Declining raw material prices help to boost tyre makers' profitability

Declining raw material prices have helped tyre makers improve profitability during the third quarter of financial year 2023-24 (FY24).

Manufacturers like CEAT, JK Tyre and Apollo Tyres posted significant increase in net profits, which was primarily attributed to decline in raw material costs. 

Among raw materials used by the tyre industry, Brent crude oil prices saw a 6 per cent drop year-on-year (Y-o-Y). Sequentially, however, Brent crude was down 3.5 per cent. Rubber prices, however, were up 3.2 per cent Y-o-Y. 

This quarter, CEAT’s net profit surged more than fivefold due to a decline in raw material costs and this led to a boost in volumes and margins. 

Speaking on the impact of raw material prices, Kumar Subbiah, chief financial officer (CFO) at CEAT said, “The drop in raw material costs compared to the previous year is the key driver behind our significant profit after tax (PAT) surge by approximately 412 per cent during the third quarter. During the current year, CEAT witnessed a volume growth of 8.8 per cent, and raw material costs fell, resulting in improved gross margins and, consequently, a surge in profit. In the previous year's first three quarters, we experienced margin pressure due to a steep increase in raw material prices, leading to lower margins in Q3FY24.”

On the other hand, JK Tyre revealed that its net profit surged threefold due to a reduction in raw material procurement prices year-on-year (Y-o-Y). This helped it to sustain margins through focus on better product mix and premiumisation. 

Anuj Kathuria, president (India), JK Tyre & Industries, said,

“On a Y-o-Y basis, there's been a decline in raw material procurement prices, which has been very beneficial in maintaining the earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 15.2 per cent for this quarter. Along with this, we've sustained margins through better product mix and premiumisation. However, sequentially, there's been a 2 per cent increase in raw material procurement prices. Despite this, we have been able to sustain our momentum."

Apollo Tyres posted a 78.14 per cent increase in Y-o-Y PAT at Rs 496.62 crore during Q3 due to reduction in the cost of materials consumed.

Cost of materials consumed declined by 36.2 per cent in the third quarter. 

The company posted a 2.68 per cent increase in its consolidated revenue from operations, which came in at Rs 6,595.36 crore.

On a sequential basis, the company saw a 5.05 per cent increase in revenue along with PAT, which rose by 4.71 per cent.