Rubber Costs Cause Shrink in MRF Quarter Profits

Net profit at India’s MRF Ltd dropped significantly year-on-year during the first quarter of the current financial year. The company recorded profits of only Rs 610 million (£8.41 million) in the three months to June 30, a much more modest figure than the Rs 1.26 billion (£17.38 million) achieved a year earlier. This profit slump occurred despite sales rising from Rs 14.34 billion (£197.59 million) in the first quarter of 2009 to Rs 19.244 billion (£265.26 million) this year.

In an interview with Indian financial broadcaster CNBC-TV18, MRF executive vice president Koshi Varghese spoke on the quarter’s figures and what it means for the tyre maker. A factor accounting sales and profits heading in separate directions is the cost of natural rubber, a product he says accounts for 60 to 70 per cent of all raw material costs. “That, for the same quarter last year was prevailing at about Rs 70 or Rs 75 a kilogram (£0.96 to £1.03) is at about Rs 180 today (£2.48),” Varghese said, adding that both competitive pressures and the short timeframe in which prices rose prevented these extra costs from being passed on.

Varghese also notes that prices paid for natural rubber in India are above international prices. “We have brought it to the attention of the government because it has even a cascading effect on inflation etcetera, because we have to keep on passing on the cost push which in turn affects tyre prices and so on,” he said. “So we hope that a certain amount of measures will be taken by the government especially on the import duty front because the import duty on natural rubber is 20 per cent as against (imported) tyres at eight per cent.”