After some categories of tyres were moved from the free list to the restraint list by the Directorate General of Foreign Trade, the shares of tyre manufacturing companies increased gradually. It was seen that the tyre stocks were up by 1-6 percent.
The analysts at JM Financial Institutional Equities state that the tyre imports that the now restricted categories contributed was around 75 percent. As a result of the restriction imposed, there would be limited tyre imports in the coming days. However, the imports could be impacted in the long-term and the importers might find new strategies.
They further added that there could be significant reduction in the importers as it might take time for approval formalities. They are waiting on further clarification about the notification to assess long-term impact since the condition for approval of license will determine the future availability of imported tyres.
Also See: Govt. Imposes Restraint On Import Of New Pneumatic tyres
The import restriction is said to improve the revenue of the tyre companies such as Apollo Tyres Ltd. and Ceat Ltd. The revenues of the domestic tyre sector is said to probably expand by about Rs. 2000 crore.
A dealer-check by Reliance Securities in the past confirms that during the lockdown, the volumes in the tyre sector has dipped considerably. It is believed that the first quarter accounts for demand for tyres due to the high wear and tear. There is a high demand for pre-monsoon checks also during the first quarter. However, the sector has been facing problems due to decreased demand in the last few months.
Analysts at Reliance Securities Ltd says that “April’20 volumes were impacted by 90%, while May 20 would see volumes fall 50-60%. Overall industry volumes are expected to fall by double-digits in FY21E."
Besides all this, the automobile sector which is facing problems due to lockdown has affected the tyre companies drastically. In the first FY21, the auto sales has been poor. This is said to impact the tyre manufacturing companies that operates in the orginal equipment space and the volumes they produce . However, the companies in the replacement market could withstand the slump in the auto sector.
