MRF reported a surprise drop in its fourth-quarter profit as the tyre maker faced pressure from a spike in rubber prices. Ancilliary companies benefit from higher automobile sales and production, as they provide parts for the vehicles.

MRF Q4 results: MRF’s net profit drops 7.6% YoY to 379.6 crore.

Sales of overall vehicles in India in the fourth quarter rose more than 20% year-on-year and production climbed more than 21%, as per industry data.

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Prices of rubber rose roughly 10%, as per analysts, responding to higher crude oil prices.

Rubber is a key raw material for tyre makers, and often takes direction from oil prices as it competes for market share with synthetic rubber, which is made from crude oil.

MRF’s rival CEAT also posted a surprise drop in profit on Thursday.

MRF’s standalone profit from continuing operations fell 7.6% year-on-year to 3.80 billion rupees ($45.6 million) in the three months ended March 31. Analysts, on average, expected profit to climb to 5.05 billion rupees, as per LSEG data. Its revenue from operations rose 8.6% to 62.15 billion rupees, while expenses climbed 9.5% to 57.99 billion rupees due to a 7% surge in raw material costs.

Shares of MRF fell as much as 4.5% to 127,850 rupees. The stock was down nearly 3% prior to the results. Shares of CEAT were down about 10% earlier in the day.

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