(This story was originally

(June 24, 2014)

Shares of domestic tire companies soared more than two-and-a-half times last year, with returns four times higher than those of global tire companies. Analysts believe that high margins, growth and cost competitiveness of Indian manufacturers have helped them perform well in the sluggish Indian automobile market.

Ceat, Apollo Tires & Balkrishana Industries It is the most liquid tire stock, topping global returns.

Based on this, domestic automakers have also done well. Five companies like TVS Motors, Atul, Tata Motors, Eicher Motors and Hero Motocorp are amongst the world’s leading automakers.

“While the business model of Indian tire suppliers has not changed structurally over the last few years as compared to their global counterparts, the coordinated approach adopted by local players during the period of weak raw material prices has transformed tire companies. “Basant Kumar Bansal, Director Finance, Balkrishna Industries.

He expects tire makers to become more profitable as the economy improves, which will also benefit the auto industry. A local fund manager, who wished to remain anonymous, listed three reasons for the performance of the domestic tire industry: valuations, foreign exchange impact and significantly higher margins. According to him, just before this rally, some Indian tire stocks were trading at two to three times their annual revenues, while Apollo was trading at five to six times its annual revenues. Analysts said, “Stocks in the sector are gradually being re-rated after the Apollo Tyres-Cooper Tyres deal was put on hold, with slowing commodity prices widening margins by 200-400 basis points.”

Over the last year, Ceat shares have risen around 389%, Apollo Tires shares have risen 217% and off-road tire maker Balkrishna Industries shares have risen 206%.