The price hike during the December quarter is likely to be 1-2% and the management does not expect the hikes to impact the volumes.
05 Nov 2024 | 4736 Views | By Kiran Murali
JK Tyre & Industries Ltd is likely to further increase the price of its tyres during the October-December quarter to offset the impact of commodity price inflation seen in the previous quarters. The price hike is likely to be in 1-2% and the management does not expect the hike to ...
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JK Tyre & Industries Ltd is likely to further increase the price of its tyres during the October-December quarter to offset the impact of commodity price inflation seen in the previous quarters. The price hike is likely to be in 1-2% and the management does not expect the hike to impact the demand, the company’s senior officials said.
“Total raw material prices have increased 6-7% sequentially, and we have been able to pass on 1-2% into the market. We are expecting another price increase in the third quarter at the level of 1-2%. We are going to be accessing market dynamics and increasing the prices accordingly,” JK Tyre & Industries' Managing Director Anshuman Singhania told reporters.
The New Delhi-based tyre maker has seen a sharp contraction in its profitability during the second quarter of this financial year. In the Aug-Sept quarter, JK Tyre’s consolidated operating profit margin fell to 11.3% from 15.1% in the year-ago period, as per our calculation. This primarily reflects the impact of a sharp rise in natural rubber prices due to adverse weather conditions and supply chain disruptions.
JK Tyre has been taking price hikes in the last three quarters to offset the higher natural rubber prices but with a lag. “So far, we have been able to raise prices by only about 3.5-4%, while the raw material prices have gone up to 12-13%. The impact of which is about 8-9%. There is an under-recovery. So would like to see if we can increase prices, subject to market dynamics,” the management said.
Tyre manufacturers in India have been grappling with a significant rise in natural rubber prices, which have surged by more than 33% year-on-year in the first five months of the current fiscal year. In August, domestic natural rubber prices averaged Rs 238 per kilogram, a level not seen in over a decade. The last time prices exceeded Rs 200 per kg was in 2011.
JK Tyre believes the price of natural rubber has now peaked and is likely to start tapering down from now. This is also likely to help the company improve its margins going forward. “In October, there has been a reduction in natural rubber prices. But the commodity has remained quite volatile in the last few quarters. The impact of reduction will be known once the price stabilizes,”Chief Financial Officer Sanjeev Aggarwal said.
The tyre maker’s President Anuj Kathuria noted that price hikes are unlikely to impact the market demand. “OE demand is not going to be dependent on pricing. In the replacement market, if inherent demand is there, I do not see it as a dampener for lowering the demand,” he said.
The company expects demand to be robust in the second half of the financial year, driven by the festival season, resumption of government infrastructure spending and normalization of construction, industrial and mining activities post-heavy rainy season.