Tyre margins skid on costly rubber, firms mull more price hikes

India's tyre manufacturers are facing mounting pressure on their profit margins due to a sharp increase in the cost of raw materials, with natural and synthetic rubber prices soaring as a result of erratic weather and the ongoing conflict in West Asia. Companies such as Ceat and JK Tyres have reported their margins eroding, with JK Tyres' earnings before interest, tax, depreciation and amortization (Ebitda) falling 36% year-on-year in the September quarter.

Despite progressive price increases over the past six to seven months, these hikes have not fully compensated for the surge in raw material costs. Both Ceat and JK Tyres have indicated plans for further price hikes to offset the higher input costs, which continue to weigh on their margins. JK Tyres expects another 4-5% increase in Q3 and has already raised its net sales realization by 11-12% in the last six months.

The strong demand from automakers provides some room for these price hikes, according to industry experts. The impact of tyre price increases is expected to first be felt in the replacement market, where users replace their old tyres, with the festive season purchases unlikely to see higher vehicle prices.