Tyre Prices May Increase as Manufacturers Face Rising Raw Material Costs

Key Highlights:

• Tyre prices will keep rising as manufacturers facing high raw material costs, especially for natural rubber.
• JK Tyre raised prices in November and may increase them further to counter input costs.
• JK Tyre’s profit dropped 44% year-on-year in Q2, with revenue down due to weak aftermarket and OEM demand.
• High rubber costs affected margins, despite selective price hikes and cost controls.
• With government spending and demand for the festive season, demand is expected to improve.

Tyre consumers in India will likely experience continuous price hikes in the coming months. Tyre manufacturers, including JK Tyre and Industries, are planning to increase prices to counter the ongoing rise in raw material costs, especially for natural rubber.

JK Tyre’s Price Hike in Response to Rising Costs

JK Tyre, India’s fourth-largest tyre manufacturer, recently increased its tyre prices in November, with further hikes anticipated. The price adjustment is an attempt to recover from the sharp rise in input costs, which were particularly noticeable in the September quarter.

The increase in costs has affected JK Tyre's financial performance. The company reported a 44% drop in its consolidated net profit for the September quarter, recording Rs 140 crore in profit, significantly lower than the Bloomberg estimate of Rs 203 crore. Revenue from operations also declined by 7%, down to Rs 3,622 crore, missing the estimated Rs 3,888 crore. 

This decrease in revenue was largely due to slower demand in both aftermarket sales and original equipment manufacturing (OEM).

Impact of Raw Material Costs and Recovery Strategies

Anshuman Singhania, Managing Director and CEO of JK Tyre, explained that the company has managed to raise prices by 3.5-4%, though raw material prices have risen by 12-13%. This has resulted in a recovery gap of 8-9%, he noted. 

Although raw material costs increased by 6-7% quarter-on-quarter, JK Tyre was only able to pass on 1-2% of these costs to consumers. Singhania indicated that a further price increase of 1-2% is likely in the third quarter, with the company monitoring market conditions closely.

Challenges in Demand and Raw Material Supply

The tyre industry has been struggling with higher natural rubber prices due to supply chain disruptions and adverse weather conditions. Although JK Tyre managed to cushion some of these impacts through strategic price hikes, cost-control measures, and inventory management, the challenges remain substantial.

Demand from vehicle manufacturers has also been low, with a noticeable decrease in the truck, bus, and passenger vehicle segments. The commercial vehicle sector experienced slower demand due to an extended monsoon and reduced infrastructure spending linked to the recent general elections. However, JK Tyre saw a boost in exports, which helped mitigate the domestic demand slump.

JK Tyre’s Capital Expenditure Plans

Despite these challenges, JK Tyre is moving forward with its Rs 1,400 crore capital expenditure plan for the year. The company anticipates a demand increase in the replacement sector, driven by higher utilisation rates and seasonal factors linked to a healthy monsoon season.

The company also sees potential growth from an expected rise in infrastructure spending by the government, the festive season demand, and recovery in sectors like cement. Additionally, natural rubber prices saw a correction in October, which may ease some cost pressures.

Also Read: JK Tyre Wins Mahatma Award 2024 for CSR Excellence

CMV360 Says

JK Tyre’s efforts to balance rising costs with controlled price increases reflect a careful approach amid a challenging market. While tyre consumers may face higher prices, the company’s strategic actions in managing costs, enhancing exports, and anticipating future demand indicate a thoughtful plan to address both immediate and long-term challenges in the tyre industry.