15% Surge in rubber prices may hit tyre companies.
Now, it is a well-known fact in the industry that around 35% to 40% of the raw material cost incurred by a tyre manufacturer goes towards the purchase of Natural Rubber. The same Natural Rubber that has been witnessing a price surge as high as 15% since the start of year 2016. According to some of the market analysts, these kind of price rises can directly affect the financials of a tyre company in days to come. To give you an example; the shares of some of the major players in Indian such as Apollo Tyres & MRF have seen a decline of around 3% & 4% since the start of this financial year. Saying that though, there are also tyre companies such as JK Industries, TVS Srichakra, & Balkrishna Industries who have seen their share value increase by 3.21%, 9.42% & 1.98% in that same period.
“According to thomsonrubbers.com, RSS 3 and RSS 4 type of rubber sheets are the preferred raw material for radial tyres. RSS 4 prices in Cochin and Kottayam jumped 17.39 per cent to Rs 13,500 per 100 kg on April 20 from Rs 11,500 per 100 kg on March 31, 2016. Rubber prices plunged by 8 per cent in the previous financial year ended March 2016.
During 2015-16, shares of TVS Srichakra surged the most — 51 per cent, followed by Krypton Industries and Apollo Tyres which gained 5.55 per cent and 0.25 per cent. All other tyre stocks ended the previous fiscal in red with Tirupati Tyres and JK Tyre falling 43 per cent and 28 per cent respectively.”
Source : www. thomsonrubbers.com
Mahantesh Sabarad, deputy VP, research and Deep Shah, analyst, SBICAP Securities, said, “As natural rubber prices account for large chunk of raw material costs coupled with rise in crude derivative products on the back of increase in crude oil prices, we expect gross margins of leading tyre manufacturers to contract from Q4F16 by around 100-150bps. Any further increase in rubber prices from here on will directly impact operating profitability of manufacturers given that they may find it difficult to pass on the increase to finished product prices given intense competition. Hence, we anticipate moderate return from major tyre companies going ahead.”
For the quarter ended December 2015, TVS Srichakra reported net profit of Rs 48.14 crore, up 81.93 per cent, against Rs 26.46 crore in the same quarter last year. Apollo Tyres, Ceat and MRF reported 51.17 percent, 28.66 per cent and 19.98 per cent year-on-year growth in net profit figures to Rs 278.52 crore, Rs 113.23 crore and Rs 388.15 crore, respectively.