Tyre stocks may rerate on sustained demand momentum, margin gains

Recovery in the replacement segment and sales to auto makers to drive volumes

Improving volume growth trajectory of auto original equipment manufacturers (OEMs) and earnings recovery led by rising margins are positive triggers for tyre stocks. While companies with a higher exposure to global/European markets could face demand worries given the macroeconomic environment, domestic-focussed companies could see earnings upgrades going ahead.

The near term demand trajectory and Q4 earnings would be the key monitorables. Most segments within the auto sector posted a healthy growth on a YoY basis in the March quarter, led by lower base and festive demand as Navratra/Ugadi fell in March this year from last April levels. The demand momentum