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India: Tyre firms gain speed on low rubber prices

07/10/2016 By adminweb

In the second week of September last year, the Mumbai-headquartered corporate office of tyre maker Ceat had a celebration. For the first time, the company’s market capitalisation had hit Rs 5,000 crore. The party lasted for a while and Ceat’s stock hit a fresh high of Rs 1,318 a month later. A reverse trend started early this year, with a spurt in the price of rubber, the industry’s key raw material. By June, Ceat’s stock had pared much of the gain, to touch a 52-week low of Rs 731.

India: Tyre firms gain speed on low rubber pricesTyre makers have got lucky again. Rubber Board data shows prices (RSS-1 grade) zoomed 31 per cent from Rs 114 a kg in February to Rs 149 in July. In the past two months, prices have softened again, to about Rs 120 a kg, lower from what they were early this year.

Reflecting the positive outlook, stocks of three tyre makers — MRF, Balkrishna Industries and Ceat — hit a fresh high on Monday; JK Tyre and Apollo hit a 52-week high. Most of these stocks gained 50-60 per cent in the past two to three months. The scrip price of MRF, the country’s largest tyre maker, zoomed 36 per cent in the past month. It recently became the first publicly held private company stock to cross Rs 50,000. Still, analysts are not shying from giving a ‘Buy’ recommendation, as it is trading lower to a number of peer companies (see chart).
“Rubber prices had bottomed out in February and then, increased steeply till May. It started softening since July and is now stable at a new level. We are hoping it would remain at the current levels,” said Satish Sharma, president (Asia Pacific, Middle East & Africa) at Apollo Tyres.

India: Tyre firms gain speed on low rubber prices

There are other triggers. Sale of passenger vehicles grew 11 per cent in the first five months of the current financial year; two-wheeler sales jumped 16 per cent. The comparable growth for the corresponding period of last year was six per cent for passenger vehicles and none for two-wheelers. The growth has resulted in an increased demand for tyres, apart from strong demand in the replacement market.
Raghupati Singhania, chairman at JK Tyre, said the economy in general was expected to perform well in FY17, with a rub-off effect on tyre demand. “Demand has been slow in commercial vehicle tyres, whereas passenger vehicle tyre demand has shown an increase. Due to a good monsoon this year, the farm sector has performed well and there is spurt in the demand for tyres used in tractors,” he said.
“Our volumes have grown in double digits in the first quarter of this fiscal, as compared to the same period last year,” said Sharma. Rising volumes and stable raw material prices will help margins in the current quarter. Rubber prices are expected to stabilise at the current levels. Crude oil prices have increased from the low levels seen in February but are unlikely to increase further. Thus, tyre companies will not face increased input pressure over the next 12 months, says a recent report by India Ratings and Research. The only concern for tyre makers is Chinese imports, especially in the replacement market for truck and bus tyres.

Filed Under: Global rubber market news, News

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