Ceat Says More Tyre Price Hikes Are Coming As Costlier Rubber Bites

Ceat Ltd. has indicated that more tyre price hikes are in the offing, amid a hit to operational profitability due to costlier natural rubber.

“We definitely took a follow-up price hike in June, and another soft price hike in July,” Arnab Banerjee, chief executive officer at the Mumbai-based tyremaker, told NDTV Profit during a post-earnings chat on Friday. “There have been price hikes, and there will be more in small instalments through the second quarter.”

That is, when prices of natural rubber—a primary raw material for tyre making—have shot up to a 13-year high of Rs 209 per kg as of date, primarily due to low tapping at home and a container shortage globally. That’s taken a toll on the margins of the RPG Group company.

Operational profitability—measured as earnings before interest, tax, depreciation, and amortisation—fell 1.1% year-on-year to Rs 387 crore, against an estimated Rs 390.6 crore, according to first-quarter results declared on Thursday. The Ebitda margin fell 120 basis point to 12%, against an estimated 12.6%.

“The margin decline is primarily on account of input cost,” Banerjee said. “There has been significant inflation (in natural rubber prices) in a short span of 3-4 months.”

“When inflation happens at a gradual level, we can manage margins better. If it happens at a steep gradient, then there’s a hit in the quarter, which is what has happened by way of margin squeeze.” 

The CEO exuded confidence that the trend would reverse in 1-2 months.

“Rubber tapping, which got affected by torrential rains in the southern part of the country, is expected to normalise in the second half of the year,” he said. “And the container situation is also expected to even out, hopefully by August. So, we expect this situation to reverse sometime in August.”

Operational overtures aside, Ceat is front-loading capital expenditure to make the most of the replacement demand for tyres in the automotive space. A fourth of the annual outlay of Rs 1,000 crore was invested in the first quarter itself. 

“We have already grown our replacement demand in double digits in the first half, and this will continue to strengthen. We have good order visibility in international business. Our investments in marketing will start having an impact in the second half,” Banerjee said.

A new facility for manufacturing truck and bus radial tyres at Ceat’s Chennai plant is set to go onstream in August-September. That will raise capacity to 205 tonnes.

“Our capacity utilisation is low at 65 tonnes, but we expect this to step up over the next few quarters,” Banerjee said. “So, [I’m] very bullish on the topline, especially in the profitable segment. And hence, the capex is being front-ended.”