Tyres – Don’t miss out - RM prices falling, Heavy capex phase | DM Stocks

Tyres – Don’t miss out - RM prices falling, Heavy capex phase behind – Top two ingredients of tyre stock rally

Many a times I hear argument about tyre supply demand and stock prices. Let’s look at some historical facts – over FY13-15 period when tyre stocks witnessed massive rally, volume growth for industry was 3%/3%/6% in FY13/14/15.
FY17-19 was highest volume growth phase for industry but stocks remained sideways as two most important drivers of tyre stocks – RM and capex were high.

We are again going to see capex and RM becoming favourable

Raw Material prices falling now
Natural rubber prices on Singapore exchange in 3QFY23 so far 24% lower than average over 4QFY21-1QFY23
Kerala Natural rubber prices in 3QFY23 so far are 11% lower than 4QFY21-1QFY23
Styrene and Butadiene (components of synthetic rubber) are 17-18% lower

So 3QFY23 onwards, every quarter we will see margin improvement

Heavy capex phase behind
Over last 6 years, industry capex ballooned due to shift towards radial in truck segment and greenfield plants by Apollo, Ceat and MRF.
TBR capex is going to moderate going ahead and it will be all brownfield expansion over next 3-4 years, so capex for industry will be significantly lower.

Apollo Tyres spent ~Rs 23bn capex per year over FY16-22, which is going down to Rs 12bn in FY23-24 and even in FY25, unlikely to be more than Rs 18bn at much larger EBITDA base.
Ceat capex will also moderate from next year

We are seeing one big change as well that companies are talking about deferring capex due to low ROIC whether its Apollo or Ceat or JK Tyre.

Don’t miss out
We remain extremely bullish on tyres and have 3-year Sep’25 PT of Rs 597 on Apollo Tyres and Rs 3,654 on Ceat.
We like these two most as they have spent maximum on R&D over last 5-7 years and is reflecting in market share gains in PCR and TBR.

On lighter note, in 2016 at peak of tyre stocks, people were saying why should not tyre companies trade at higher multiples as these are B2C business. I am sure in 2026, I will hear same comments