- 15 Apr 2024
- ICICI Securities
RISE IN RAW MATERIAL PRICES TO DENT MARGIN PROFILE Q1FY25 ONWARDS
News: Natural rubber and crude derivatives form majority (~65-70%) of raw material costs for tyre manufacturing. Natural rubber prices are on the up-move and are up from the levels of ~₹ 150/kg seen in Oct-Dec 2023 period to ₹ 185/kg as of now, a rise of nearly 20%+. Amid geo-political tensions even brent crude prices are on the up move and are presently quoting at US$ 90/barrel vs. ~US$80 in the recent past.
Views: With margins at record levels for most of the tyre players domestically amid these companies retaining large part of raw material price decline, we expect the rise in raw material prices to dent margins for these companies in near term. We remain cautious on the tyre space amidst valuations turning expensive vs. their historical averages and potential decline in margins with a lag of quarter i.e. Q1FY25 onwards. On the demand side, replacement market demand is steady with OEM demand to slow down amid high base of volumes especially in the CV & PV category.
Impact: Negative