Tyre stocks have sparked the interest of investors due to the expectation of robust demand from original equipment manufacturers (OEMs), delivering better-than-expected Q1 numbers, and falling crude oil prices.
Shares of tyre majors MRF, Ceat, and JK Tyre have risen by 20 to 40 percent in the last three months, and some other stocks in the sector are trading near 52-week highs.
In Thursday's trade, Apollo Tyres set a new 52-week high of ₹279.8 on the BSE. The stock gained 10.50% in the last week to ₹278.15 from ₹251.70. In the last month, the stock has returned 20.93 per cent to shareholders. At current levels, the stock is trading 68.32% above its 52-week low of Rs. 165.2.
The majority of the stock's gains came after its June quarter results. The company reported a 49.21 per cent increase in consolidated net profit at ₹190.68 crore for the June quarter on the back of higher sales.
In Tuesday's trading session, Apollo tyres rose 7 percent after Morgan Stanley initiated coverage on the stock with an "overweight" rating. It has a target price of ₹329/share, which hints toward an upside potential of 18.55% from its previous closing price.
| Scrip Name | % 3 month Returns |
| Ceat Ltd | 43.81 |
| JK Tyre & Industries | 41.29 |
| Apollo Tyres | 31.72 |
| MRF | 19.87 |
| Good Year India | 6.08 |
Meanwhile, Nomura, a Japanese brokerage firm, predicted that a 10% drop in natural rubber and crude oil derivatives could help Apollo Tyres improve its margin by 170 basis points.
Similarly, Ceat's stock has increased 44 percent in the last three months. This auto tyre company’s stock hit a 52-week high of Rs. 1,459 on September 06. Ceat recently launched its ultra-high-performance tyres for the luxury segment. The company previously launched the same tyre range in Europe back in 2017. Experts believe this will help the company in the long run as the Indian luxury market is growing at double digits.
JK Tyre, on the other hand, increased 10.87 percent in the last week. In the last month, JK Tyre's share price has risen from ₹129.05 to its current level of ₹156, representing an increase of about 20.88 per cent.
Following a 60-80% drop in net profits for the March 2022 quarter due to high raw material costs, major tyre stocks traded near their 52-week lows in June. Brokerages became concerned about the slowing margins and lowered their target prices for major tyre stocks.
However, Tyre demand has started picking up gradually from June and is expected to rise further in the months ahead. However, the margin pressure is still likely to persist further, according to industry experts
To offset rising input cost pressure, companies raised prices multiple times in the previous fiscal year. And this fiscal year, with optimism about demand growth. Major tyre companies have already raised prices and are considering additional rate hikes to alleviate the RM cost pressure.
According to media reports, JK Tyre raised prices by 6-7 percent this fiscal year and signaled more hikes in the future to reduce RM cost pressure. Similarly, Apollo Tyres increased its prices by 8% in the TBR segment (replacement) and 3% in other segments in Indian operations.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
