Tyre majors hike prices again, cite input costs
Tyre majors have decided to increase prices by three to five per cent, the second time in three months. E-mails to MRF, Michelin and TVS Tyres did not elicit a response but Apollo Tyres, CEAT and dealers of the other companies have confirmed the increase.
Satish Sharma, president, Asia-Pacific, Middle East and Africa for Apollo, said they'd raised prices by five per cent during the March quarter. From the end of this month, it had decided to increase the price further, by around three per cent. With this, the cumulative price hike for Apollo would be nine to 10 per cent in most segments.
A spokesperson for CEAT said: “We implemented a price hike of four to five per cent in phases since January. We are witnessing a significant increase in raw material prices and these price increases are taken to mitigate the impact on our bottom line.”
The market had slowed in the phase after demonetisation, especially in passenger segments. “We have already seen recovery in market sentiment and footfall. As the price increases have been small, we expect the same to be absorbed easily, with no impact on demand,” added the CEAT spokesperson.
At the end of January and beginning of February, tyre companies raised prices by up to five per cent.
T Loonchand Chordia, who represents a multinational tyre brand and is in this business for a little over seven decades, feels this is not the right time for a price increase, as sales are still to recover from demonetisation. When raw material prices are coming down, companies are not reducing the price; whenever it goes up, they immediately increase, he said.
Sharma said the price rise is raw materials was nearly 20 per cent. “To neutralise the impact, we need to increase the price by at least 15-18 per cent.”
Sharma is also chairman of the Automotive Tyre Manufacturers’ Association, which represents 11 large companies in the segment, accounting for a little over 90 per cent of production.
The price of rubber rose to ~160 a kg in December 2016 from ~92 a kg in February 2016, though it has softened since to ~146-147. Raw material cost is around 60 per cent of the revenue, of which rubber accounts for 55 per cent.
“Whenever the price (of raw materials) drops, the industry has passed on those benefits. In the past 24-28 months, the price dropped 1518 per cent,” said Sharma.
Nitesh Sharma of PhillipCapital said a price hike is a positive for the tyre industry and would lead to a re-rating of the sector. With a 10 per cent cumulative price increase, the margins would near-normalise from the June quarter.