Shares of tyre companies decline on surge in raw material prices
Shares of most tyre companies weakened Tuesday as the recent spike in prices of commodities including rubber and crude, which are raw materials for their production, dented investor sentiment. Analysts expect these stocks to be under pressure over the next quarter but advise buying them if they decline.
JK Tyre fell 4.35% on Tuesday while MRF Tyres and Goodyear India declined 3.32% and 2.39% respectively. Apollo moved down 0.59% while CEAT and Bridegstone were up by 0.44% and 2.74% respectively. Benchmark Nifty slumped over 1%, while Nifty Auto Index fell 0.45%.
«The increase in price of rubber and crude oil have led to the fall in tyre stocks today,» said Arun Agarwal, VP & Analyst — Fundamental Research, Kotak Securities. «If there is a further rise in rubber or crude oil prices, then it will be difficult for the tyre companies to sustain their current profitability over the medium term.»
Brokerage Nomura remains cautious on the tyre sector citing a sharp jump in natural rubber prices. The firm said rubber prices in the domestic market have jumped 23% as of March 18 from the previous quarter.
«We believe companies will try to take price hikes to pass on a part of the cost, but this might be difficult and take some time in segments such as truck-bus, where we expect,» said Nomura's analysts Siddhartha Bera and Kapil Singh in a note.
Brent Crude prices have risen 5% in the past week to $86.13 a barrel.
Analysts said slowing demand from truck and bus segments are forcing tyre companies to cut prices.
«The
