Though none of the companies have firmed up plans for a price hike, they are unanimous that there is a strong case for it owing to a steady cost push, with early signs of rebounding demand for original equipment from commercial vehicles manufacturers leading to further growth in demand.
“There is a strong case for 2%-3% price increase in January-March 2008 quarter. However, any such decision will be taken depending on the affordability of the consumers,” Paras Chowhury, managing director of Ceat Ltd., told Business Line.
A.S. Mehta, director of marketing with JK Tyre, upholds the possibility of price increase. Both agree that the current boom in the tyre market will continue for a few more years.
Tyre prices remained relatively stable in 2007 until November, when all the major players, except MRF, increased prices by 1%-2% on average. Margins, however, were not affected as manufacturers reaped the benefit of price increases made in end-2006. Decreased volatility in natural rubber prices has also allowed the companies to hedge costs or plan production more effectively.
Natural rubber prices hovered between Rs 82 and Rs 95 per kg in 2007 compared to Rs 78 and Rs 116 in 2006. While average cost of rubber was marginally lower compared to last year, the cost of other raw materials such as synthetic rubber, rubber chemicals, chords and so on increased substantially due to an upswing in crude prices.
Interestingly, despite a net reduction in OE consumption, the replacement market continued to be bullish in 2007. This, coupled with handsome net exchange gain, has left the bottomline unaffected in 2007.
According to both Chowdhury and Mehta, apart from strong domestic replacement demand, increasing exports of Indian automobiles have created a market for tyre sector overseas. “Ceat for example has exported tyres worth over Rs 100 crore in 2007,” Chowdhury adds.
According to Ceat, 2007 witnessed over 20% volume growth in replacement sales of two-wheeler tyres, followed by 8% in truck/bus tyres, 6%-7% in light trucks and 15%-16% in passenger car. (Tire Review/Akron)
