Tyre shares trade weak; Ceat, MRF, Apollo Tyres down over 3%

Ceat, Goodyear, Apollo Tyres, TVS Srichakra and MRF down between 3%-6%, against 0.39% decline in Sensex.

Shares of tyre manufacturers were under pressure, falling by up 6% on the BSE, on profit booking. Ceat, Goodyear India, Apollo Tyres, MRF and TVS Srichakra were down between 3%-6%, as compared to 0.39% decline in the S&P BSE Sensex at 12:21 pm.

In the past two-months, most of the tyre companies had outperformed the market, rallied up to 62% till Friday, due to fall in rubber prices. The benchmark index fell 1.7% during the same period.

Since rubber is a major raw material in Tyre manufacturing, the earnings of the company will automatically increase by decreasing prices of rubber. So there is an inverse correlation between rubber price and share prices of tyre industry.

After hitting multi-year low of Rs 94 per kg in January 2016, domestic rubber rebounded to Rs 140 levels in June 2016, in line with international rubber price trend, on supply side restriction by rubber producing countries like Thailand and Malaysia. After the knee jerk spurt, the natural rubber has dropped to 120/kg in the last one/two months.

Analysts at Anand Rathi believe tyre manufacturers would register 8-10% year on year (yoy) volume growth in September quarter (Q2) and expect margins to have declined around 100-150 basis points quarter on quarter (qoq).

“Because of the Q1 sharp surge in rubber prices (averaging Rs 118/kg, to Rs 145), we expect the high-cost inventory to have slashed margins in Q2 (price changes come with a quarter’s lag). Rubber prices have again cooled off to Rs 120/kg,” the brokerage firm said in Q2 results preview.

Company	12/08/2016	14/10/2016	% chg#	LTP	% chg*
CEAT	877.70	1375.00	56.66	1298.00	-5.60
Goodyear India	531.90	849.10	59.64	816.50	-3.84
Apollo Tyres	170.30	217.50	27.72	209.40	-3.72
MRF	36116.45	52413.90	45.12	50625.00	-3.41
TVS Srichakra	2389.65	3869.35	61.92	3750.00	-3.08
JK Tyre & Indust	104.95	154.65	47.36	150.90	-2.42
Balkrishna Inds	728.15	1101.85	51.32	1081.10	-1.88
Sensex	28152.4	27673.60	-1.70	27565.22	-0.39
LTP: Last traded price on BSE in Rs at 12:21 pm