Higher NR prices erode profits of Indian tire majors in Q2 FY25

Escalated raw material prices ate into the profit margin of Indian tire majors in Q2 of FY 2024-2025 (July 2024 to Sept 2024) which saw these majors resorting to largescale imports of compound rubber from Southeast Asia to cushion the impact of higher domestic NR prices.

MRF’s Q2 net profit dipped by 20% year on year to hit INR 455.43 crore, while Apollo Tyres suffered an almost double loss at 37% in net profit YoY to fall to INR 297 crore. JK Tyre’s decline in net profit was even higher at 42% YoY to hit INR 144.25 crore, whereas CEAT's profit skid by 41.5% to touch INR 121.5 crore.

Barring JK Tyre, the other three tire majors registered growth in revenue during the quarter. MRF’s consolidated revenue from operations in the quarter rose 12% YoY to INR 6872.43 crore in Q2 FY2025. Apollo’s revenue from operations also grew by 3% YoY to touch INR 6,437 crore in the second quarter of FY 2025.

On the other hand, the consolidated revenues of JK Tyres fell 7% YoY to hit INR 3,643 crore during the Q2 FY 2025, while CEAT posted a consolidated revenue of INR 3,304.5 crore, which marked 8.2% YoY growth.

The tire majors expected a robust Q3, riding the festive season in the country, resumption of infrastructure spending by the government, and normalization of construction, industrial, and mining activities post-monsoon.

Apollo finds weak demand in domestic OEM; JK tops EV bus

Commenting on the company’s performance, Onkar Kanwar, Chairman of Apollo Tyres Ltd, said the company witnessed a weak demand scenario in the OEM segment in its largest market, India, which negated the strong growth in the replacement segment. 

“In Europe, we witnessed positive revenue growth in the passenger vehicle segment, which is the largest segment for us in that geography. Unprecedented increases in raw material prices have impacted our profitability,” Kanwar said.

JK Tyre’s revenue was mainly from truck bus tires (53%), followed by passenger line radials (31%) and two and three-wheelers (4%).

“Improved export performance helped partly offset the domestic slowdown. JK Tyre continues to enjoy the highest market share across all OEM and replacement markets in the EV bus category,” said Raghupati Singhania, Chairman and MD of JK Tyre.

CEAT upbeat about Q3 FY 2025

Commenting on the results as well as the outlook of the business, Mr. Arnab Banerjee, MD & CEO, CEAT Limited, said the company is pleased to see that it has successfully carried the momentum from Q1 through Q2. In Q1 FY 2025, CEAT revenue touched INR 3192.8 crore, while net profit was INR 154.2 crore during the quarter.

“This quarter marks our highest revenue ever, driven largely by robust performances in our replacement and international sectors. A significant increase in commodity prices impacted our margins during the quarter. We took selective price increases during the quarter that offset part of the cost impact. The revenue outlook remains positive as we enter Q3,” said Banerjee.

Mr. Kumar Subbiah, CFO of CEAT Limited, said the standalone revenue of INR 3,298 crores during the quarter was the highest that CEAT has achieved so far, supported by double-digit growth in replacement and international businesses. 

“We partially mitigated the impact of the steep increase in the prices of natural rubber through judicious price increases and cost efficiencies. This quarter also saw our overall debt level rise by INR 280 crore, driven in part by increased raw material inventor, necessitated due to increase in transit period on imports and the distribution of dividend in September to the tune of INR 120 crore,” Subbiah said.

The quarter also saw CEAT launching the truck bus radial production line at its Chennai plant.

Strategic inventory build-up through imports

JK Tyre reported that its raw material cost during the Q2 FY 2025 increased to INR 2,400.6 crore from Rs 2,199.4 crore during the same quarter the previous year. For MRF, the cost of materials consumed increased YoY from INR 3715 to INR 4175 in the September quarter of FY 2025. The tire majors resorted to tire price increases, product premiumization, and strategic inventory build-up during the quarter to offset higher NR prices.

The quarter witnessed the raw material NR (RSS-4) domestic prices hitting an all-time high on August 9 at INR 247/kg. The RSS-4 prices were above the INR 200/kg mark all throughout the quarter and also until October middle before plunging into levels of INR 180/kg. This encroached on the profit margins of tire makers.

The smallholders’ consortium pointed out that compound rubber imports into India had gone up by 47.5% until September this year (2024) compared to the same period last year, while NR imports went up by 25%. They said this surge in imports was unjustifiable, especially in light of a 1.4% increase in domestic rubber production and a 1.8% fall in consumption year on year until September this year. 

The consortium said tire makers deliberately denied smallholders fair prices in the domestic production peak season during October-December. “The tire-makers had imported rubber at an average price of INR 210/kg in Q2 FY 2025 and stacked up their godowns. Now they are trying to level the losses incurred in these imports by undercutting the domestic prices in our season,” the consortium leader Babu Joseph said early this month (November 2024) while announcing the Kerala smallholders’ intent not to sell rubber until the price crossed INR 200/kg (RSS-4), the breakeven point for farmers.

The smallholders said the FTA with ASEAN nations is working against the interests of Indian rubber farmers, enabling compound rubber imports at 5-10% duty, much lower than the import duty of 25% for Natural Rubber. 

The tiremakers’ body, the Automotive Tyre Manufacturers Association (ATMA), has not reacted to the statement and announcement of the smallholders even as the tire majors’ profits have plunged.

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