Tyre manufacturers Ceat and Apollo to hike prices as input costs soar

Tyre manufacturers Ceat and Apollo Tyres are planning to hike prices in response to the surge in raw material costs in the previous quarter (Q4FY24), driven by an increase in natural rubber prices and the depreciation of the rupee against the US dollar, officials said.

Natural rubber prices have risen significantly, while the rupee has weakened to 83.5 against the US dollar from 83 just a month ago. This trend is further compounded by the rising prices of crude derivatives such as synthetic rubber and nylon fabric, all of which are key components in tyre production.

The cost of natural rubber has surged from Rs 150 per kg to Rs 180 per kg over the past five months, while crude derivatives like synthetic rubber and Nylon Fabric have also experienced price escalations.

Crude prices, which hovered around $88 to 90 over the past three months, represent a 6 to 8 per cent increase from the previous quarter, adding further strain on manufacturers' margins.

Kumar Subbiah, chief financial officer, Ceat, expects raw material costs to go up in Q1FY25 by 4-5 per cent from the previous quarter.

“We have to mitigate this increase in raw material costs through progressive pricing. That's the way we have to manage inventory strategic buying. However, these measures will have their limitations,” he said.

Apollo Tyres has announced a 3 per cent price increase in the replacement market this quarter, aiming to offset the impact of rising raw material costs on its profitability.

The implementation of Extended Producer Responsibility (EPR) mandates has also impacted the tyre makers' profits. These regulations require companies to meet specific waste tyre recycling targets, necessitating the purchase of certificates from registered recyclers.

Apollo Tyres, Ceat and MRF have reported an impact on profits due to the provisioning required to comply with the EPR mandates.

MRF, another tyre major, has witnessed a drop in profits in the fourth quarter, compared to the previous year. This increase was due to higher sales and lower raw material costs in the previous quarters.

MRF's profits were impacted by a provision of Rs 145 crore made in the last quarter to comply with the EPR regulations.

Ceat has made provisions of Rs 107 crore to comply with the EPR mandates, with a portion attributed to the previous financial year.

The company, along with other industry players, has petitioned the government to defer the applicability of the EPR regulations and propose changes in the modalities of implementation.