MUMBAI: After facing multiple challenges last year, India’s tyre sector is poised for a recovery, with revival in truck sales, replacement demand and increased adoption of radial tyres likely lifting MRF, Apollo TyresNSE 0.20 %, JK Tyre and TVS SrichakraNSE 0.74 % in the range of 15-30 per cent in the next one year.
“As the cycle begins to move up, improving growth and return profiles could warrant a re-rating of tyre stocks…. We estimate revenue/earnings CAGR of 13 per cent/22 per cent ..
Auto ancillary companies, including tyre makers, are affected by the slowdown in auto sales. Tyre stocks have corrected up to 40 per cent in the last one year and are trading near six-year average forward 12 month PEs.
Concerns appear ‘overdone’ as sales to carmakers account for about 22 per cent of the total. The replacement after-sales market and exports constitute around 60 per cent and 18 per cent, respectively, of total sales.
Sustained investment in R&D has improved the industry dynamics with technology leaders benefiting from better pricing discipline, said analysts.
“Raw material prices, especially rubber and crude oil, are likely to fall amid signs of deflationary pressures in th ..
Apollo Tyres is currently trading at 12 times its forward earnings, after nearly 17 per cent price correction in one year, close to its 5-year average. “Considering strong earnings momentum and improving return/free cash flow profile, we conservatively set the target multiple at12 times to arrive at the March 2020 target price of ?275,” said Vaikam Kumar S of JM Financial.
Jay Kale, of Elara Securities, believes MRF would outperform in an environment of slowing OEM growth in FY21, with ..
Slowing pace of capex and improving profitability should stoke investor interest in the tyre sector, improving the prospects of return ratios and free cash flows.
Historically, the capex cycle has been a key determinant of stock performance in the tyre sector. Stock returns have been better during capex downcycles.
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