More Stories

Informist, Friday, Dec. 13, 2024

MUMBAI – The operating margin of tyre companies may fall 200-250 basis points in 2024-25 (Apr-Mar) due to higher raw material prices because of lower natural rubber production in both the domestic and global markets, India Ratings and Research Pvt. Ltd. said in a release Friday. On account of lower capital expenditure, the industry's net leverage is expected to remain flat at FY24 levels despite lower profitability and higher working capital requirements, India Ratings said.

Natural rubber prices, which started to climb higher in February, surged to a decadal high in August and September, India Ratings said. Though prices somewhat dipped in Oct-Nov, the average price increase during Apr-Oct was up 32% from FY24. Moreover, the domestic shortage of natural rubber led to higher imports, attracting an import duty of 25%. This, along with the shipping crisis in the Red Sea due to the Houthi attacks, would result in higher freight costs and thus an increase in the landed cost of natural rubber. However, Brent crude oil prices remained range-bound over FY23 and October 2024, providing relief to tyre makers, according to the report.

While tyre companies had hiked prices by 3-4% during Apr-Nov, their margins are seen under pressure in FY25 as the industry, excluding Balkrishna Industries Ltd., derives over 75% of its revenue from the replacement market and exports, where the pass-on of the input price hike could be more gradual, the ratings agency said. India Ratings expects tyre companies to take up another one to two rounds of price hikes in the coming quarters, given the steady demand in the margin-accretive replacement market. However, as the price hikes are more gradual, they are unlikely to cover the complete increase in natural rubber costs, India Ratings said. Around 25% of the revenue of the top five tyre makers, excluding Balkrishna Industries, comes from sales to automobile makers, where they can pass-on the volatility in raw material prices. The growth in volume in this segment, however, is seen muted, the ratings agency said.

India Ratings expects tyre makers' capital expenditure as a percentage of revenue to remain at 5-6% in FY25 and FY26. It sees tyre makers focussing on brownfield expansion, improving production efficiencies, and debottlenecking activities, and not on greenfield capacity addition. End

Reported by Arya S. Biju

Edited by Ashish Shirke

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.