Amid price hike reports, shares of tyre companies rally for second day

According to media reports, domestic tyre companies have undertaken a price hike in response to a rise in key raw material prices (primarily natural rubber).

Shares of tyre companies rallied for the second consecutive day on Tuesday, with most of the biggest players registering cumulative gains of up to 6 per cent over the last two days.

Apollo Tyres clocked 6 per cent gains followed by JK Tyre at 4.7 per cent and Ceat at 3.8 per cent. MRF made cumulative gains of 2.7 per cent.

MRF has reportedly increased rates of its truck tyres by 2 per cent, while prices of passenger car and radial tyres were increased by 3-7 per cent. There was no hike in the prices of two-wheelers as of yet, according to a CNBC TV18 report.

Last month, media reports stated that domestic tyre companies undertook a price hike of 1-2.5 per cent with effect from July 1, in response to rise in key raw material prices (primarily natural rubber).

The price rise comes as a relief for the domestic tyre industry amidst unprecedented rise in natural rubber prices at around Rs 200 per kg (11-year-high), ICICI Securities had said in a note.

Most of the tyre companies had guided for 4-5 per cent rise in raw material costs for Q1FY25 versus Q4FY24, wherein natural rubber was quoting at Rs 180 per kg. The firms indicated that they will partially pass on the hike to consumers through 1-2 per cent price rise.

This move shall limit margin fall of the domestic tyre companies, with most of them expecting to realise and sustain mid-teens operating profit margin profile. This price hike, however, does not fully cover the recent rise in raw material costs, ICICI Securities said in an earlier note.

With rising international prices and the end of the peak production season in India, coupled with the export incentive of Rs 5 per kg, natural rubber prices surged to Rs 185 per kg in March 24 from Rs 150 per kg in Q3FY24.

Additionally, port restrictions on natural rubber imports continued in India, with imports only allowed at Nhava Sheva and Chennai ports. The inverted duty structure on natural rubber at 25 per cent or Rs 30 per kg, whichever is lower, persisted throughout the year, leading to a 23 per cent rise in local natural rubber prices during FY24, Apollo Tyres said

The Asian Development Bank (ADB) on Thursday upgraded India’s gross domestic product (GDP) growth forecast for 2024-25 (FY25) to 7 per cent from 6.7 per cent earlier, citing better prospects of robust public and private investment and strong services sector growth.  

However, it said unanticipated global shocks, such as supply line disruptions to crude oil markets and weather shocks that impact agriculture output, are key risks to India’s economic outlook.