Shares of tyre manufacturers were up sharply on Tuesday, defying the overall downtrend in the market. With rubber prices declining, analysts expect tyre makers’ earnings to improve.
At 1300 IST, JK Tyre & Industries share was up 8.7% to Rs 96.45,Ceat was up 5.1% to Rs 110, TVS Srichakra was up 4.5% to at Rs 263.80, MRF was up 2.9% to Rs 6692.55 and Apollo Tyres was up 2.1% to Rs 69.25.
Price of benchmark RSS4 grade of natural rubber, which had surged to Rs 240 a kilo last month, is in a downward spiral following the devastating earthquake in Japan on Friday.
But this could well turn out to be a double-edged sword, some experts caution.
Several major automobile companies like Toyota, Honda and Nissan have temporarily shut production in Japan, which is expected to hurt demand for tyres.
“Following the earthquake, there are concerns over automobile production in Japan. A drop in production there, coupled with sluggish sales in China, is expected to hurt demand for tyres and that is dragging rubber prices down,” Chaitanya Adesara, analyst at Sharekhan said.
In the Kochi market, price for RSS4 grade rubber fell sharply to Rs 185 a kilo on Monday from Rs 201 on Friday.
Adesara said rubber prices could fall to Rs 170 per kilo levels.
Tyre manufacturers’ profits have been hit by surging raw material costs over the last few quarters.
MRF reported a 14.4% drop in net profit for the October-December quarter to Rs 102.18 crore.
Analysts say the tyre companies will be carrying high-cost inventory in the fourth quarter, which would continue to put pressure on earnings.
However, the recent slide in rubber prices will boost earnings growth in the April-June quarter, they say.
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