The Hindu Business Line : Low demand from auto cos deflates tyre stocks

Mumbai June 6 The stocks of tyre manufacturing companies have fallen, led by the news of auto companies such as Tata Motors and Ashok Leyland lowering their order for tyres to be fitted onto new vehicles.

Auto sales have been affected as a result of high interest rates, leading to a slowdown in the demand for tyres.

Tata Motors reported a 16-per cent drop in heavy and medium commercial vehicles during the first two months of this fiscal while Ashok Leyland's sales were down by 18 per cent in May.

"There has been a 15-20 per cent fall in growth compared to last year. However, it is not only a result of high interest rates.

Last year, sales were extra-ordinarily high because the stipulations that the weight of goods loaded onto trucks cannot be more than nine tonnes came into effect.

Therefore, comparing last year's figures to this year's does not give us the whole picture," said Mr Urmil Negandhi, auto analyst, Parakh Parikh.

The stock of tyre manufacturers, MRF Ltd fell 3.22 per cent on Wednesday, even though it was up 5.23 per cent month on month.

"There will definitely be a little downturn in tyre stocks as auto stocks are all down," said Ms Vaishali Jajoo, auto analyst, Angel Broking.

Interest rate impact

It's a call on interest rates and not on the auto sector.

Analysts feel that sales will improve only once the interest rates stabilise.

Input cost for tyre companies is also on the rise and they have to contend with increased pressure because of rising rubber prices.

"There will be a margin pressure on the company's operating profits because of the increase in rubber prices. However, I don't see it affecting them too drastically because they have sufficient pricing power and can increase their prices based on raw material prices," said an analyst.

Another worrying factor is increased competition from Chinese made tyres.

"Even though the Government has levied taxes on tyre imports from China, they are still cheaper than the ones manufactured in India. Companies such as Ashok Leyland have resorted to buying Chinese tyres," said Mr Negandhi.

The stocks of Ceat Tyres and JK Tyres fell by 5.07 and 3.68 per cent respectively while Apollo Tyres closed lower by 0.81 per cent. Falcon Tyres, however, finished on flat note.