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Our Bureau

Kolkata, Jan. 6 Are tyre companies coming out of a bad patch? Tyre stock prices are giving mixed signals. While JK Tyre and Apollo Tyres still show weakness, MRF and Ceat share price movements suggest a recovery in the past one-month period.

According to analysts, the October-December quarter was marked by significant decline in demand and temporary stoppage of production. Industrial disputes and reduction in cash flow troubled many of the players.

Birla Tyre, which is a division of Kesoram, closed its OEM unit at Balasore on December 17 and has not reopened it. Ceat shut down its Bhandup plant from December 26 to 28 and at the Satpur plant from December 25 to 31 due to excessive inventory.

MRF Ltd declared a lockout at its plant at Arakkonam from December 17 to 19 on account of labour unrest. Apollo Tyres Ltd declared a lockout at its plant (taken on lease from PTL Enterprises Ltd.) at Kalamassery, from December 6 owing to labour unrest.

In July-September quarter, JK Tyre had complained that input cost pressure had affected its profitability.

Auto analysts said that this sub-sector has been affected by the slowdown in the user industry. “Now that an attempt are being made to boost economic activity in various sector including auto sector, things may start changing gradually,” said an auto analyst.

There is also a silver lining in the form of significant drop in input costs.

The overall drop in costs is estimated to be 35 to 40 per cent.

MRF has a market share of 24 per cent in the Rs 20,000-crore domestic tyre industry. Apollo Tyres is stated to have a share of 22 per cent followed by JK Tyre (19 per cent), Ceat (14 per cent) and Goodyear (6 per cent).

According to industry sources, the slowdown may force price cuts by tyre manufactures to retain their market share. Historically, the tyre companies enjoyed 8 to 10 per cent margins.

The slowdown would put up a roadblock in radialisation of truck tyres, which contribute around 70 per cent of the tyre turnover value. It was earlier estimated that radialisation would go up to 15 per cent in 2009-10 from the current eight per cent.

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