Indian rubber company CEAT falls short of quarterly earnings projections due to increased raw material costs.
Rewritten Article:
Indian tyre manufacturer CEAT (CEAT.NS) fell short of profit expectations in the fourth quarter, mainly due to a surge in rubber costs. The company's net profit plummeted by 8.4% to 994.9 million rupees ($11.69 million), compared to 1.09 billion rupees the previous year.
Analysts, on average, estimated a profit of 1.12 billion rupees, but the gap between expectations and reality left them disappointed. Meanwhile, quarterly revenue from operations swelled by 14% to 34.21 billion rupees, thanks to consistent demand for tyres. However, total expenses surged by 16.5%, increasing the overall cost burden.
Soaring natural rubber prices are making life difficult for tyre manufacturers globally, not just in India. These increased costs are squeezing profit margins for the sector. As natural rubber accounts for a significant portion of tyre production costs, companies are struggling to maintain profitability without raising prices or improving efficiency.
With CEAT being the first to report Q4 results, other tyre giants like MRF (MRF.NS), Apollo Tyres (APLO.NS), and JK Tyre (JKIN.NS), are expected to follow suit. These companies might face similar challenges as they grapple with surging input costs and increased competition.
The turbulent rubber market isn't their only problem. The United States imposing a 26% tariff on Indian rubber goods creates an export disadvantage compared to countries like Vietnam (0%) and Turkey (10%). The U.S. accounted for 22% of India’s $602M vulcanised rubber exports in FY24, but the high tariff makes exports less competitive.
Furthermore, U.S. buyers have requested Indian manufacturers to put a halt on production temporarily, leading to disrupted cash flows and reduced capacity utilization. On top of the profit margin squeeze, these additional challenges weigh heavily on the tyre manufacturers' prospects.
To weather this storm, companies need to strike a delicate balance between raising prices to cover increased costs and risking volume declines, and maintaining competitive prices to remain attractive in the market. They must also consider diversifying their export markets to minimize the impact of tariffs and ensure long-term sustainability.
However, the road ahead is uncertain. The slowing U.S. economy and global growth forecasted by the International Monetary Fund (1.8% U.S. GDP growth in 2025) could lead to reduced tyre demand, making recovery even more challenging.
- CEAT, a tyre manufacturing company based in India, struggled with earnings in Q4 due to escalating rubber costs.
- The surge in natural rubber costs is causing difficulties not only for Indian tyre manufacturers but globally, impacting profit margins in the industry.
- As prices for natural rubber constitute a substantial part of tyre production costs, companies are finding it hard to ensure profitability without increasing prices or boosting efficiency.
- In the finance sector, the U.S. imposing a 26% tariff on Indian rubber goods threatens to make Indian tyre exports less competitive compared to countries like Vietnam and Turkey with lower tariffs, putting additional pressure on the business prospects of tyre manufacturers in India.
