Tyre stocks gain; Ceat up 4%

Goodyear India, Ceat, Apollo Tyres, JK Tyre & Industries and MRF were 1%-5% on the BSE.

Shares of tyre manufacture trading higher by up to 5% on the bourses in otherwise subdued market after reporting good set of numbers for the quarter ended June 2015 and on expectation both Original Equipment Manufacturers (OEM) and replacement demand to rise in unison.

Goodyear India (up 5% at Rs 590), Ceat (4% at Rs 823), Apollo Tyres (3% at Rs 197), JK Tyre & Industries (1.3% at Rs 104) and MRF (1% at Rs 39,410) were trading higher by 1%-5% on the Bombay Stock Exchange (BSE). The S&P BSE Sensex was down 0.27% or 73 points at 27,488 at 01:38 PM.

Two tyre companies - MRF and Ceat – so far declared their June quarter results have reported an aggregate net profit of Rs 568 crore against Rs 282 crore in the corresponding quarter of previous year. The combined net sales of these companies increased 4% at Rs 4,992 crore on year-on-year basis.

Analyst at Anand Rathi Share and Stock Brokers expect domestic tyre demand through 2015-17 to grow 13-15%, driven by strong replacement growth and OEM demand. Medium & heavy-commercial-vehicles (M&H CVs), two-wheelers and passenger vehicles are likely to support the growth, while we expect negative to flattish growth from tractors and light-commercial-vehicle (LCVs).

“Rubber constitutes around 70% of the raw material costs of a typical tyre company. The global outlook and soft off-take of Chinese manufacturers on account of weak demand and the shift to “greener” tyres could result in lower demand for natural rubber, thereby keeping prices low. Thus, we expect tyre companies to benefit from lower raw-material costs”, analyst said in report dated July 27, 2015.