Tolins Tyres IPO: From high competition to rising rubber prices, 5 key risk factors you should know before investing

Tolins Tyres IPO: The initial public offering (IPO) of Tolins Tyres Ltd opened for subscription today, September 9, and will close on September 11. Tolins Tyres IPO has been witnessing decent demand as the retail portion of the issue has been fully booked within hours of opening.

Tolins Tyres Ltd is a tyre manufacturing company and provides tyre retreading solutions in India and exports to 40 countries. The ₹230-crore worth Tolins Tyres IPO price band is set at ₹215 to ₹226 per share.

The company holds a 2.7% market share in India’s retread tyre segment and 0.06% in the overall tyre market. Globally, it has a 0.18% market share in tread rubber.

In FY24, Tolins Tyres generated revenue of ₹227.2 crore, with 95% coming from domestic sales in India and ~5% from international markets. Tread rubber accounted for 76% of the revenue, while tyres contributed 24%.

Before applying to the Tolins Tyres IPO, investors must know certain risk factors as mentioned in the red-herring prospectus of the company. Here are the 5 key Tolins Tyres IPO risk factors:

Tolins Tyres IPO: Key risks

Revenue dependence on distributors and OEMs: Around 72% of the revenue of Tolin Tyres depends on dealers and distributors, with Original Equipment Manufacturers (OEM) being significant customers for agricultural tyres.

Moreover, according to the Tolins Tyres IPO RHP, the company does not have exclusive contracts with these distributors and OEMs, which could pose a risk to future sales and profitability due to this dependence.

Supplier concentration and price volatility: The tyre manufacturing industry relies on a limited number of suppliers for critical raw materials. Without exclusive contracts, companies are vulnerable to supply risks and price volatility, as they must negotiate prices for each order, brokerage firm Indsec Securities said.

Rising rubber and crude oil prices exacerbate the challenge of passing on increased raw material costs.

Dependency on automotive manufacturers: Tolin Tyres’ sales are highly influenced by the inventory and production levels of automotive manufacturers. Any planned or unforeseen shutdowns of these manufacturers’ operations could significantly impact the company’s revenue.

Rising rubber and crude prices: Recent increases in rubber prices pose a significant threat to the company’s raw material costs. Additionally, rising crude oil prices, which are crucial for producing synthetic tyres, are likely to lead to higher costs for these tyres. This situation threatens to increase overall production expenses for Tolin Tyres.

Competitive Pressure and Market Penetration Challenges: Tolin faces significant competition in both the Indian and international tyre markets. Major players such as BKT, MRF, Apollo Tyres, JK Tyres, etc. dominate over 80% of the Indian market, making it challenging for Tolin to penetrate. Additionally, rising raw material prices make it difficult for Tolin to pass on costs to customers while maintaining competitive pricing to gain market share, analysts said.

However, despite the risks, most analysts have recommended subscribing to the Tolins Tyres IPO given its reasonable valuations and strong financial performance of the company.

Let us now check what Tolins Tyres IPO signals.

Tolins Tyres IPO GMP Today

Tolins Tyres shares are commanding a decent premium in the unlisted market. According to stock market observers, Tolins Tyres IPO GMP today, or grey market premium today, is ₹25 per share. This signals that Tolins Tyres shares are trading higher by ₹25 or at a premium of 11% at ₹251 apiece as compared with its IPO price of ₹226 per share in the grey market.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.