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Sudden Increase in Raw Material Cost Impacting Tire Market in India

Posted on: Sep-2017 | By: MarketNReports | Automobile

The rise of over 30% in cost of raw material and unfavorable market conditions has sternly affected the revenues of the key players in the domestic market. JK Tyres is one of those players who witnessed a drop in the profit margins and overall revenues in the Q1 of the fiscal.

As per the details provided by the company in a report, in the first quarter of the 2017-18 fiscal, the total revenue generated was Rs 1,942 Crore with a marginal drop of 0.76% if contrasted to first quarter of 2016-17, which is approximately Rs 1,957 Crore. The net loss including tax went up to Rs 117.92 Crore in the first quarter of 2018 fiscal year.

Chairman and MD of JK Tyre, Dr. Raghupati Singhania, while talking about the results stated that we are going through a challenging period owing to the rise in the raw material cost by 30%. This sudden price hike of raw materials devoid of the appropriate boost in selling prices dented the margins significantly. On the other hand, unrestricted imports of cheap China made radial tires have severely impacted both the price and the volume. In addition, manufacturers of Commercial vehicles have curbed the production volume in order to destock inventories and make a smooth transition to emission norms. JK Tyre being the dominant in the market, especially in bus/truck radial segment, for both replacement and OEM segments has to tolerate the burden.

“Thus, with smoothening in the sector post-GST implementation, it is expected to bring the situation under control in coming period. Also, the anticipated obligation of anti-dumping duties on Chinese imports would be a salutation stride and help in the growth of commercial tire market,” he added.

The domestic tire market is expected to maintain its focus in expanding its network as the company is out of total sales and 60% is attributed to the replacement market. The company’s recent acquisition of Cavendish is also gaining a great traction in the segment, on the grounds of economic instability in recent months.

Cavendish India Limited was acquired by JK Tyres from Birla Tyres in 2016, resulting in three plants’ addition in its portfolio, which marks the total of 12 manufacturing facilities around the globe now.