Tyre stocks in the spotlight; JK Tyre, Ceat, TVS, Goodyear rise up to 12%

Shares of tire makers were in focus, rising up to 12 percent on the BSE in intraday trade on Friday on improving demand prospects. According to reports, domestic tire companies have implemented a price increase of 1-2.5 percent effective July 1, 2024, in response to the increase in key commodity prices (mainly natural rubber).

Among individual stocks, Ceat rose 12 percent to Rs 2,918, JK Tire & Industries 9 percent to Rs 429.60, TVS Srichakra (7 percent to Rs 4,400), Goodyear India (Rs 1,221) and Apollo Tires (Rs 543, 10). ) rose 5 percent and MRF (up 4 percent to Rs 130,364) on the BSE in Friday’s intraday trade. In comparison, the BSE Sensex rose 0.24 percent to 79,432.

This move will limit margin decline for domestic tire makers, with most of them expecting to achieve and maintain an EBITDA margin profile in the mid-teens. However, this price hike, in our view, does not fully cover the recent rise in commodity costs, ICICI Securities said in a note.

The improving demand scenario and continued premiumization have enabled tire manufacturers to offset rising RM and EPR related costs through price increases. As per our extensive channel monitoring, price increases have continued over the past few weeks, with further increases expected in the second half of the year as the rise in raw material costs continues; price increases are being absorbed by the market. This, in our view, reinforces our anti-consensus argument of sustained margins in tires going forward, amid a gradual decoupling from RMs, the brokerage said in the stock update.

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

Meanwhile, Emkay Global Financial Services reiterates ‘Buy’ rating on JK Tire & 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 several industries, including tire manufacturing. However, there has been a notable increase in vehicle demand worldwide, providing growth opportunities for the tire industry.

Management wants to focus on the “Off Highway Tire” segment with a targeted approach to specific customer needs. The company’s strength in research and development supports innovation, enhances product differentiation and helps adapt market trends, Balkrishna Industries said in its annual report for FY24.