Moderate topline growth to mar softening rubber price benefits

Moderate topline growth to mar softening rubber price benefits

Moderate topline growth to mar softening rubber price benefits

The benefit of 25-30 per cent decline in natural rubber prices in 2012, a key raw material for the tyre industry, will be negated by moderate sales growth across two market segments - original equipment manufacturer (OEM) and replacement, say industry experts.

The not-so-encouraging sale of passenger cars in the first quarter of fiscal 2013, coupled with the general economic slowdown will dent the two segments that together accounted for about 86 per cent of the total sales during 2011-12 for the Rs 41,000 crore industry, up from Rs 34,000 crore in 2010-11.  Exports constituted Rs 4,208 crore in 2011-12, up from Rs 3,700 crore the previous year.

“The OEM segment has not recovered and replacement segment has also not looked up as expected; we therefore see a moderate growth of about 6-8 per cent this fiscal,” Automative Tyre Manufacturers' Association (ATMA) Director General Rajiv Budhraja said.

He added that the benefit of softening rubber prices could be impacted if China, world's largest consumer of rubber (about 30 per cent), decides to uplift the automobile sector there. He also mentioned that the import of passenger car tyres affects Indian tyre manufacturers.

Natural rubber prices that peaked at Rs 240 per kg in 2011 have been on a decline to about Rs 170-180 per kg in 2012, significantly reducing the cost of production for most tyre companies in the first quarter of this fiscal.

Mumbai-based CEAT reported EBITDA of 9.1 per cent on a turnover of Rs 1,181 crore for the quarter ended June 30, 2012 as compared to -0.40 per cent (EBITDA) on a turnover of Rs 1,072.40 crore in the same period last year. The CEAT CFO Manish Dugar said that benefits of declining rubber prices will reflect better in the coming quarters.

“We expect to exhaust the old inventory by mid-September," but added, “we need to factor in slowdown and also rupee depreciation that impacts prices of other imported raw materials.”

He said that growth will be “good” this year but declined to give any specific forward-looking statements.Notwithstanding the expecting moderation in growth, many tyre makers have ramped up capacities in the recent past.  JK Tyres, which reported a turnover of Rs 1,434 crore this quarter(Q1),  commenced production in its Chennai plant this February.

The Rs 970-crore facility has an annual capacity of 25 lakh passenger car radials and 4 lakh truck and bus radials.  Budhraja said that Apollo and MRF have ramped up capacities recently.

An analyst at Angel Broking pegs the bottomline for the industry to stay at around eight per cent. “The operating margins for the industry would stay at eight to nine per cent,” says Yaresh Kothari.