Seeing decent boom in tyre stocks: Dipan Mehta

In a chat with ET Now, Dipan Mehta, Member BSE and NSE shares his view on tyre stocks:

ET Now: Do you like any of the tyre stocks? Would you buy them at the current levels?

Dipan Mehta: We are seeing decent boom in tyre stocks at this point of time and that is more to do with the fact that input costs especially have remained under control.

They are benefiting on the replacement market, some of the tyre companies are also benefiting from export markets as well. Valuations were ridiculously low at low single digit PE multiples and now investors are seeing that there is some value in these shares and fortunately for the industry, September quarter numbers were exceptional for the entire sector as a whole.

So we are seeing this kind of investor interest coming back into tyre stocks but the basic track record of tyre companies over the past 5-10-15 years has not been that great.

At best, they are good trading picks and it is an industry where capacity is not that difficult to set up, imports also can certainly take place and some of the dynamics which have been benefiting the industry are not long term, will not be sustainable on a long term basis.

So maybe these stocks have some more way to go 15-20% or so purely on account of the PEs getting re-rated further upwards I mean because of a decent quarter or two coming through ahead as well but to expect them to generate 15-20% compound return over the next four-five years or so, that seems to be a bit of a difficult proposition.