Apollo Tyres is taking a price hike of 3-5 per cent in the domestic market in the third quarter of this fiscal to offset the impact of rising commodity prices, which if continue to remain high, may compel it to take a similar increase in the fourth quarter, according to top company officials.
Up until September, the company had taken an average increase of around 9 per cent in tyre prices, Apollo Tyres Vice Chairman and Managing Director Neeraj Kanwar told analysts.
"We are again taking price increases in this quarter varying between 3 per cent to 5 per cent in various segments (in the months of October and in the months of November),” he added.
When asked what would be the level of "under recovery" on account of cost inflation in India even after the price hikes, Apollo Tyres CFO Gaurav Kumar said raw material costs continue to be a moving target.
"Even in Q3 from Q2, we expect a small cost push coming on account of raw material. I would say broadly, we are running about two price increases behind vis–vis what is desirable,” he added.
To another query on how much further increase will be required, Kumar said, "As of now for Q4, we still have to see where the raw material outlook would be. Broadly we need another 3 per cent to 5 per cent increase but that is assuming that the raw materials then are at the current levels.”
In the second quarter ended September 30, Apollo Tyres had posted a 59 per cent decline in standalone net profit at Rs 89.65 crore as compared to Rs 216.24 crore in the same period last fiscal, impacted by high raw materials cost.
The company’s standalone revenue from operations were higher at Rs 3,649.71 crore as against Rs 2,911.57 crore in the year-ago quarter.
Cost of raw materials consumed in the second quarter had shot up to Rs 2,471.63 crore as compared to Rs 1,527.06 crore in the same period a year ago.
Kumar said in India, normalcy is gradually returning "after facing an unprecedented pandemic situation" and the company is witnessing a steady improvement in demand momentum.
"The truck tyres OEM demand, which was lagging, is showing promising signs of improvement. Though, the passenger car OEM demand continues to suffer due to shortage of semiconductors,” he added.
In the replacement segment, he said "demand momentum is strong" but the continued raw material inflation, along with the OEM disruptions in production, did impact the company’s operating performance in the second quarter.
"We’ve taken price increases across categories in the replacement segment, but we would need to take further price increases going forward to fully pass on the raw material cost inflation,” he added.
Kumar further said the demand momentum going forward for the second half of the fiscal (H2) seems to be better and "further price increases have been announced for November to counter the raw material cost push".