Mumbai: Ceat Ltd, India’s fourth largest tyre maker, slipped into a net loss in the fiscal first quarter from a year ago profit hurt by rising raw material costs and low utilization levels.
The company posted a net loss of Rs 41.90 crore for the quarter ended June, compared with a profit of Rs 13.87 crore a year ago.
Net sales however, rose to Rs 1,072 crore from Rs 772 crore.
“Escalating raw material prices, especially natural rubber and lower capacity utilization in the first quarter after commencement of production in the new plant at Halol have impacted the profitability for the quarter,” Ceat said in a statement.
Ceat’s consumption cost of raw materials jumped to Rs 850 crore from Rs 550 crore.
Natural rubber makes up more than 40% of the cost of a tyre and prices were at Rs 210 a kg as of end June this year compared with Rs 179.75 a year earlier.
Tyre makers are struggling with rising rubber costs, with Ceat’s larger rivals MRF Ltd and JK Tyre & Industries reporting sharp fall in net profits as rising costs ate into profitability.
“Raw material prices are rising and there is little chance of a demand pick up because the auto sector is going through a stiff resistance as bank rates are rising,” said Kishor Ostwal, chairman at Mumbai based CNI Research.
“Car makers are offering steep discounts, but in the third quarter we may see some pick up because of the festive season,” Ostwal said.
Indian car sales, which grew at a breakneck 30% in the fiscal year that ended in April, are now expected to slow to 10 to 12% in FY12, down from an earlier forecast of 16 to 18%, industry group the Society of Indian Automobile Manufacturers said.
Car sales in Asia’s third largest economy, which in June saw their slowest pace of growth since March 2009, are driven by a burgeoning middle class that relies on bank loans for purchases.
But India’s central bank raised interest rates by a higher-than-expected 50 basis points, its 11th increase since March 2010 pushing up financing costs.
Ceat shares ended down 1.02% at 97.35 rupees in a weak Mumbai market.