Net sales falls 5.5 % during December 2015 quarter for tyres & tubes industry.
Sales of the tyres & tubes industry declined by 5.5 per cent in the December 2015 quarter. This was the fourth consecutive quarter of a fall in sales. Of the 12 companies that declared their results, six posted a fall in sales. Sales of MRF, JK Tyre & Industries and Ceat declined by three per cent, 10 per cent and two per cent, respectively. Sales of Apollo Tyres grew, albeit by a miniscule one per cent.
Although demand for tyres from the OEM segment increased, price cuts in the OEM segment and stiff competition from imports from China in the replacement segment impacted sales. Tyre companies have partially passed on the benefits of declining rubber and crude prices to vehicle manufacturers. However, as they did not undertake any major cuts in the replacement segment, the industry was able to improve its profitability.
A sharp decline in prices of rubber and crude oil helped improve the operating performance of the industry. International rubber prices declined by 22 per cent while domestic rubber prices declined by eight per cent during the December 2015 quarter. Crude oil prices also declined significantly by 43 per cent which resulted in lower prices of its derivatives. As a result the raw material expenses declined by 14 per cent during the quarter. Raw material costs as a proportion of sales too declined by 495 basis points to 53.8 per cent. The industry’s operating expenses too declined by 8.1 per cent, in line with fall in its raw material costs. As a result, its operating profit rose by 10.2 per cent and operating profit margin expanded by 234 basis points to 16.3 per cent during the quarter.
Further, the industry’s interest expense declined by 15 per cent on account of a decline in borrowings. The industry’s borrowings declined from Rs. 131.8 billion at the end of the September 2014 quarter to Rs.118.9 billion at the end of the September 2015 quarter. Most of the companies posted a fall in their interest outgo. Apollo Tyres posted a significant 55 per cent fall in its interest expense on account of 71 per cent fall in its borrowings. Resultantly, the industry’s PAT surged by 26.4 per cent during the quarter. Net profit margin expanded by 166 basis points to 6.7 per cent.