Low Rubber Prices To Benefit Tyre Manufacturing Companies

All tyres generally consist of steel, fabric, rubber and a great deal of designing and engineering goes into the making of a simple round shaped tyre which we take for granted in our day to day life. The major component of a tyre is rubber; its affiliates (synthetic rubber, natural rubber) and steel. Over 50% of the tyre is rubber, making it a significant expense for the tyre manufacturing companies and any fluctuations in it, impacts, to a greater extent, the top line and the bottom line of the manufacturers.
 
Rubber prices have been on a steady decline. This downside in rubber prices is a boon to tyre manufacturing companies such as CEAT, Goodyear, and Apollo Tyres etc. While, domestic natural rubber prices have hit a five year low at Rs 127/kg in FY14 as against Rs196/kg in FY13; the global prices have also declined. This has been majorly due to over-supply of rubber and higher demand for tyres. This will definitely help drive profitability of the tyre manufacturers. The international rubber prices have been falling from Rs 176/kg in FY14 to Rs 144/ kg in Q1FY15.
 
The result of this decrease in prices can be seen in the net profit of the companies. The net profit of the many tyre companies have increased in June’2014 quarter. Net profit for goodyear increased 12.84%, Apollo tyres 36.56%, Balkrishna Industries 12.66% and TVS Srichakra increased 146% in June’2014 quarter on a Y-o-Y basis.
 
Companies are also trying to expand their operations. For example: Apollo tyres has announced a Greenfield manufacturing plant in Eastern Europe and an investment of Rs 500 crore for expanding existing capacity of Kalamessary plant in Kerela. While Ceat’s main focus will be to expand organically. It will also try for the inorganic route to increase its presence in ne geographical areas.
 
There has been an increase in demand and in sales. The net sales of the companies also increased on a Y-O-Y basis. Net sales of Apollo tyres rose 1.40%, Balkrishna tyres 17.41% and that of TVS Srichakra 14.75% in June’2014 on a Y-o-Y basis.

So, going forward, tyre manufacturing companies are expected to do well.