Mumbai: MRF Ltd, India’s top tyre maker, may face pressure on its operating profit margins despite expectations of robust sales because of a surge in commodity prices, a senior official at the firm told Reuters.
Prices of natural rubber, a key commodity for tyre makers, had hit a record high of Rs16,950 earlier in April. They are currently at Rs16,800.
“The Ebitda margins have taken a drop, though our topline has grown. There is a significant cost push, to put it mildly,” Koshy Varghese, executive vice president, marketing said on Thursday.
Margins “can go down, depending on fluctuations. In the current situation, you cannot pass on that type of an increase into the market,” he added.
India’s top four tyremakers have raised prices in the Jan-March quarter to counter rubber prices, and are considering more increases even as a boom in the auto industry keeps sales buoyant.
MRF increased tyre prices in the quarter to protect profitability, Varghese said, but did not disclose the quantum.
“We have raised tyre prices, without an increase Ebitda would have been eroded, a couple of increases have taken place. That is why we are where we are”.
“How the market plays out in the next three months has to be watched very closely before we decide on a price increase”.
He however said sales would continue to grow on a buoyant domestic automobile market.
Sales of vehicles -- including cars, utility vehicles, trucks, buses, motorcycles and scooters -- jumped an annual 26.4% in 2009-10 to 12.3 million units, and are expected to reach a record high for the second year in a row in 2010-11.
MRF’s quarterly sales rose to Rs1,770 crore from Rs1,404 crore, while net profit increased to Rs958.2 million from Rs686.9 million, it said earlier on Thursday.
The firm is spending Rs700-800 crore in the fiscal year ended Sept 2009 to enhance capacities, particularly for passenger and truck radial tyres and will spend a similar amount in the next fiscal as well, Varghese said.
MRF, which has six operational plants at present, is setting up a seventh plant at Trichy in Tamil Nadu to make radial tyres. This plant is expected to become fully operational in two years’ time.
Shares of MRF closed down 0.01% at rs7,054.45 in a firm Mumbai market.