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Business News/ News / India/  Rise in input cost, second covid wave may hit tyre firms' margin
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Rise in input cost, second covid wave may hit tyre firms' margin

Raw material cost for the domestic tyre industry increased by 49.6% on a sequential basis in Q4FY21. The industry's average Ebitda margin in the quarter stood at 16.3%, which was down from 19.86% in Q3FY21 but better than 14.9% in Q4FY20

The tyre industry has not taken price hike post Q4FY21 with the surge in second wave of covid 19.Premium
The tyre industry has not taken price hike post Q4FY21 with the surge in second wave of covid 19.

New Delhi: Operating margin of tyre manufacturers may contract in the next two quarters due to sustained increase in prices of rubber and limited capacity of the companies to pass on the entire increase in cost to customers due to the economic slowdown triggered by the covid-19 pandemic, said credit ratings firm Care Ratings.

Raw material cost for the domestic tyre industry increased by 49.6% on a sequential basis in Q4FY21. The industry's average Ebitda margin in the quarter stood at 16.3%, which was down from 19.86% in Q3FY21 but better than 14.9% in Q4FY20.

“CARE Ratings believes with current global supply shortage against demand, rubber prices are further expected to increase by 10-12% in FY22. Owing to the inability of tyre companies to fully pass on price hike due to competitive pressures and weakening of demand in Q1FY22, CARE Ratings anticipates operating margin deterioration for the tyre industry during Q1FY22 with some spill over in Q2FY22 as well," analysts at the ratings firm noted.

The tyre industry has not taken price hike post Q4FY21 with the surge in second wave of covid 19, Care added. The rating agency said even if the industry were to take another 5-7% price hike in FY22, gross margin would still fall sequentially, and the pressure of interest cost associated with the ongoing capacity enhancement plans would weigh on net margins.

With the swift rebound in economic activity and vehicle production in the August-March period in FY21, tyre manufacturers reported recovery in their financials in the third and the fourth quarter. The second wave of covid infections may derail recovery as economic activity has been disrupted by lockdown in most states.

“The tyre Industry has not taken price hike post Q4FY21 with surge in second wave of Covid 19. CARE Ratings expects that even if the industry were to take another 5-7% price hike in FY22, gross margin would still fall sequentially, and the pressure of interest cost associated with the ongoing capacity enhancement plans would weigh on net margins," the ratingsagency further noted.

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Published: 19 Jun 2021, 11:59 AM IST
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