Tire companies’ margins to be hit by increasing input costs as well as decreasing demand for vehicles

With the increase in the price of crude oil, the current prices have reached USD 110. The tire companies are expected to face the brunt through the component of crude derivatives, said Zee Business’ analyst, Kushal Gupta.

However, the prices of natural rubber have remained almost constant, he added.

Furthermore, the decreasing demand for passenger vehicles and two-wheelers has also impacted the tire companies. The companies have already witnessed a rise of 5 per cent in the expenses on the basis of Q4FY22.
Whenever there is an inflation in the input cost, the companies increase their prices as well. But it’s not necessary for the prices to increase at the same proportion, which leads to the margins being affected negatively, he opined.

According to Gupta, in order to maintain the replacement segment margin, they will have to increase prices by 6 per cent to 8 per cent. If the prices of crude oil increase by 10 per cent, the companies will have to increase their prices by 2 per cent to maintain their gross margin to a neutral state.

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