ET Online

(This story was originally

August 4, 2014)

Mumbai: Tire makers have been in the limelight today as traders bought shares after car sales rose in July and companies reported better results amid falling rubber prices.

The new government has increased the excise duty on small cars, scooters, motorcycles and commercial vehicles from 12% to 8% in order to boost sales of automakers for the third consecutive month.

Automakers say strong sales in the past three months mark a recovery in the auto market after two years. Sales increased as consumer confidence returned as interest rates, inflation and currency levels stabilized.

Tire companies’ production has been hit by a lack of demand from automakers. The recovery in the automotive industry bodes well for automotive support companies.

Analysts tracking the automotive market expect improved results for the remainder of 2014 2014.

Maruti Suzuki, Hyundai, Honda and Toyota reported 19.9% EPS. Domestic sales increased by 90,093 units in July compared to 75, 145 vehicles in the same month last year.

Secondly, tire companies announced better results after rubber prices fell to their lowest level in almost three years.

In the second quarter of 2014, Goodyear India’s EBITDA grew 10.7% year-on-year to Rs 450 crore, and margins increased 78 basis points year-on-year to 10.3%.

Fluctuations in rubber prices have a significant impact on margins. Stability of rubber prices in the international raw material market will benefit tire companies.

“In terms of sales and market value, it remains attractive. In terms of P/E ratios, the numbers are also attractive. The fortunes of the commercial and passenger vehicle markets are expected to evolve in the future. It is a long-term change of two to three years,” Prabhudas Lilladher Amisha Vora told ET Now.

However, analysts say valuations of tire companies have risen significantly and investors should wait for a correction before entering these companies.

“If you look at the entire industry structure itself, replacement sales have not changed significantly as per market expectations.” “Ad spending has increased significantly and most players are spending on capital expansion,” said Mayuresh Joshi, vice president of agency. Angel brokers can incur significant costs. ‘

Rubber prices may rise to offset these concerns. This is because lower raw material prices are expected to stabilize margins.

Vora added: “Some of the modifications may not be good right now, but if we do more modifications, they will be a good entry point in the medium to long term.”

Mayuresh Joshi, VP, Institutional, Angel Broking Some tire companies are definitely worth keeping an eye on.

“You should be aware of the decline or the current level of Apollo Tires. It is growing steadily. The sales growth rate is around 20% and the start-up rate is around 90%. Domestic sales growth rate is above 6% and prices are not expensive.” So, we believe we can watch CEAT falling but at current levels Apollo Tires which seems to be a better option.

As of 01:00 PM, Apollo Tires is up 3.32%, Ceat is up 5.04%, JK Tires is up 5.15%, Falcon Tires is up 4.46% and Goodyear is up 0.12%.