Downturn in FY25 Volume Growth Forecast Impacts Tyre Stocks: MRF & CEAT Witness 3-4% Drop

• Major tyre stocks are experiencing selling pressure due to a lower forecast for domestic tyre volume growth in FY2025.
• Leading rating agency ICRA predicts a growth moderation from 6-8% in FY2024 to 4-6% in FY2025.
• Key tyre stocks such as MRF, Apollo Tyres, JK Tyres Industries, CEAT, and Balkrishna Industries have seen a decline in share prices.

Amidst a subdued market outlook, major tyre stocks face selling pressure as ICRA predicts a lower domestic tyre volume growth for FY2025.

ICRA Forecasts Lower Growth for Domestic Tyre Volume

According to ICRA, India’s domestic tyre volume growth is expected to moderate to 4-6 per cent in FY2025 from an estimated 6-8 per cent in FY2024. This is due to an elevated base and subdued growth in the commercial vehicle (CV) segment. Leading tyre stocks including MRF, Apollo Tyres, JK Tyres Industries, CEAT, Balkrishna Industries, among others witnessed a continuing decline in their share prices in the range of 3-4 per cent on the subdued market outlook.

Impact on Stock Market

The benchmark Sensex crashed over 1,000 points while the Nifty dived below the 22,000 level due to across-the-board selloff amid general election uncertainties. The tyre export volumes, which contribute approximately 25 per cent of industry’s sales (by value), are estimated to have recorded a low single digit growth in FY2024 after contracting by seven per cent in FY2023 due to demand shrinkage in key markets amid inflationary pressure and higher interest rates.

Future Outlook for Tyre Industry

On the capex front, the tyre industry is expected to continue to invest 6-9 per cent of its revenues in FY2025. The credit metrics are expected to be comfortable on the back of healthy earnings, despite the expected moderation, and moderate capital expenditure plans, according to the rating agency. However, the tyre sector may have reached its peak margin (from raw material-related benefit). Historically, the stock price peaks closer to an earnings upgrade cycle, which happens closer to margin peaks; Q4 may be the start of earnings downgrade cycle.

Conclusion

Despite the current challenges, the tyre industry is expected to maintain a steady growth trajectory in the long term. However, investors should keep a close eye on the market trends and make informed decisions based on the latest data and forecasts.