Shares of tyre manufacturers soar as price of rubber skids

MUMBAI: Shares of several large tyre manufacturers surged to their highest in a year on Tuesday after the price of rubber, a key raw material, declined to two-year lows internationally.

At a time when the outlook for the overall automobile sector has dimmed, a drop in rubber prices may improve the companies' profitability prospects, analysts said.

Apollo Tyres shares hit a 52-week high of Rs 95.40 on BSE on Tuesday, before closing 4.2% up at Rs 95.10.

JK Tyre & Industries hit a 52-week high of Rs 118.80 intra-day and settled at Rs 115.60, or 7% up.

Ceat shares surged 9.4% and hit a 52-week high of Rs 122.80 before ending at Rs 120.05. Shares of MRF gained 2.5% to close at Rs 11,075.

Benchmark indices ended at their highest levels in five months on Tuesday boosted by a late rally after European stock markets opened strong on optimism the European Central Bank will resume its bond-buying programme. Sensex gained 194 points, or 1.1%, to end at 17885.26. NSE Nifty closed 1% up at 5421.

International rubber prices have corrected over 30% since May, while domestic prices have corrected around 10%.

"Given that rubber constitutes average 45-50% of input costs of tyre companies and affect 30-35% of their top line, profitability will improve for at least the next two quarters," said Surjit Arora, research analyst at Mumbai-based broking firm Prabhudas Lilladher.