Oil prices bring cost relief for MRF, Apollo Tyres, others
Shares of notable tyre manufacturers MRF Ltd and Apollo Tyres Ltd have risen 10% and 18% since oil prices started correcting on 5 October
The latest fall in crude oil prices will bring considerable relief to tyre manufacturers. Crude derivatives, such as nylon tyre cord fabric and chemicals, constitute around 30% of the total raw material cost for tyre companies. Consequently, profitability of these companies can see a notable improvement, if they hold on to the prices.
“Our sensitivity analysis indicates that ~10% decline in crude derivatives prices could lead to ~110 bps improvement in gross margins,” Nomura Research said in a note. “At the current levels, this would imply ~250 bps benefit in gross margins, if current prices are sustained and no price cuts happen in the replacement segment by tyre companies.”
The fall in crude prices comes amid benign natural rubber prices, another key raw material. As tyre companies exhaust their current inventory, impact of the cost reduction should reflect on their profitability from the next quarter (Q4FY19).
No wonder investors are already counting the gains. Shares of notable tyre manufacturers MRF Ltd and Apollo Tyres Ltd have risen 10% and 18% since oil prices started correcting on 5 October.
- Auto dealers feel the squeeze as vehicle registrations fall
- Honda to hike vehicle prices by up to Rs10,000 from next month
- Car market in India continues to move in the slow lane: Report
- Audi plans to introduce compact electric crossover to broaden Tesla assault
- NGT asks Volkswagen to pay penalty of Rs 100 crore in 24 hours
Editor's Picks »
- 2nd Trump-Kim summit to take place at end of February
- To boost confidence in oil cut, OPEC issues quota list
- China said to offer path to end US trade imbalance
- BlackRock, Goldman said to move some fund managers to US if no-deal Brexit
- RBI governor Shaktikanta Das sees inflation assessment as a challenge
- What to expect from Q3 results of IndiGo, SpiceJet, Jet Airways
- Forget privatisation, govt has hugged its banks tighter
- Flat profit, rising debt are growing worries for Reliance
- Q3 results: HUL growth off a high base shows it’s on a roll
- DCB Bank Q3 results: Small loans give big pain as farm, mortgages lift delinquencies