JK Tyre profits plunge as raw-material costs rise 30%

New Delhi – JK Tyre & Industries has reported a 71% year-on-year fall in second-quarter net profit, despite record revenue, as high raw-material costs weighed on margins.

Consolidated net profit fell to INR651 million (€6.2 million) in the three months to 30 Sept, from INR2.27 billion a year earlier, according to results filed 23 Oct.

Total income increased 20.5% to a record INR48.50 billion, supported by stronger domestic demand and higher original equipment sales.

Speaking during a 26 Oct earnings call, managing director Anshuman Singhania said the "steep increase in price of the key raw materials" and continued volatility had triggered inflationary pressures, impacting the profitability margins in the near term.

Average raw-material costs increased 9% quarter-on-quarter, following a 22% increase in the preceding quarter, according to the company.

"We have seen a staggering 30% increase in the last six months," Singhania said, adding that JK Tyre expected a further 4–5% rise in the third quarter.

Chief financial officer Sanjeev Aggarwal said the expected further increase in input costs was mainly linked to crude-based raw materials, but also natural rubber, which moves partly in tandem with synthetic rubber and carbon black prices.

Singhania said JK Tyre had not yet fully passed through the cost increases, particularly in the replacement market, where pricing remained competitive.

In the OE market, price adjustments were index-linked, although there was a lag before increases took effect.

Despite the pressures, consolidated earnings (EBITDA) improved 28% sequentially to INR3.4 billion, with earnings margin rising to 7.1% from 6.8% in the first quarter.

JK Tyre reported a 65% year-on-year increase in OE sales in India, contributing to 32% growth in domestic sales.

The company's Mexican subsidiary, JK Tornel, also reported a recovery, with quarterly revenue reaching INR4.79 billion.

The Indian tire maker said the modernisation and expansion project at JK Tornel was progressing and was expected to support improvements in revenue and profitability.