Stock prices of tyre companies such as Balkrishna Industries, JK Tyres, Apollo Tyres, Ceat and MRF jumped 3-7 per cent on Monday. Volumes too were up two-five times compared to Friday. Balkrishna Industries hit a fresh 52-week high of ₹842 on the NSE.

Domestic rubber prices, which had hit one-year high levels in April, have fallen to ₹130 recently from ₹140 levels a kg in mid-July and the decline looks sustainable, say analysts.

Crude oil prices are also down 13 per cent from the June peak levels, pointed out G Chokkalingam, founder, Equinomics Research and Advisory. This is also positive for tyre stocks as it helps in the reduction in prices of synthetic rubber.

The sector is raw-material intensive, with the cost of rubber (natural or synthetic) forming 65-70 per cent of total input cost of tyre companies.

Likely to dip to ₹120 “Rubber prices can go to ₹120 levels due to harvesting time. Companies will reflect the benefit of lower rubber prices from the December 2016 quarter as they are currently holding higher-cost inventory,” said an analyst at a mid-sized domestic brokerage firm.

The main production season for natural rubber will start in September-October. Besides, decline in natural rubber prices in the major overseas markets, favourable weather and reports of higher imports are also reasons for fall in rubber prices despite growth in consumption of rubber remaining higher than in production, said analysts.

Better placed Even in a rising rubber price scenario (if any), tyre companies are better placed to hike prices in the replacement market, according to Mayur Milak, analyst with Anand Rathi. Companies have been witnessing robust volume growth in the replacement market, which forms 60-75 per cent of their revenues.

Apollo Tyres and Ceat reported 13 per cent growth in volumes in Q1.

Further, Apollo Tyres’ management has reiterated its guidance of double-digit volume growth in India and Europe in FY17.

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