Tell us how the rubber prices have been moving, because as we understand, there has been a steep climb and how is that likely to impact your business?
Regarding rubber prices, we need to understand that when you make a tyre, you use natural rubber as well as the synthetic rubber. And both natural rubber and synthetic rubber are sourced indigenously and also imported. So, natural rubber we have seen a softening in the prices when we talk about the financial year that we just closed. Yes, there are certain indications that going forward, the prices may again go up. But if you talk about the imported part of it, there the prices were almost flat. Synthetic rubber definitely had seen increase in the previous financial year, but with crude prices now coming down we have to see that generally the effect is shown at a lag. So, we will have to wait and watch on the synthetic rubber side.
Components which are important raw material, one is rubber and second is carbon black. If one looks at the second component which is carbon black, as per percentage of total sales how much is that?
In the composition, if you talk about what is the weightage in the total value, it is somewhere around 15%.
In rubber and carbon black, we are looking at, at least 50% of raw material cost, broadly.
And this 50% cost, same time last year versus now, is down how much because these are the two moving parts. I mean, you will appreciate the spirit of my question.
Yes, so carbon black, if you talk in specific, the prices have gone up and they have been there. They have not come down as compared to what has happened on the rubber side. But as I clarified earlier, even in rubber, the natural rubber prices have softened in quarter four, especially the indigenous ones. But the synthetic rubber prices have been on the increase. But now with crude coming down, we expect that they will also come down accordingly with a lag.
So, which means that if prices, they come down, would you be able to retain the pricing power back or you would be forced to pass it on because for last two years, tyre companies have only increased prices. This one, next six to eight months, if prices continue in this trend, would you be cutting prices?
See, one thing we need to understand is that, except the quarter four of last financial year, if you take the seven quarters before that, the raw material prices were continuously going up. And we had the overall weighted average increase was over 40%. Definitely, while we took a lot of price increases, but we were not able to pass on the entire impact of all the cost increases. So, there is a residual impact as we speak. So, in this scenario, I do not think so that there is any opportunity to reduce the prices in the market.
And what about the outlook in terms of your margin performance in Mexico? The lower margin performance really impacted the profitability there. So, walk us through the outlook in terms of the factors that are at play. Are you now seeing an improvement?
Yes, we are seeing an improvement. The overall demand over there whether it is in the North American market or even in LatAm, it is expected to come back and we are again making our plans accordingly.
Progress on the capex plan, Rs 790 crore had been announced, which facilities do you plan to get the new range tyre manufactured in and have you upped your capex plans?
Yes, we had announced this. You see, actually the overall outlay of capex was 1100 crores which included the first phase of debottlenecking, which has been completed. So, the remaining part, which is the 790 crores, there are two expansion projects. One is in our Banmore plant which is near Gwalior, that is for the passenger car radial tyres, that programme is underway and is expected to get commissioned by the second half of the current financial year. We should start getting the output from there of around Rs 530 crores. The remaining Rs 260 crores is for the truck and bus radial tyres. This expansion is being done at our Laksar plant in Haridwar. And this again is being progressed very successfully. And it again is expected to get commissioned in the second half of the current financial year.
So, these are the two ongoing programmes. We are definitely evaluating if there is any further need for expansion that we would have to take up in the current year.
I have been wanting to ask tyre companies this question that everybody in the auto industry is talking about ICE engine becoming EV engine, which means ICE car will become electric car. For the tyre industry, tyre same hai ya tyre bhi badlega?
Definitely the tyre would undergo certain changes. There are certain specific requirements when it comes to electric vehicles, especially in terms of the coefficient of rolling resistance. So, low RRC tyres are definitely going to be required because they are more energy efficient and that helps the electric vehicles have a higher range, because with the same charge they can go a longer distance if the RRC is lower, that is one. The other is that the noise levels that come from the tyre have to be very different when it comes to EVs. The pattern, the tread, wet grip, dry grip, all these things, braking distances, everything has to be different and we need to keep in mind that the battery weight actually increases the overall weight of the electric vehicles.
There are certain trade-offs, but we will have to design tyres which are specifically meant for electric vehicles whether it is the commercial range or even in the passenger range. And we have been doing this.
We have been working very closely with the manufacturers, the OEMs, and we have successfully developed tyres for the intra-city buses. In fact, in Delhi, most of the EV buses that ply are running on our tyres. We have also launched recently in the Ranger series, the HPE, which is meant for again electric vehicles, the passenger cars, and working with a host of two and three-wheeler manufacturers who are venturing into the EV space. And we would be very soon introducing those tyres for the vehicles.