Tyre Companies Gather Momentum

We are positive in tyre sector as the demand for passenger

vehicles in the Indian market have gathered momentum on
the backdrop of above average monsoons, significant
improvements have been observed in the current market
sentiment. A wide range of new and affordable models have
triggered the onset good times in the Passenger Vehicle
segment. Renault has been the pick of the lot as it declared
the highest August sales growth of 749% YoY amongst its
peers. Isuzu Motors declared 433% while Nissan Motors
and Maruti Suzuki declared 110% and 12.2% sales growth
respectively. The impressive success story has resulted in an overall growth of 16.29% in
the passenger vehicle segment, while growth in the two wheelers segment jumped 26.32%
and the commercial vehicles climbed 1.53%. The jaw-dropping progress in the vehicle
segment, backed by an over average demand scenario, comes as a boost for the Indian Tyre
Industry as well. The chain of events has lead to the growth in revenue of Tyre
Manufacturing Companies across the nation.
Following are our Top picks:

INSTRUMENT

Price

Market
Cap
(Rs. in
Cr)

%
FII
Holding

P/E
Ratio
(X)

Debt
Equity
Ratio
(X)

PAT
JUN'
16

PAT
MAR'
16

Earnings
Growth
QoQ

Price
performance
since Budget

JK TYRE
TVS
SRICHAKRA
BALKRISHNA
INDUSTRIES

141

3368

8.85

7.55

1.53

100.2

115.64

-13.35%

81%

3671

2848

0.67

14.72

0.29

46.51

51.44

-9.58%

77%

914

8619

18.83

15.22

0.47

149.05

154.99

-3.83%

54%

MRF
CEAT
APOLLO TYRES

48600
1229
210

21101
5080
11221

0
26.14
32.48

12.29
11.82
9.99

0.35
0.31
0.22

490.93
93.07
314.69

375.8
103.94
249.91

30.64%
-10.46%
25.92%

51%
40%
37%

Below are a set of reasons behind the Sectors impressive performance post Budget:
Strong demand in vehicles (passenger, commercial and two wheelers): Strong
demand in vehicles(passenger, commercial and two wheelers): This will lead to
growth in demand for tyres by 6-7% in the next three years as expected by ICRA, the
premier rating agency
Strong export growth.
Above normal monsoon: This has lead to increase in demand of Original
Equipment(OEMs) in the rural market for two-wheelers and tractor segment.
With festive seasons around, we expect the sales numbers to get better in the
coming months.
With softening Rubber prices, margins are expected to improve: Rubber constitutes
70% of the raw material price of tyre companies, which will benefit tyre companies
due to low raw material cost.
If Anti-dumping laws are pressed into action in the days ahead, it will act as a
catalyst for growth in the Tyre Manufacturing Companies.
Fall in Crude Oil Prices brings down price of Rubber chemicals and synthetic
rubber

Jk Tyre: JK Tyre could be the next success story in the Small Cap space. The company's
operation business segment consists of tyres, tube, and flaps. On the basis of price
performance, JK Tyre has given maximum return compared to its peers. Since the 1st of
August, when the share was trading at 87, the script has jumped up 75% even as it
registered its 52 weeks high of 153.2 today. The impressive growth story in less than two
months is an achievement par excellence. A quick look at JK Tyres fundamentals reveals
that the stock is still trading at a PE of 7.55 which surprisingly is the lowest in the small
cap space.
MRF: Among large Cap companies MRF is the best bet, trading at a PE of 12.29 the
lowest PE amongst Large Cap stocks. The company's products are Tyres, conveyor belts,
pre treads, paints & coats and sports goods. The company is dealing only in rubber
segment. MRF has reported best quarterly numbers as revenue has gone up 30% QoQ. The
company is the largest beneficiary of good monsoon. MRF is an almost zero debt company

with huge expansion plans. The price of MRF has gone up from 30000 to 51000, more
than 51 % in less than three months.
TVS Srichakra: The company manufactures a range of Two and Three Wheeler Tyres and
Tubes for the domestic market and Industrial Pneumatic tyres, Farm & Implements Tyres,
Skid steer tyres, Multipurpose tyres, Floatation tyres, etc. for the export market. TVS has
given 77% return from its recent low. Trading in a PE of 14.7, in small cap space it has the
lowest Debt which will act as a catalyst to the performance of the company.
Management of Tyre manufacturing companies has said that there will be a slight impact
on the margins of the company even if rubber prices increases, as any fall or rise of rubber
prices is passed to OEMs. Rubber prices are trading at 118-120 per kg as against 140
recently. So in spite of prices going up by more than 50%, it is still time to invest in quality
stocks as further buying can be seen in this sector. We maintain our Buy rating on Jk tyre,
MRF and Tvs Srichakra.

Disclaimer
The investment advice or guidance provided by way of recommendations, reports or other ways are solely the personal views of the
research team. Users are advised to use the data for the purpose of information and rely on their own judgment while making
investment decision.
Dynamic Equities Pvt. Ltd - SEBI Investment Advisory Reg. No.: INA300002022

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Answers to the Best of our knowledge and belief of Dynamic/ its Associates/ Research Analyst: DYNAMIC/its Associates/ Research
Analyst/ his Relative:

Do not have any financial interest / any actual/beneficial ownership in the subject company.
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Article Written by
Surbhi Lohia