Ceat to Apollo Tyres: Tyre makers find little grip on rising input costs

Ceat, JK Tyre and Apollo Tyres have indicated that further price increases may be necessary in the coming quarters, as the hikes taken so far have not fully offset input cost inflation. Strong domestic demand has provided some cushion, but companies expect pressure on profitability to persist.

Apollo said during its second-quarter (July-September/Q2) FY27 earnings call that its raw material basket had become around 25 per cent costlier year-on-year (Y-o-Y) in the September quarter, with natural rubber prices touching ₹300 per kg in India. Crude-linked derivatives were up 28-35 per cent, while steel cord prices rose by low double digits.

Ceat reported an 8-9 per cent sequential increase in raw material costs in Q2 and expects a further rise of around 3 per cent in the fourth quarter (January-March/Q4), according to its Q2 earnings commentary.

The companies have responded with price hikes, although the extent to which they have passed on the higher costs varies.

Apollo’s management said during its earnings call that it had raised prices by 13-15 per cent across categories by the end of October, against the 16-17 per cent increase it estimated would be required to fully offset raw material inflation in the first half. “Pricing actions cannot be taken at the same pace at which you see the raw material moving,” Ravi Kumar Shingari, chief financial officer of Apollo Tyres, said during the company’s earnings call. He added that price increases would be gradual, with further hikes possible in December or January, depending on raw material costs and market conditions.

Ceat, meanwhile, had raised tyre prices by 14-15 per cent between the March quarter and September quarter exit levels and was preparing further increases. “We took one price hike at the end of Quarter Two, and through October we will take some more price hikes. So, they will be frequent, but each increase will be small,” Arnab Banerjee, managing director (MD) and chief executive officer of Ceat, told Business Standard. Banerjee said the company needed to raise prices further to offset input cost inflation. “In nine months, it should be 20-25 per cent. Twenty to 23 per cent is what we need,” he said.

Ceat’s management also indicated during its Q2 earnings call that raw material costs would be about 27 per cent higher by December compared with March quarter exit levels. “For the third quarter (October-December/Q3), margin pressure is likely to continue because there is a gap which we have to cover. Plus, in Q3, raw material prices are going to go up by 2.5-3 per cent. I don’t see margin pressure easing in Q3,” Banerjee said.

JK said during its earnings call that its net selling realisation had increased by 11-12 per cent in the first six months and that it was planning a further 4-5 per cent increase. However, the company acknowledged that the increases had not fully offset input cost inflation. “There is a delta which has been unabsorbed,” Anshuman Singhania, MD of JK Tyre, said during the earnings call, referring to the gap between raw material inflation and price increases. He said raising prices in the replacement market remained challenging because of competitive pressures.

“Demand for new vehicles and tyres remains strong, but the cost of key inputs, including natural rubber and crude-linked raw materials, has risen by almost 25 per cent since April. Tyre makers have partially offset these increases through price hikes, but industry margins are under pressure,” said Anurag Singh, MD and chief operating officer, global capability hub, Primus Partners.

The impact of rising costs is visible in the companies’ profitability. According to Apollo’s Q2 financial results, its India business reported an earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 11.1 per cent in Q2, down from 15.3 per cent a year earlier, despite a 26 per cent rise in revenue to ₹5,920 crore. Consolidated revenue rose 16 per cent to ₹7,970 crore, while Ebitda stood at ₹860 crore, translating into a margin of around 10.8 per cent.

JK’s consolidated Ebitda margin improved marginally to 7.1 per cent from 6.8 per cent in the preceding quarter, according to its Q2 results. However, management cautioned during the earnings call that cost pressures would continue in Q3.

Ceat reported an Ebitda margin of 10.1 per cent in its quarterly results, with management emphasising tighter cost controls.

Strong domestic demand has helped companies absorb some of the pressure.

Apollo’s management said during its earnings call that original equipment manufacturer (OEM) volumes had grown by more than 25 per cent, while replacement volumes rose in low double digits.

Within the replacement market, its two-wheeler (2W) tyre volumes rose 25-26 per cent, passenger car tyre volumes grew in the mid-teens, and truck tyre volumes recorded high single-digit growth. The company expects India volume growth to moderate to the mid- to high-single digits in Q3 because of a higher base.

JK reported 22 per cent Y-o-Y growth in domestic volumes in Q2, with OEM volumes rising 25 per cent and replacement volumes growing 20 per cent. Its management said during the earnings call that demand remained healthy, although rainfall deficits in parts of the country could affect the farm segment.

Ceat’s management also pointed to strong demand for 2W and commercial vehicle tyres during its earnings call, while passenger vehicle (PV) and farm tyre demand remained relatively weak. Banerjee indicated that replacement demand in the near term would be led by 2Ws, particularly in rural markets, while PV demand could remain subdued.

Premiumisation is providing another cushion.

Ceat said during its earnings call that sales of passenger car tyres measuring 17 inches and above grew in the mid-30s, while JK’s management said premium products measuring 16 inches and above accounted for nearly 30 per cent of its first-half passenger car tyre volumes.

Export trends, however, remained mixed.

According to management commentary during the respective earnings calls, Ceat reported a recovery in select markets, including Africa and Latin America, while JK recorded sequential growth in exports. Apollo’s exports were largely flat in Q2.

For the coming quarters, the key challenge will be to bridge the gap between input cost inflation and price realisation without affecting volumes. Margin recovery will depend on further price hikes, movements in natural rubber and crude-linked material prices, and companies’ ability to sustain demand amid competitive pressures.