New Delhi: Given the current uptick in pure rubber and crude oil costs, coupled with muted demand developments within the home market, the margins of tyre firms might come underneath strain if costs maintain at these ranges, mentioned Kotak Institutional Equities.
Within the final three quarters, income progress for listed tyre firms has moderated to low mid-single digits on account of — demand moderation in choose alternative segments, weak point in export markets, the brokerage mentioned.
“We anticipate demand developments to stay muted within the close to time period, given weak passenger car alternative phase demand as the bottom interval of gross sales are muted, assuming a 3-5 12 months alternative cycle, demand moderation within the OEM phase and subdued developments within the industrial car phase,” the brokerage added.
Uptick in commodity costs poses a threat to tyre firms’ profitability, the brokerage mentioned. Worldwide and home pure rubber costs (spot) have risen by 22-32 per cent from 2QFY24 common ranges, pushed by persistent provide considerations. Main natural-rubber producers (Thailand, Malaysia and Indonesia) are grappling with decrease output, owing to opposed climate considerations.
Additional, crude costs have witnessed an uptick, which is able to additional weigh on profitability (500-600 bps impression on gross margins at present spot costs from 3QFY24 ranges).
