Apollo Tyres, CEAT, MRF: Most tyre stocks slip after companies reduce TBR tyre prices

Apollo Tyres, MRF share price NSE BSE: Most tyre stocks were trading in negative territory on Tuesday, March 12, after some of the leading names in space slashed the prices of TBR, or truck and bus radial tyres.

Among individual names, at around 11:38 am, shares of JK Tyres & Industries were down over 4 per cent, CEAT shares traded over 2 per cent lower, and MRF, Apollo Tyres, and Goodyear India shares were down over 1 per cent each.

On the other hand, Balkrishna Industries shares were up over 3 per cent.

Tyre price reductions by various companies

As per a report by Nomura, Apollo Tyres and JK Tyre have reduced TBR tyre prices by 1.5 per cent to 2 per cent. It noted that the prices of a few high-selling SKUs (stock-keeping units) of truck bus radial (TBR) tyres have been reduced by Rs 500–Rs 800 per pair. 

Besides, MRF has also reduced the prices of main-line truck tyres by Rs 350 per piece on March 5. This is the second round of cuts in TBR tyre prices. Before this, prices were slashed by 1 per cent during July–September 2023.

How will price cuts impact tyre companies? 

Apollo Tyres has the highest exposure to the truck and bus segment, which is around 60 per cent and the company has taken a 1.5 per cent price cut only for two SKUs, which forms around 40 to 50 per cent of TBR sales for the company. The TBR segment accounts for around 35 per cent of the standalone revenue of the company. 

Thus, as per Nomura, the overall impact of the price cut is only 20 basis points (bps) on margins.

However, if there is a continuous rise in natural rubber prices, then a 100-bps margin impact could be visible by 1QFY25. It should be noted that the main raw materials used while manufacturing a tyre are natural rubber, synthetic rubber, carbon black, and oil. The share of rubber compounds in the total weight of a tyre is more than 80 per cent. 

Weak earnings growth is expected in FY25F/26F due to a lack of focus on keeping high margins and increasing market share.

Overall, a cut in tyre prices could have an impact on the tyre company's margin.

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