Shares of local tyre makers have surged over two-and-half times in the past year, returning four times more than their global peers. Analysts cite high profitability and growth, as well as cost competitiveness of the Indian manufacturers for this stellar performance that comes at a time when the country’s automobile market is going through a weak phase.
Among the most liquid tyre stocks, Ceat, Apollo Tyres and Balkrishna Industries top the list globally for returns. On that basis, local automobile makers haven’t done badly either. As many as five – TVS Motor, Atul, Tata Motors, Eicher Motors and Hero Motocorp – feature among the top 10 global auto makers in the Bloomberg world auto-manufacturing index.
“There has been no structural changes in the business model of Indian tyre supplier companies during the last few years vis-avis global companies, but a calibrated approach adopted by local players for pricing discipline at a time when rawmaterial prices have been softening has changed the perception for tyre companies,” said Basant Kumar Bansal, finance director at Balkrishna Industries.
He expects tyre makers to benefit further if the economy turns around as that would lift the auto sector as well. Adomestic fund manager, speaking on the condition of anonymity, cited three reasons for the local tyre segment’s performance – valuation, currency play and a significant upside to their margins. According to him, just before the start of the current rally, some Indian tyre stocks were trading at two-three times their annual earnings, with the exception of Apollo, which was trading at ..
“The sector has seen a gradual re-rating of stocks after Apollo Tyres’ deal with Cooper Tire was shelved and the margin expansion of 200-400 basis points came into play on account of the moderation in raw material prices,” the analyst said. During the past year, Ceat’s stock returned about 389%, while Apollo Tyres delivered 217% and Balkrishna Industries, a manufacturer of off-highway tyres, increased 206%.