Rubber prices have eased 40% from the February 2011 peak of $341 a tonne and are hovering around their year-ago levels. Rubber is the key ingredient used in making tyres. Firm rubber prices have been hurting the margins of tyre companies. The cost of raw material has risen and now constitutes over 75% of the total revenues of tyre companies. This makes the tyre industry extremely raw material sensitive.
As latex prices started to cool in February 2011, the stock price of Apollo Tyres, which was at a 52-week low began to rise. It gained 75% from February to July and then started to decline. This was mainly because of the fall in the rupee which hurt the company’s performance. Since it imports about 50% of its raw materials, the rupee depreciation increased the company’s cost of productionwhich was visible.
While the growth in operating profit and net sales has remained strong, the operating margins remain under pressure. The raw material cost as a proportion of net sales also has risen to 67%. To secure a captive source of natural rubber, the company has entered the area of rubber plantations, albeit in a small way.
The drop in rubber prices boosted the September quarter performance of CEAT. The raw material cost as a proportion to net sales dropped to 75% from 80.6% in the June quarter. This led to an improvement in operating margins from -1.2% in the June quarter to 5.5% in the September quarter.
The operating profit also logged a jump of 39% y-oy in the September quarter against a 30% drop in the preceding quarter. The markets also picked up this signal and the company's stock has risen since November.
After its performance peaked in December 2010, Goodyear India ‘s performance has been declining. In September 2011 there was marginal improvement as the drop in operating profit and net profit was not as high as in the preceding quarter. The proportion of raw material cost to net sales also declined by 120 bps from the June quarter. For JK Tyre, the drop in rubber prices failed to boost its performance. Despite the 100-bps drop in the proportion of raw material cost in the September quarter, the performance worsened sequentially.
The company posted negative operating margin of 1.3% against 4.6% on account of rupee depreciation. For MRF, the cost of raw materials to net sales has come down from 76% in the June quarter to 73% in September. This helped the company to post a 125 bps sequential improvement in margin.
However, the operating profit fell by 7.8% versus the 6.2% drop posted in the June quarter. The December quarter may see an improvement in margins as the proportion of raw material cost to net sales comes down further. Despite this, the high prices of the raw material still remain a challenge for the tyre companies, specially for those who are dependant on raw material imports.
As latex prices started to cool in February 2011, the stock price of Apollo Tyres, which was at a 52-week low began to rise. It gained 75% from February to July and then started to decline. This was mainly because of the fall in the rupee which hurt the company’s performance. Since it imports about 50% of its raw materials, the rupee depreciation increased the company’s cost of productionwhich was visible.
While the growth in operating profit and net sales has remained strong, the operating margins remain under pressure. The raw material cost as a proportion of net sales also has risen to 67%. To secure a captive source of natural rubber, the company has entered the area of rubber plantations, albeit in a small way.
The drop in rubber prices boosted the September quarter performance of CEAT. The raw material cost as a proportion to net sales dropped to 75% from 80.6% in the June quarter. This led to an improvement in operating margins from -1.2% in the June quarter to 5.5% in the September quarter.
The operating profit also logged a jump of 39% y-oy in the September quarter against a 30% drop in the preceding quarter. The markets also picked up this signal and the company's stock has risen since November.
After its performance peaked in December 2010, Goodyear India ‘s performance has been declining. In September 2011 there was marginal improvement as the drop in operating profit and net profit was not as high as in the preceding quarter. The proportion of raw material cost to net sales also declined by 120 bps from the June quarter. For JK Tyre, the drop in rubber prices failed to boost its performance. Despite the 100-bps drop in the proportion of raw material cost in the September quarter, the performance worsened sequentially.
The company posted negative operating margin of 1.3% against 4.6% on account of rupee depreciation. For MRF, the cost of raw materials to net sales has come down from 76% in the June quarter to 73% in September. This helped the company to post a 125 bps sequential improvement in margin.
However, the operating profit fell by 7.8% versus the 6.2% drop posted in the June quarter. The December quarter may see an improvement in margins as the proportion of raw material cost to net sales comes down further. Despite this, the high prices of the raw material still remain a challenge for the tyre companies, specially for those who are dependant on raw material imports.
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