Shares of tyre makers were trading weak with Ceat hitting a 52-week low of Rs 921, down 4 per cent on the BSE, on concerns of margin pressure due to rise in raw material costs, particularly natural rubber.
MRF, Balkrishna Industries, Goodyear India, JK Tyre & Industries and Apollo Tyres were down in the range of 1 to 2 per cent on the BSE. In comparison, the S&P BSE Sensex was down 0.54 per cent at 39,541 points at 11:19 am.
Natural rubber prices have turned positive after a gap of two years in the domestic market during the first quarter of the current fiscal year. The price of natural rubber is up a staggering 23 per cent from a low of Rs 11,915 in January and is currently at Rs 14,579, according to Rubber Board data. CLICK TO READ MORE
Analysts at Prabhudas Lilladher have downgraded Ceat from ‘Hold’ to ‘Reduce’ on account of further downside seen in margins and rise in debt levels. The brokerage firm has set a 12-month target price of Rs 886 per share.
Given the various capacity expansions (capex of Rs 4,000 crore over 2-3 years) in a muted demand scenario, anticipated rise in raw material costs (particularly, natural rubber) and management’s focus on Original Equipment Manufacturers or OEMs (mix to rise by 4-5 per cent towards OEMs), the brokerage firm expect margins to subside from current levels and hence, has tapered its margin expectations for FY20/21E by 40/80 basis points (bps) to 8.9 per cent/8.8 per cent, respectively.