For a year till February 1999, Indian carbon black producers will be in a relatively better position. The government has imposed a 10 per cent safeguard duty on the imports of carbon black into the country.
At the same time, tyre producers will be unhappy at the imposition of the duty as their costs increase, though the rate is lower than the 16 per cent which was proposed by the Directorate-General (Safeguards) of the commerce ministry earlier in July 1998. Falling prices of key raw materials --carbon black and natural rubber-- have been the main reason for an improvement in performance of tyre companies.
The government recently increased the benchmark price on the RSS-4 variety of rubber that is used in tyres to about Rs 34 a kg.
Despite this, the oversupply in the market has resulted in the tags hovering around Rs 30 a quintal, saving tyre companies from a sharp hike in costs.
Rubber accounts for a bulk of their raw material costs -- nearly 41 per cent of tyre major Ceat's raw material costs. On the other hand, carbon black accounts for about 11 per cent of raw material costs.
A hike in input costs, which cannot be passed on to the end-user due to the sluggish market, is likely to affect performance of tyre companies in 1998-99.
To the extent that tyre companies hold advance licenses against their exports, they will be unaffected by the duty hike. But tyre companies sell a bulk of their production in the domestic market, and have been experiencing slower growth in the export market.
Domestic carbon-black producers are bound to hike prices to correspond to the increased in the landed cost of imports. Coupled with the four per cent additional duty imposed in the Budget and the depreciation of the rupee in the recent past, imports have become more expensive.
This is likely to bring some relief to players like Cabot India, and Philips Carbon Black who have been suffering from the steep fall in international carbon black prices and the consequent dumping on Indian shores. In the six month period ended March 1998, Cabot's sales fell by 15 per cent to Rs 58 crore and its net profit crashed by 47 per cent to Rs 5.23 crore.
In the same period, Philips' sales fell marginally by 4.63 per cent to Rs 118 crore but its net profit fell by 87 per cent to Rs 1 crore. Gujarat Carbon, a relatively smaller player, suffered a worse fate, with sales falling 51 per cent to Rs 3.8 crore and it incurred a net loss of Rs 2.4 crore.
Tudor India
The Tudor India share price has been rising, though the company has been making losses and has accumulated losses of about Rs 19 crore as of June 1998. The optimism stems from reports that appeared about the parent company increasing its stake in the company to 74 per cent from 51 per cent.
The FIPB recently granted permission to CMP Batteries of the US to hike its stake in a deal which involves a foreign direct investment inflow of Rs 3.8 crore.
Further, Tudor also has plans to expand its capital base to Rs 40 crore from the present level of Rs 16 crore.
This will boost its net worth which has been eroded due to the heavy losses incurred. The losses were largely a result of the gestation period involved in attaining sustainable volumes in the battery market. The automobile market segment is fiercely competitive and its relatively small size made penetration a difficult task. The company's performance has shown some improvement, as shown by the results for the six month period ended June 1998.
Sales increased to Rs 15.83 crore from Rs 7.08 crore while it achieved a marginal net profit of Rs 0.42 crore from a loss of Rs 1.51 crore in the previous corresponding period. In 1996-97, it had launched the 'Prestolite' range of automotive batteries which has attained volume growth, contributing to higher growth.
The company lags is relatively smaller in size, which is hurting at a time when growth in the automotive segment is slowing down, especially in direct sales. Companies like Exide Industries have expanded at a rapid pace. Exide which had a capacity of 46.98 lakh batteries in 1997 added 4 lakh numbers of motorcycle batteries and an additional assembly line of 7.5 lakh batteries last year. Its capacity has been further strengthened after it bought over Standard Batteries, adding 'Standard Furukawa' to its product range.
Compared with this, Tudor has a capacity of about 4 lakh batteries which is being increased to 8 lakh batteries. The increase in the equity base is to part fund this expansion.
The expansion will also see its product range widen to include two-wheeler and valve regulated lead acid batteries. Thus, Tudor has an uphill task in front of it and the share price rise will be sustained only if its performance shows a quantum improvement.
