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Tyres - Strong Margin Tailwinds Along With Volume Growth Puts The Sector In A Sweet Spot: Nirmal Bang

Tyres - Strong Margin Tailwinds Along With Volume Growth Puts The Sector In A Sweet Spot: Nirmal Bang

<div class="paragraphs"><p>Tyres piled one over another. (Photo: Robert Laursoo /Source: Unsplash)</p></div>
Tyres piled one over another. (Photo: Robert Laursoo /Source: Unsplash)

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Nirmal Bang Report

Despite a strong double-digit volume growth we saw ~700 basis points margin compression on an aggregate level for the tyre industry in FY22 due to higher input prices, largely due to a sharp increase in the raw material cost basket.

Natural rubber and crude derivatives (synthetic rubber and carbon black) contribute ~70% to the total raw material cost for tyre companies. Global benchmark natural rubber prices have jumped ~38% on average between Q2 FY21 and Q4 FY22 while the price index for Butadiene and Styrene, which are the major compounds for synthetic rubber, have soared ~250% and 100%, respectively.

Despite timely price hikes by tyre companies over the last six-eight quarters, raw material cost inflation has continued to rise, leading to a significant margin compression.

However, we have seen a ~20% correction in the TSR20 (a composite index of all the raw material used in tyre making), 15% correction in Indian Kottayam rubber and 35% drop in the Thai rubber index over average prices of Q1 FY23.

Click on the attachment to read the full report:

Nirmal Bang Tyre Sector Update.pdf

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