Amid price hike reports, shares of tyre companies rally for second day

According to media reports, domestic tyre companies have undertaken a price hike in response to a rise in key raw material prices (primarily natural rubber).

Shares of tyre companies rallied for the second consecutive day on Tuesday, with most of the biggest players registering cumulative gains of up to 6 per cent over the last two days.

Apollo Tyres clocked 6 per cent gains followed by JK Tyre at 4.7 per cent and Ceat at 3.8 per cent. MRF made cumulative gains of 2.7 per cent.

MRF has reportedly increased rates of its truck tyres by 2 per cent, while prices of passenger car and radial tyres were increased by 3-7 per cent. There was no hike in the prices of two-wheelers as of yet, according to a CNBC TV18 report.

Last month, media reports stated that domestic tyre companies undertook a price hike of 1-2.5 per cent with effect from July 1, in response to rise in key raw material prices (primarily natural rubber).

The price rise comes as a relief for the domestic tyre industry amidst unprecedented rise in natural rubber prices at around Rs 200 per kg (11-year-high), ICICI Securities had 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. The firms indicated that they will partially pass on the hike to consumers through 1-2 per cent price rise.

This move shall limit margin fall of the domestic tyre companies, with most of them expecting to realise and sustain mid-teens operating profit margin profile. This price hike, however, does not fully cover the recent rise in raw material costs, ICICI Securities said in an earlier note.

With rising international prices and the end of the peak production season in India, coupled with the export incentive of Rs 5 per kg, natural rubber prices surged to Rs 185 per kg in March 24 from Rs 150 per kg in Q3FY24.

Additionally, port restrictions on natural rubber imports continued in India, with imports only allowed at Nhava Sheva and Chennai ports. The inverted duty structure on natural rubber at 25 per cent or Rs 30 per kg, whichever is lower, persisted throughout the year, leading to a 23 per cent rise in local natural rubber prices during FY24, Apollo Tyres said.

Meanwhile, the tyre sector is expected to witness steady demand, supported by the government’s persistent focus on infrastructure development and increasing consumer confidence. The overall outlook for the tyre industry remains positive.

Raw material prices remained stable in the early part of the year, but showed an upward trend during the later part. The domestic NR availability is inadequate and the industry is making efforts to enlarge plantations in the North eastern states to encourage enhanced domestic production, JK Tyre said in its FY24 annual report.

The tyre industry is expected to grow at a healthy pace, as the Indian automotive sector is expected to reach a size of $300 billion by FY26-27. To capitalise on this opportunity, JK Tyre has focused on deleveraging and strengthening its balance sheet throughout the year, positioning the company for a high-growth trajectory, the company said.

Meanwhile, commercial vehicles are likely to show muted growth in the current year. Growth of passenger vehicles may moderate considering the high base and strong growth in the last 3 years. Industry body Society for Indian Automobile Manufacturers (SIAM) expects a 3 to 5 per cent growth in the financial year 2025. Two wheeler sales are showing signs of improvement and this may continue into the current year, considering favourable monsoon and likely improvement in rural demand.