JK Tyre, Ceat, MRF: Tyre shares skid up to 8% on Monday on weak outlook

JK Tyre share price: According to analysts, there are risks to the tyre companies' profitability estimates, at least over the next one year

Tyre stocks were reeling under intense selling pressure on Monday, March 3, 2025. Among individual stocks, JK Tyre share price plunged 8.2 per cent, Tolins Tyres share price 4 per cent, Ceat share price 3.2 per cent, and MRF share price 1.2 per cent in the intraday trade on the BSE.  

  Apollo Tyres share price, Goodyear India share price, TVS Srichakra share price, and Balkrishna Industries share price, on the other hand, slipped in the range of 1 per cent to 3.5 per cent in the intraday trade. By comparison, the BSE Sensex index was down 0.45 per cent at 11:30 AM.

 

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According to analysts at Kotak Institutional Equities, there are risks to the tyre companies’ profitability estimates, at least over the next one year, as the industry faces high raw material prices amid their inability to pass on the costs to customers.

 

“We see downside risks to our FY2026-27 profitability assumptions in case the current industry conditions were to continue. We model a solid improvement in profitability in FY2026-27 from FY2025 levels. However, we note that even our FY2025 profitability assumptions are well ahead of pre-pandemic profitability,” the brokerage said in a recent report.

 

According to the analysts at Kotak Institutional Equities, tyre companies have seen a sharp decline in their profitability over the past few quarters, weighed by a sharp increase in raw material prices and weak demand conditions in the domestic tyre industry. While the industry has been gradually raising prices to pass on the increase in costs, the industry conditions are not supportive of large price increases in the context of the commodity and competitive nature of the industry, they said.

 

In this context, the brokerage also finds the stocks’ valuations on the higher side.

 

In the December 2024 quarter, JK Tyres reported a decline in net profit to the tune of 76.7 per cent year-on-year (Y-o-Y) at Rs 51.5 crore, as against a profit of Rs 220.9 crore reported in the year-ago period.

 

Operationally, while the revenue stayed flat (down 0.4 per cent) to Rs 3,673.7 crore, its Ebitda plummeted 43 per cent Y-o-Y to Rs 314.2 crore. Ebitda margin nearly halved as it tumbled to 8.6 per cent from 14.9 per cent.

 

Ceat, meanwhile, reported a net profit decline of 46.4 per cent Y-o-Y to Rs 97.1 crore. Its revenue, however, climbed 11.3 per cent to Rs 3,299.9 crore.

 

According to analysts at BP Wealth, Ceat registered a slightly mixed quarterly performance in Q3FY25 as it reported an improvement in revenue even as all other fronts failed to induce growth.

 

“Ceat reported a tepid Q3FY25 financial performance, largely below market estimates. While topline growth was recorded, gross profit, Ebitda, and net profit experienced notable declines. The primary challenges appear to be the raw material costs and the failure to pass on price hikes. The company experienced some challenges in the international markets due to geopolitical conflicts in the Middle East and the currency depreciation in Brazil, acting as headwinds in the segment,” the brokerage said.

 

Moreover, while the company intends to implement a price hike in Q4FY25 to offset the impact of cost inflation, analysts think the competitive intensity and uncertainty pertaining to commodity prices will likely delay its margin recovery.

 

“Revenue growth will likely continue its momentum, driven by a favourable volume mix and pricing, while volumes will likely be under pressure going ahead on account of demand moderation in OEMs. Going ahead, we remain largely cautious on the company's outlook,” BP Wealth said.

 

As for Apollo Tyres, which posted a revenue growth of 5 per cent Y-o-Y (Rs 6,930 crore) but a 33-per cent decline in net profit (Rs 340 crore), analysts at Motilal Oswal Financial Services cut their FY25/FY26 consolidated EPS estimates by 4 per cent/9 per cent to factor in the increase in raw material costs and higher operating expenses. It, however, has maintained its ‘Buy’ rating on Apollo Tyres with a share price target of Rs 520.