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Tyre firms' stocks do a wheelie

Good demand outlook, improvement in profitability give the required thrust

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Samie Modak Mumbai
Last Updated : Jan 21 2013 | 2:54 AM IST

Tyre manufacturers have had a spectacular ride at the bourses in April, on good demand outlook, coupled with improvement in profitability due to a fall in rubber prices.

Shares of nearly a dozen listed tyre companies have zoomed an average 20 per cent so far this month, outperforming the benchmark Sensex, which has gained only about 1.5 per cent.

Leading tyre makers MRF, Ceat and Apollo Tyres have gained 10.7 per cent, 19.6 per cent and 20.9 per cent, respectively, so far in April, while shares of Modi Rubber have more than doubled.

According to market analysts, the rally is fuelled by a drop in rubber prices, coupled with a robust demand outlook due to soaring car sales.

BURNING RUBBER
Shares of tyre makers have zoomed this month
CompanyLast price
(Rs)
Change
(%)*
MTD change
 
(%)**
Apollo Tyres91621
Modi Rubber585135
Ceat102320
JK Tyre82317
MRF10,970211
Note:*Change over previous day; **Change over March 28
Source: BS Research Bureau 

Tyre sales are expected grow between six per cent and eight per cent this year, on the back of a double-digit growth in automobile sales.

Said Deven Choksey, managing director, KR Choksey Securities: “Due to a slowdown in China, rubber prices have come down. This is benefiting all tyre manufacturers, as rubber is a key input for them. Also, car sales are continuing to record double-digit growth, which is boosting demand for tyres.”

Ambareesh Baliga, COO, Way2Wealth Brokers, added: “The stocks have gained due to an overall booming replacement market demand. Rubber prices coming off is an added benefit, but one cannot expect it to come down very sharply from here.” He believes there could be more upside left in the current rally.

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Rubber prices, although flat through the year, have dropped 15 per cent from their recent highs. Meanwhile, spot rubber prices on the MCX have come down six per cent in April. Rubber accounts for more than half the raw material costs for tyre companies.

According to analysts tracking rubber stocks, the sector is poised to post healthy numbers in the recently-concluded March quarter. A sharp jump in cheap rubber imports during the March quarter is also expected to benefit the sector.

“Broadly, margins are expected to improve further sequentially, as raw material prices have come off. Market leaders like Apollo and MRF could see margin expansions of 200 basis points in the fourth quarter,” said an analyst with a domestic brokerage.

The positive momentum among tyre stocks continued in Tuesday’s trade, as well as a majority of stocks gained between two per cent and five per cent.

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First Published: Apr 18 2012 | 12:16 AM IST

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