Tyre stocks in focus; JK Tyre, Ceat, TVS, Goodyear rally up to 12%

Balkrishna Industries said in its FY24 annual report said that there has been a notable increase in demand for vehicles globally, which provide growth opportunities for tire industry.

Shares of tyre makers were in focus and rallied by up to 12 per cent on the BSE in Friday’s intra-day trade on improving demand outlook. According to reports, domestic tyre companies have undertaken a price hike of 1-2.5 per cent with effect from July 1, 2024, in response to rise in key raw material prices (primarily natural rubber). 

Among the individual stocks, Ceat has surged 12 per cent to Rs 2,918, JK Tyre & Industries by 9 per cent to Rs 429.60, TVS Srichakra (7 per cent at Rs 4,400), Goodyear India (Rs 1,221) and Apollo Tyres (Rs 543.10) up 5 per cent and MRF (up 4 per cent at Rs 130,364) on the BSE in Friday’s intra-day trade. In comparison, the BSE Sensex was up 0.24 per cent at 79,432.
 

 

The price rise comes as a sign of relief for the domestic tyre industry amidst unprecedented rise in natural rubber prices which are currency quoting at around Rs 200/kg (11 year high), ICICI Securities said in a note.

Most of the tyre companies had guided for 4-5 per cent rise in raw material costs for Q1FY25 versus Q4FY24 (wherein natural rubber was quoting at Rs 180 per kg) and indicated at partial pass on the same to end consumers through 1-2 per cent price hike.

This move shall limit margin fall of the domestic tyre companies with most of them expecting to realise and sustain mid-teens EBITDA margin profile. This price hike in our view, however, does not fully cover the recent rise in raw material (RM) costs, ICICI Securities said in a note.

The improving demand scenario and ongoing premiumisation have enabled tyre firms to offset the rising RM and EPR-related costs via price hikes. As per our extensive channel checks, price hikes have continued in recent weeks, with further hikes expected in H2 if the RM cost increase continues; hikes in prices are being absorbed in the market. This, in our view, reinforces our anti-consensus argument of sustained margins in tyres going forward amid gradual de-linking from RMs, the brokerage firm said in stock update.

According to brokerage firm, channel feedback points to improving positioning of Indian tyre companies versus MNCs, vis-à-vis the past, across product quality/technology/performance as well as positioning. 

Moreover, the channel feedback also suggests that within domestic manufacturers, performance and positioning of players other than the market leader (i.e. MRF) have also been improving, thus leading to emergence of a more balanced industry structure than in the past, analysts said.

Meanwhile, Emkay Global Financial Services reiterates 'Buy' rating on JK Tyre & Industries with a target price of Rs 700 per share.

According to Balkrishna Industries, the global economic slowdown, ongoing wars, and potential stagflation pose significant risks to various industries, including tire manufacturing. However, there has been a notable increase in demand for vehicles globally, which provides growth opportunities for tire industry.

Management aims to focus on “Off Highway Tire” segment with targeted approach towards specific customer needs. Company’s strength in research and development supports innovation, enhances product differentiation and help in adapting market trends, Balkrishna Industries said in its FY24 annual report.