By Rutam Vora
The robust auto sales for the month of August has helped ailing tyre industry, which had witnessed high cost pressure owing to increased input-cost and reduced off-take in the wake of weak global economic sentiments.

Leading tyre companies, in the country had witnessed its stock valuations shedding away on the back of fading investors interest due to supply crunch of rubber, a key ingredient in tyre making.

The demand-supply mismatch led to high cost pressure on the rubber consumer industries including tyre makers. The shortage became further severe when sustained rainfall in the key rubber plantation areas disrupted rubber production.

The prices escalated to make newer highs at Rs.175 a kg. In some trades, the prices neared Rs.200 a kg. The industry cried foul to make rubber imports duty free and stop futures trading in rubber so as to keep a check on the prices.

But with no respite seemed coming from the regulatory bodies and government, the investor interests in the tyre stocks started waning. The stock prices tumbled with heavy losses on the Bombay Stock Exchange (BSE).

During the first three months of the current fiscal, the stock prices of leading tyre companies were seen plunging with heavy losses. JK Tyre & Industries Ltd (BOM:530007), Apollo Tyres Ltd (BOM:500877), CEAT Ltd (BOM:500878) and Goodyear India Ltd (BOM:500168) between 12% to 18% during April to June quarter.

Apollo Tyres lost over 12.1%, while CEAT lost 13.4% during the period. Goodyear India was down 14.3% and JK Tyre lost over 18.7% in the given period on the mounting concerns over the raw material costs.

But with economic recovery looked getting on stream with robust first quarter results of auto mobile companies, joined by robust monthly sales boosted sentiments among the investors for the tyre stocks as well.

The month of August witnessed phenomenon auto sales coming on the back of strong consumer demand. A variety of new launches, coupled with cheap financing options boosted the sales number further.

India’s largest car maker, Maruti Suzuki posted the highest-ever monthly sales in the month at 1.04 lakh units, while registering a growth of 24% over the same month last year.

Korean automaker Hyundai sold 17.2% more vehicles in domestic market at 28,601 units for the month.

Tata group major, Tata Motors posted a 32% rise in sales in August to 65,938 units. In commercial vehicles, sales grew 20 per cent to 35,585 units with medium and heavy commercial vehicles sales growing 34 per cent to 14,851 units.

Further, Mahindra & Mahindra's sales rose 29% to 28,903 vehicles in August 2010 over August 2009.

The upbeat sentiment in auto sector was reflected in tyre companies as well, with improved sales of tyres. The stock valuations bounced back with sharp gains on the bourses during the month.

The stocks of Apollo Tyres jumped the most over 29.5% during August till date. Meanwhile, CEAT Ltd rose over 22.5% joined with Goodyear India, which rose over 20.5% on the BSE during August, 2010.

JK Tyres posted fairly moderate gains of over 12.6% on the BSE during August till the end of the trading week on September 3rd. MRF Ltd (BOM:500290) rose 18.2% so far.

Analysts believed that the Indian tyre industry is in the midst of a very favourable supply-demand scenario, especially when the government has relaxed the import duty on rubber imports considering the long sought demand from the rubber consumer industry.

Also, with rains taking a halt and the monsoon looks fading away, the outlook for rubber production in the country also looks favourable, further boosting industry sentiments towards easy availability of raw material.

The stock movement may further be upside as the sales growth in auto sector continues to be in limelight with improved funding availability for retail consumers at least for the current quarter.

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