India: Tyre stocks on a roll, thanks to soft rubber prices

CHENNAI, NOV. 21:

Thanks to weak natural rubber prices in the spot market, tyre stocks witnessed a sharp rally during the past three months.

Among them, the biggest gainer has been Ceat, which moved up 128 per cent in the last three months. Shares of JK Tyre and TVS Srichakra also surged in excess of 50 per cent during the period. Apollo Tyres, which has been under pressure following its acquisition proposal of US-based Cooper Tire & Rubber Co, also recovered 22 per cent in the last three months. MRF gained close to 30 per cent at Rs 16,863.10.

Even in Thursday’s falling market, most of these stocks ended in the green.

Analysts are bullish on tyre stocks, as they expect rubber prices to soften further. Spot natural rubber, a major raw material for tyre producers, declined about 20 per cent in three months.

Many plantation owners opted for rubber plants over other agricultural commodities and considered it a profitable business. This increased the supply and rubber witnessed bumper production. But due to the economic slowdown, the auto segment reported a decline, which impacted OEM demand, said Tushar Pendharkar, analyst at Right Horizons Financial Services Pvt. Ltd

Analysts also believe tyre manufacturing companies are trading at reasonable valuations. Any uptick in the economy and the reactive pick-up in the auto sector will only boost the sentiments for tyre stocks, they added.

Analysts expect a sharp rise in the industry’s FY15 earnings despite near-term challenges.

But some analysts are also advising investors to remain cautious on the sector. “Unless any perceptible pick-up happens in the auto sector, it is better to avoid this sector,” said a dealer in Chennai, working for a Mumbai-based brokerage.

Source: The Hindu