52-WEEK FLOP: JK TYRE & INDUSTRIES: Business Line

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Robust automobile sales notwithstanding, tyre manufacturers in the country have been facing rough weather during FY-11. Unabated rise in the price of natural rubber, a key raw material due to tight supply conditions and increase in other crude-based inputs have dampened their margins and earnings. JK Tyre, among the top five tyre producers in the country, with about 18 per cent market share has been no exception. Given the strong demand, the company has been able to pass on some portion of the material cost increases to customers through periodic price increases. Nevertheless, for the nine months ended December 2010, while net sales grew about 32 per cent year-on-year, net profits have fallen from Rs 137 crore to Rs 49 crore. Raw material costs as a percentage of sales for the first three quarters of 2010-11 have jumped to 77 per cent from 58 per cent seen in the same period last year.

However, as radialisation catches on, having the first mover advantage in radial tyres for commercial vehicles would stand the company in good stead over the next few years. JK Tyre's dominant position will strengthen further once its dedicated greenfield capacity for radial tyres in Chennai goes on-stream in late 2011. A lot, nonetheless, will depend on how rubber prices move.