Tyre scrips merrier as rubber slips to 8-month low

Tyre scrips merrier as rubber slips to 8-month low. The softening of rubber prices and the players' success in increasing tyre prices has sparked renewed interest in the tyre sector.

A host of tyre scrips surged today. Apollo Tyres rose 8% to Rs 341.80, JK Industries rose 5% to Rs 125, Goodyear India gained 5% to Rs 118.65, CEAT rose 5% to Rs 111.90, Falcon Tyres gained 4% to Rs 120 and MRF rose 2.6% to Rs 3,956.

>From a low of Rs 72.90 in late July, JK Industries has risen to current Rs 125. CEAT has spurted to Rs 111.90 from a low of Rs 72.05 on 24 July. MRF has risen to current Rs 3,956 from a low of Rs 2,611.70 in late July.

The price of natural rubber is falling in domestic as well as global markets. The cost of rubber, the main raw material for tyre companies, has touched an eight-month low. February 2007 rubber futures contract in Tokyo closed 2.2% down, at 218 yen ($1.87) per kg, on Thursday (7 September 2006).

Natural rubber constitutes roughly 40% of the total input costs for the manufacture of tyres. Most companies have been increasing the prices of tyres since the last few months. Tyre makers, which were earlier raising prices just twice a year in the past, have started announcing price hikes every six weeks.

Meanwhile, early last month, the Directorate-General of Anti-Dumping and Allied Duties, Ministry of Commerce, recommended imposition of provisional anti-dumping duty on import of cross-ply, truck-bus tyres from China and Thailand. The duty-burden is heavier on tyres from Thailand. In its preliminary findings announced on 31 July, the anti-dumping authority found that imports were causing injury to the domestic tyre industry, during the 14-month enquiry period from June 2004, and issued fresh set of reference prices for such imports. The enquiry was launched, based on complaints from the tyre industry in late 2005.

Tyre sector is witnessing robust demand from the booming automobile sector. Strong demand is also helping industry to regularly hike prices. Analysts feel that demand from the replacement market will remain strong due to ever increasing number of vehicles in India. Replacement demand is for the tyre sector. As much as 49% of tyres produced enter the replacement market, while only 43% find their way into the original equipment manufacturers (OEM) segment.

For Q1 June 2006, Apollo Tyres reported 3% fall in net profit, to Rs 16.26 crore (Rs 16.69 crore). Sales jumped 33%, to Rs 757.27 crore (Rs 568.09 crore).

MRF's Q3 June 2006 net profit plunged 52%, to Rs 8.17 crore (Rs 16.88 crore). Sales rose 25%, to Rs 994.77 crore (Rs 795.12 crore).

JK Industries reported 59% fall in net profit for Q3 June 2006, to Rs 3.63 crore (Rs 8.88 crore). Net sales rose 23.9%, to Rs 696.93 crore (Rs 562.67 crore).

CEAT performed well with a net profit of Rs 23 lakh in Q1 June 2006 as against a net loss of Rs 1.98 crore in Q1 June 2005. Sales rose 24% to Rs 497.66 crore (Rs 402.77 crore).

Source: Capitalmarket