The condition of your tyres is most important for a safe drive. But those who invested in tyre stocks got really, really rich!
Data shows four stocks from tyre sector have surged over 5,000 per cent in last 15 years. Balkrishna Industries has stolen the show all the way.
An investment of Rs 1,00,000 in Balkrishna Industries’ shares 15 years back would have become over Rs 6 crore today. The stock has surged to Rs 2,083 as of November 17, 2017 from Rs 3.47 on November 15, 2002.
Analysts say Balkrishna Industries (BIL) is one of the most profitable companies with 30 per cent EBITDA margin. Nirmal Bang Securities believes strong double-digit volume growth likely over FY18E-FY19E, robust margins on the back of operating efficiency, benign commodity prices and strong realisation will drive 17 per cent earnings growth CAGR over FY17-FY20E for BIL.
“We have been a long-term buyer of Balkrishna Industries, largely because it is one of the most efficient tyre producers in India. I think margin expansion and growth can continue to provide long-term value,” says Deepak Shenoy, Founder, Capital Mind.
BIL is the producer and supplier of automotive tyres and primarily operates in the off-highway tyre (OHT) segment comprising agriculture, industrial, construction and all-terrain vehicle tyres. The company caters to original equipment manufacturers (OEM) players in the farm, mining and earth moving space, which account for 26 per cent of its total volume, while replacement demand accounted for the remaining 72 per cent as of June 2017.
The company also offers tyres to institutional players, which maintain large fleets. BIL derives over 80 per cent of revenues from exports and supplies to clients in over 130 countries.
It has a production capacity of around 3,00,000 mtpa across four manufacturing plants in India and supplies to key markets in Europe, US, Australia, New Zealand and Africa.
The off-highway tyre (OHT) industry is poised for healthy volume growth over the coming years, as can be discerned from commentaries from global tyre players and their clients.
“Balkrishna Industries, with its niche export focus and ample capacity, is in a sweet spot to capitalise on this. Accordingly, we forecast a 14 per cent volume growth CAGR over FY17-FY20E,” Nirmal Bang said.
MRF, the most expensive stock in terms of share price, also comes from this sector. This stock has soared 8,132 per cent to Rs 69,477 as of November 17, 2017 from Rs 844 on November 15, 2002.
Brokerage Anand Rathi is positive on MRF and sees over 20 per cent upside in the stock. “A steady decline in rubber prices and greater revenue growth augur well for MRF’s margin expansion in the coming quarters. For the next two years, we expect competition in two-wheeler tyres to be keener. Nevertheless, the company will maintain its market share. The scrip can touch Rs 85,523,” Anand Rathi said in a research note.
Analysts expect strong volume growth, helping the company to clock an 11 per cent (CAGR) revenue expansion over FY18-20 to Rs 19,000 crore.
The domestic tyre industry caters to two segments, which include original equipment manufacturers (OEM) and the replacement market. Replacement demand dominates the tyre market, contributing more than 55 per cent of total demand.
Indian tyre market is driven largely by two and three-wheeler tyres (53 per cent), followed by passenger cars (28 per cent) and commercial vehicle segments (16 per cent). The tractor segment accounted for only 3 per cent of tyre sales in 2015-16.
Then there are other successful stories, which have multiplied investor wealth manifold over the past 15 years. Shares of TVS Srichakra,CEAT, Goodyear India, JK Tyre and Apollo Tyres have grown 7,675 per cent, 6,159 per cent, 2,996 per cent, 2,658 per cent and 1,701 per cent, respectively, during November 2002-2017.
Equity benchmark BSE Sensex has climbed nearly 1,000 per cent to 33,343 as of November 17 from 3,034 on November 15, 2002.
Equirus Securities has a ‘Long’ call on Apollo Tyres. “We remain positive on the stock with strong growth expectations for FY20. Our December 2018 target price stands revised to Rs 279 (from Rs 289 earlier).” The stock traded at Rs 236 on November 17.
The government in September re-imposed anti-dumping duty (ADD) on import of new Chinese truck and bus radial (TBR, including tubeless) for a period of five years effective from September 18, 2017.
After the move, Chinese imports have become costlier, thereby providing a level-playing field to Indian T&B tyre manufacturers.
Icra expects this to help demand pickup for large Indian truck tyre manufacturers.