"Since tyre companies were facing headwinds, such a move was expected by the government. They were unable to compete with Chinese companies; hence the government took this step to protect the interests of the domestic players. However, To protect the indusry doesn't necessarily mean these firms will increase their profit manifold. It is just that they will not make losses, but will sustain. With slowdown in auto sector, the incremental sales will be tough to come by. Therefore, it won't be a gamechanger for the tyre sector, but at least competition will not erode their margin from here on," says A K Prabhakar, head of research at IDBI Capital.
All tyres stocks have given negative returns in the calendar year 2019 (CY19). Notable names such as MRF, Apollo Tyres, Ceat and JK Tyre have slipped in the range of 15-28 per cent during the period. The Nifty Auto index has slumped around 15 per cent. On the other hand, the benchmark Nifty50 index has gained nearly 9 per cent, ACE Equity data show.
"The monthly run rate of TBR (total truck and bus radial tyres) imports has dropped 60 per cent from levels seen just before the imposition of anti-dumping duty (ADD), effective September 2017. Imports from China in the aforesaid period have dropped in excess of 80 per cent. Hence, CVD measure, though incrementally beneficial, is unlikely to prove to be a gamechanger," said analysts at ICICI Securities in a report.
Given the developments, Ashwin Patil, senior research analyst at LKP Securities remains positive on MRF, Apollo Tyres and JK Tyre, as they have a major presence in the trucks and buses segment. JK Tyre is the top pick of ICICI Securities given its market leadership position in TBR segment and its intention to deleverage its balance sheet to the tune of 35 per cent over the coming three years. The brokerage, however, is neutral on Apollo Tyres and Balkrishna Industries (BKT).
"BKT is not the beneficiary to the said duty as mostly exports its product profile to the European and US markets.
JK Tyres is well placed to play on the TBR opportunity domestically," Shashank Kanodia, research analyst at ICICI Securities wrote in a co-authored note with Jaimin Desai.