Rubber prices have hit a fresh 20-month high of Rs 170 per kg. Thought tyre makers are hiking prices to maintain margins, they are unable to pass on the entire cost.
Commenting on the same, Neeraj Kanwar, Chairman, Automotive Tyre Manufacturers' Association, and Vice-Chairman, Apollo Tyres, said prices have gone up from Rs 80 per kg to Rs 170 per kg. "Shortage of natural rubber domestically is a big concern. There is a shortage of 200,000 tonne of natural rubber."
While consumption has gone up by 7% in March, imports are up 323%. The industry body, Kanwar said, is looking for respite from the government on duty for rubber.
He confirmed that the tyre industry margins are under severe pressure. "Apollo Tyres will be increasing prices by another 3.5% in June."
There is strong demand for commercial vehicle and tractor tyres. Ashok Leyland and Tata Motors are facing a shortage of radial tyres. But Kanwar said the industry is working at 95% capacity utilisation.
Apollo Tyres is planning to become one of the world's top five tyre makers. On the anvil is plans to raise output by 60% this fiscal. It expects exports as a percentage of sales to rise by 20% in Q1 FY11.
The company sees strong volume growth from original equipment manufacturers and replacement market. Though its South African and European business is seeing revival, it has shelved its international greenfield expansion plans. The company’s Chennai plant will be operational by December.
Here is a verbatim transcript of the exclusive interview with Neeraj Kanwar on CNBC-TV18. Also watch the accompanying video.
Q: This has been a very tense six-month for the tyre industry. With rubber at new highs, what is the game plan of the industry?
A: We have been taking it up with the government. The prices have gone up from Rs 80 per kg to Rs 170 per kg. We are in a very peculiar situation where our natural rubber prices on imports are commanding a custom duty of 20%, whereas our finished goods are coming in only at 7%. We have this anomaly and we have been taking it up with the government to correct this inverted duty structure.
Baring rubber, everything has corrected but I don’t know why the government has not been listening to us to let us allow free imports of natural rubber to come into India. Today there is already a shortage of natural rubber available domestically. Around 100,000 tonnes is the gap between production and consumption, which we in our own estimates is going another 100,000 tonnes in the next year. A total of 200,000 tonnes is the shortage that is going to be faced in India.
On one hand, we have the automotive sector in a boom, which requires tyres and on other had the tyre industry is facing price push that none of us can absorb. So what is going to happen is that the tyre industry is looking at increasing selling prices to the end customer there by there is going to be inflation felt as far as the automotive sector is concerned.
As far as tyre industry is concerned, today our margins are under pressure. From EBITDA margins of 14-15% last year, as a weighted average, we are into single-digits and this is putting a lot of pressure on the entire tyre industry.
Q: In that case can we assume that FY11 is going to be a bad year for the industry?
A: It is going to be challenging—I won’t say bad. The problem today is on one hand the automotive industry is increasing—you have seen figures of upwards of 30% movement for passenger vehicles and for commercial vehicles—on the other hand the tyre industry is investing close to Rs 9,000 crore in this fiscal year. We need easy cash flows, we need free cash flows to try and invest back into our industry, into our technology thereby supporting the automotive sector.
The solution that we have been trying to talk to the government is either make duty of natural rubber from 20% to 5% or to zero percent and if they cannot do that then import free of natural rubber to the Indian industry and distribute it among the India industry.
(moneycontrol.com)
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