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Target: ₹226
CMP: ₹245.70
We expect NOCIL to face near-term headwinds as near term outlook from Michelin and Bridgestone, the two largest global tyre manufacturers remains weak. Michelin has marginally raised its projections for CY23 from negative 3 per cent/zero per cent for passenger cars and light trucks to negative 1 per cent/1 per cent.
However, it has cut down its truck tyre outlook from previous negative 4 per cent/ negative 1 per cent to negative 6 per cent/negative 4 per cent respectively.
Similarly, Bridgestone expects “challenging conditions to continue throughout 2024 mainly in N. America and Europe”. In 9M-CY23, global OEM demand for tyres has grown by 6 per cent while demand for replacement tyres has declined by 1 per cent.
China Sunshine recorded 16 per cent volume growth y-o-y, average sales price (ASP) declined 18 per cent YoY on account of both decline in raw materials as well as “flexible pricing strategy”. It is also expected to commence commercialisation of its 20ktpa MBT (accelerator) expansion early 2024, which may intensify competition.
Reiterate cautious stand on the company with a target price of ₹226 (unchanged) valuing it 20x FY26 EPS of ₹11.3. Downgrade to ‘Reduce’.
Key risks: Rise in demand of tyres, foray into adjacencies, new capex.
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