Tyre firms, dealers trade charges

Domestic tyre manufacturers and dealers are at loggerheads over the hike in tyre prices. Dealers alleged that manufacturers were using the raw material cost increase as an excuse to book huge profits.

The All-India Tyre Dealers' Federation (AITDF), the apex body of dealers, said the price hike did not match the prices of raw materials such as natural rubber and others.

FEUD IS ON

When rubber prices came down, tyre-makers did not pass the benefit to consumers, allege the dealers' body

When rubber prices were down, cost of other raw materials went up, counter tyre companies

Rubber constitutes 50 per cent of the cost of a tyre. Unlike in the West, Indian companies use more natural rubber than synthetics. Forty-three per cent of a tyre is made of natural rubber and 3 per cent synthetic rubber, according to the Automotive Tyre Manufacturers' Association (ATMA).

"During February-June 2006, when natural rubber prices touched a five-year high of Rs 111 a kg, tyre prices were increased by 17-28 per cent by leading tyre makers," said a AITDF release.

"However, rubber prices came down in the following months and reached Rs 92 a kg, which was the average of last year," said a senior office-bearer of AITDF. He alleged that manufacturers did not pass this benefit to consumers.

On the other hand, tyre makers said while rubber prices stabilised, the prices of other raw materials such crude oil and carbon black went up. Hence, they were not in a position to reduce the price, said an executive of a leading tyre company.

On the same note, K J Rao, CFO, Ceat Tyres, said, "Although prices of natural rubber steadied, the prices crude oil and carbon black went up. So, the hike was justifiable."

The dealers' body further said Apollo, Ceat, MRF and JK Tyres were already in the process of announcing another price hike.

This will counter the possible excise duty cut on tyres expected in the Union Budget. The prices are expected to see a fall after the excise duty on them is brought down to 14 per cent from 16 per cent.

A AITDF letter said: "The domestic tyre majors effected several price hikes in 2006 in all categories. The increase was based on the price of natural rubber at Rs 111 a kg. Tyre makers benefited from the reduction in natural rubber prices for the entire year of 2007, but failed to reduce prices accordingly."

According to the last quarter results of major tyre makers, the percentage cost of raw materials during the last quarter as that of total sales has shown a decline for the tyre-producing companies.

India's fourth largest tyre-making company JK Tyres, for example, had a raw material consumption of 68.1 per cent of net sales as compared with 77.7 per cent in the corresponding quarter of the previous year.

"This helped all the leading tyre companies post robust third quarter results," AITDF has alleged.

Apollo Tyres reported a net profit growth of 77 per cent at Rs 62 crore as against Rs 35 crore. MRF Tyres' profit grew 76 per cent at Rs 51 crore from Rs 29 crore, JK Tyres posted 162 per cent growth at Rs 21 crore as compared with Rs 8 crore and Ceat reported 73 per cent growth at Rs 19 crore from Rs 11 crore, the dealers' body further noted. (All quarterly net profits of the current year are compared with the comparable quarter of the previous year).