New Delhi: Apollo Tyres Ltd on Wednesday reported a 27% drop in quarterly profit and warned of challenging FY12 as raw material costs continue to spiral.
Apollo’s Jan-March consolidated profit fell to Rs190 crore on rising rubber costs, though sales grew 27% to Rs2,730 crore. The standalone profit fell 43%.
“This year (FY12) will continue to remain challenging as rubber prices are not coming down. We keep correcting tyre prices but that comes with a lag,” managing director Neeraj Kanwar told Reuters over the telephone.
Rising raw material prices and inability to pass it on to consumers fully squeezed Apollo’s operating margin to 12.4% in the fourth quarter from 14.5% a year ago.
The average raw material prices were up 40% in FY11, while Apollo was able to raise tyre prices by only 17%, lagging a raging rubber rally. The company most-recently raised prices by 5% in mid-April.
Rubber, the key raw material for tyre, may further rise 25-30% in FY12 pressurizing margins, said Kanwar.
Apollo, however, expects revenue to rise 15-20% on good demand in India and South Africa and plans to increase tyre prices to offset rising rubber costs as and when the ‘market is ready to absorb the price hike’, Kanwar said.
The car sales in India, which saw a record 30% growth in 2010-11 driven by demand from a growing middle class in Asia’s third-largest economy, easier access to loans and a wider choice of models, has now started moderating.
Car sales grew by 13.2% in April as higher interest rates, fuel prices and vehicle costs crimped demand and local industry body expects auto sales growth to slacken to 12-15% this fiscal year.
Shares in Apollo Tyres, valued at about $800 million, ended 1.8% down on Wednesday in a Mumbai stock market that closed 0.43% up.