New Delhi: Apollo Tyres Ltd will have to raise prices by as much as 15-20% to sustain margins on record high rubber prices, a top official said on Thursday. “The situation looks challenging. Price increases are definitely inevitable, given the pressure we are facing on raw materials,” Sunam Sarkar, chief financial officer, told Reuters in an interview.
Indian tyremakers have been forced to buy rubber at record-high prices, as unseasonal rains tightened supply in the world’s fourth biggest producer.
The No. 2 Indian tyre maker is still deciding on a timeline to implement price raises, Sarkar said by phone.
Rubber prices make up over 40% of the cost of a tyre. The company will also have to increase imports at higher costs as domestic supply is not meeting demand, Sarkar said.
“Just out of sheer availability concern, we will have to import more rubber, because there is not enough available in the country today.”
Apollo imported 15000 tonnes of rubber in July-Sept.
India is in the midst of an auto boom. Car sales in India rose an annual 38% in October to record levels, as festive season demand combined with the rapidly expanding economy to pull buyers into showrooms.
But, leading tyre makers like MRF, JK Tyre & Indusries, Ceat Dunlop India and Falcon Tyres are also expected to go for another round of price hike soon to meet their cost for rubber.
Tyremakers have already raised prices at least thrice this year, as rubber prices jumped 46% to 203 rupees per kilogram since 1 January, 2010.
JK Tyre and Ceat have also posted lower profit for July-Sept despite the surge in auto market, struggling to sustain margins.
“We do not really have the margins to play around with. We are not like the software industry, where you have 30% or 40% margins,” Sarkar said.
Apollo’s Europe operations have better margins than the domestic operations, and the company plans to raise capacity on the continent by 20%, Sarkar said.
Earlier on Thursday, Apollo’s July-Sept profits slumped 59% to Rs Rs 53.22 crore, though sales saw a more modest paring to Rs 1, 950 crore.
Shares of the Gurgaon-based company the market values at over $855 million, fell as much as 7% to Rs 69.80 by 2:30 p.m. in a Mumbai market that was down more than 1%.