Alex K Mathew
Head of research, Geojit BNP Paribas Financial Services
We are slightly negative on tyre stocks. Natural rubber prices are running at an all-time high across world markets, including Tokyo and Taiwan. In India, prices of natural rubber are hovering at Rs 175-177 a kg and we believe the prices will firm up further due to the deficit in rubber production.
Kerela, the largest producer of natural rubber, is expected to see less rainfall this year. This may increase rubber prices further. Rubber traders are also hoarding the commodity in anticipation of a price rise, which is making matters worse. Any price above Rs 150-155 a kg is a concern for tyre makers as it puts pressure on profitability. Tyre makers are trying their level best to pass on this rise in raw material costs to consumers.
In fact, they have revised prices twice this year. But, they can’t raise prices so often. The fourth quarter results will be impacted by higher raw material costs. But we don’t expect tyre companies to come up with very poor results. A rise in demand from the replacement market will help them report decent results. However, we expect the sector to lose support as car sales may slow down gradually. Investors may look at stocks like Apollo and MRF if rubber prices fall below Rs 155-160 a kg.
(mydigitalfc.com)
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