In a move that highlights the growing pressures within India’s tyre industry, JK Tyre has announced its third price hike for the fiscal year 2025. The price increase, expected to be in the range of 1-2%, comes in response to escalating inventory costs and persistent inflationary pressures. This decision reflects a broader trend in the tyre manufacturing sector, where rising raw material prices are forcing companies to adjust their pricing strategies in order to maintain profitability.
Rising Raw Material Costs and Inflation Drive the Increase.
Anshuman Singhania, Managing Director of JK Tyre, attributed the latest price hike to the significant rise in raw material costs, which have surged by approximately 6-7% on a quarterly basis. “Total raw material prices have increased on a cost-per-quarter basis, i.e., 6 to 7%. We’ve been able to pass on 1 to 2% in the market and expect another price increase in quarter three at a level of 1 to 2%,” Singhania stated during the company’s post-earnings call.
Despite the price hike, Singhania indicated that the company has only been able to pass on a fraction of the cost increases to consumers. The tyre industry as a whole has faced a significant strain due to soaring raw material prices, with some reports estimating that raw material costs have risen by as much as 12-13%. However, JK Tyre’s price hike thus far has been relatively modest, hovering around 3.5-4%. This is far from sufficient to fully offset the impact of increased raw material costs, which have led to a reported margin squeeze of 8-9%.
Impact of Price Hike on Revenue and EBITDA.
JK Tyre’s financial performance in the third quarter of FY 2025 provides some insight into the company’s efforts to balance rising costs with business stability. The company reported a revenue of INR 3,643 crore and an EBITDA of INR 443 crore, with an EBITDA margin of 12.2% for the quarter. The company’s financial results indicate that, despite the challenges posed by increasing raw material prices, JK Tyre has managed to maintain a solid financial foundation.
The price increase, though modest, is seen as a necessary step to mitigate the impact of these rising costs and safeguard the company’s profitability. As raw material prices continue to fluctuate, with natural rubber prices in particular exhibiting volatility, JK Tyre’s management is closely monitoring the market dynamics to adjust their pricing strategies accordingly.
Challenges and Opportunities Ahead for the Tyre Industry.
While the tyre industry has faced considerable challenges in the past few quarters, including muted sales in the commercial vehicle sector, there is a growing sense of optimism surrounding the upcoming months. The company is optimistic about a potential recovery in key segments, including two-wheeler and three-wheeler markets, as well as the replacement market, which is expected to drive double-digit growth in Q3 of FY 2025.
The festive season has already spurred record sales in the two-wheeler and three-wheeler markets, and JK Tyre expects this trend to continue into the second half of the fiscal year. “We see that two- and three-wheeler growth should continue into the second half also,” Singhania remarked. The company’s positive outlook is further bolstered by the expected recovery in the commercial vehicle and passenger vehicle segments, which experienced muted sales during the monsoon season.
The replacement market, which plays a pivotal role in the tyre industry, is also expected to contribute significantly to growth in the upcoming quarters. This segment, which has traditionally been a steady revenue stream for tyre manufacturers, is projected to see an uptick in demand, helping to offset the challenges faced in other sectors.
A Bright Outlook Despite Market Volatility.
Despite facing several headwinds, including raw material price volatility and fluctuations in demand across various segments, JK Tyre remains optimistic about its prospects for the remainder of FY 2025. The company’s ability to adapt its pricing strategy in response to market dynamics and its proactive approach in adjusting to the changing economic landscape has positioned it well for the challenges ahead.
Sanjeev Aggarwal, Chief Financial Officer of JK Tyre, pointed to the company’s ongoing efforts to manage costs while navigating the complex market conditions. “The price hike will be done after assessing the market dynamics to reduce the inflation,” Aggarwal said. Moreover, despite the recent reduction in natural rubber prices in October, JK Tyre remains cautious, acknowledging the volatility of the commodity market and the uncertainty surrounding long-term price stability.
In conclusion, JK Tyre’s price hike is a reflection of the broader challenges facing the tyre industry in India, with rising raw material costs and inflation exerting significant pressure on manufacturers. The company’s response, though measured, signals its commitment to maintaining profitability in a rapidly changing market. As the industry looks ahead, the demand from key sectors, including the two-wheeler market, commercial vehicle market, and replacement segment, could offer the stability needed to navigate these challenges. However, the road ahead remains uncertain, with the ongoing volatility in raw material prices continuing to pose a significant risk for manufacturers.