Jan 20, 2011

Multistrada lifts up tire price 11%-15%

The producer of Achilles, Corsa and Strada brand tire, PT Multistrada Arah Sarana Tbk (MASA), will jack up the selling price of its tire for the export market by 11%-15% on 1 February 2011.
Head of Investors Relations Multistrada, Even Go said that such hike is merely a strategy to anticipate the hike of raw materials such as natural rubber, synthetic rubber and steel wire.
“The selling prices for car and motorcycle tire in the domestic market rose by 11%-15% since the first week of January while part of the tire product in the export market augmented by 7.5% since November 2010,” he told Insider Stories today.
According to him the price jump in the market export was conducted gradually, highly depending to the customers.
At the moment, 75% product of Multistrada is sold in the export market while the remaining is marketed through local market.
“By such jump, we expect to maintain the gross margin at 22% as in 2009 and in 2010 where we almost hit the level of 22%,” he said. The hike is applicable for 13 inches-24 inches tires.
Multistrada is currently bolstering its production capacity as it recorded 17,500 units and 8,000 units of production capacity for car and motorcycle in early December 2010.
After the first phase of expansion completed, the car tire production shall soar by 28.57% to 22,500 tires per day in the first half of 2011, compared to 16,000 tires per day.
After the second phase of the expansion completed, the production capacity of car tire may surge to 28.500 units in the end of the year.
“Besides raising the sale price, we also impose the mixed product management since every product size poses different margin. We also establish a particular allocation for our product,” said Even.
Based on the research of OSK Securities released on 30 December 2010, it is believed that Multistrada may maintain its gross margin, approaching the current level in 2011 particularly amidst the price rising trend of rubber and crude oil.
The main challenge happens to be a rise over the natural rubber price from the current level of US$497 per ton (in the end of December) or soared by 73% compared to the end of 2009. In the meantime the price of crude oil reached US$91.2 per barrel or augmented by 15% compared to the closing price in the end of 2008.
Regarding to cost, the allocation of raw materials accounted 67% from Manufaktur’s total manufacture cost in the end of September 2009.
OSK assumes the portion of natural rubber to reach 20%-25%, while 65% consist of crude oil derivative, compromising of 20% of synthetic rubber, 25% of black carbon, 10% of polyester and 10% of tire wire.
Referring to the company’s track record, Multistrada is able to maintain the gross margin at 20%-22% per year. The tire producer even successfully increased the gross margin amidst the raw material jump since it may overcome the expenses hike by depending on its ultra high car tire performance.
50% growth

Adding to that, backed by the production expansion, Multistrada seeks to record 50% of revenue growth this year, reaching Rp3.1 trillion compared to last year’s estimation at Rp2 trillion.
The company also expects to raise its net income by 50% to Rp240-Rp250 billion in 2010, compared to last year’s projection of Rp160-Rp165 billion.
Such revenue projection is relatively lower than OSK’s estimation. In 2011, OSK estimated Multistrada to book 57% revenue growth, reaching Rp3.37 trillion while the tire producer’s net income may grow by 30% to Rp231 billion or lower than the growth projection of 50%.
OSK projected Multistrada to record Rp2.14 trillion and Rp177 billion of revenue and net income in the end of 2010.
Multistrada has surged 108.63% to Rp290 from Rp139 since early 2009.
In comparison, Jakarta Composite Index has soared by 140.33% in two years, from its level in early 2009 at 1,437.34 to 3,454.29 this afternoon. 

Disclosure: No position at the stock mentioned above.  

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