In the April–June quarter, MRF had a 94 per cent jump in net profit to Rs 447 crore, Apollo Tyres of 27.5 per cent to Rs 291 crore and JK Tyre of 124 per cent to Rs 124 crore. Revenue growth, however, was flat.
Almost all automobile companies showed positive sales growth for the first five months of FY16 (April to August 2015). It is expected to remain so and this is likely to reflect on tyre demand from both the replacement and original equipment manufacturer (OEM) segments.
“Replacement demand remained robust in the first quarter and the trend is likely to continue. Demand from OEMs is also recovering. So, the profit margin of tyre manufacturers is expected to remain on a growth path in the next few quarters,” said Mayur Milak, research analyst, Anand Rathi.
The average price of rubber in the Kochi spot market fell 13 per cent to Rs 12,617 a quintal in the quarter, against Rs 14,464 a quintal in the corresponding quarter last year. The average price of Brent crude oil fell 44 per cent to $62 a barrel, against $110 a barrel in the same quarter last year. The trend of lower input price has continued in July and August.
The prices of raw materials continued their fall during July-August 2015 as well. While average Brent crude price nose-dived 54.13 per cent to $46.78 a barrel on a year-on-year basis, rubber averaged 12.58 per cent lower to Rs 11,606.30 a quintal in the period under consideration.
Anant Goenka, managing director of Ceat, said: “Domestic demand grew positively, driven by replacement demand, which was 60 per cent of our overall sales. The fact that raw material prices and crude have been down has also helped. Passenger and commercial vehicle demand for replacement tyres has remained upbeat."
Revenue, though, is less upbeat. “The growth in manufacturers’ top line has remained muted for the past eight or nine quarters, an area of concern. Demand growth is not happening the way it should have. Thus, top line growth is not encouraging. But, the bottom line has improved on soft commodity prices,” said Rajiv Budhraja, secretary-general, Automotive Tyre Manufacturers’ Association.
Another problem for manufacturers is cheaper import from China. Raghupati Singhania, chairman, J K Tyre, said: “The menace of dumping of Chinese tyres is unabated and urgent steps are required to impose an anti-dumping duty, to ensure a level playing field in the marketplace."
Rising import of truck and bus radial tyres (TBR) from China has been a major cause of concern for Indian manufacturers. Import of TBR tyres shot up by 60 per cent to 550,000 units in 2014-15 compared to 190,000 units in the previous year.
China accounts for 70 per cent of India’s overall tyre import by volume.
Indian tyre manufacturers have invested Rs 20,000 crore over the past four years to create fresh capacity to meet future demand, but most fresh capacity remained unutilised due to cheap import from China.