Managing Director, Paras Chowdhary, said.     

While the company is yet to firm up the timeline for the price hike, it could be over the next 2-3-weeks, he said.     

Ceat's operating profit margins for FY 09 stood at 3 per cent, improving to 16.3 per cent in the June quarter. Net profits margins are at 8.9 per cent.     

The last price increase took place in October 2008 and in February this year the producers reduced the prices of heavy commercial vehicle tyres by about 9 per cent following a cut in excise duty from 14 per cent to 8 per cent, an industry source said.     

Another leading tyre manufacturer, Apollo Tyres, also said that prices of natural rubber and other raw materials such as crude derivatives "continue to remain at a high."     

"While crude itself has corrected somewhat from the peak of $147 per barrel, derivative prices have not come down to that extent," Apollo Tyres' Managing Director, Neeraj Kanwar, said.     

While the company so far had been absorbing the higher costs, now it was assessing the situation on a day-to-day basis, he said.     

"If and when we decide to undertake a price hike, it will be done gradually," Kanwar said.

"There is a tremendous pressure on tyre companies and they have been facing trouble as natural rubber and other raw material prices have gone up substantially in the last 3-4 months," Automotive Tyre Manufacturers Association (ATMA), Director General, Rajiv Budhraja, said adding "the market would revive by March 2009."     

Imports are also not a viable option at this point of time as the difference between local prices and imported prices have narrowed down to Rs 2-3 per kg from Rs 18-20 earlier.     

In the April-August period, rubber production in India fell 13 per cent as compared to the same period last year to 2,73,575-tonnes.     

Automotive tyre exports fell 22 per cent in July to 4,46,418 units as against 5,71,479 units registered in the same period last year. In fact, there has been a steady drop in exports in the last few months.     

In the first quarter of 2009-10, exports were down 22 per cent to 1,558,393 units (2,042,428 units), according to the Automotive Tyre Manufacturers Association.