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These tyre stocks have an upside potential of 13 to 33%

Reliance Securities | 13 Sep, 2017  | Follow Author | Add to my Favourites 
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We envisage the domestic tyre industry to witness a healthy growth trajectory on the back of diminishing impact of demonetisation/GST roll-out and the government’s vision to double the farm income by 2022. Despite witnessing sluggishness in 2HFY17, the automobile production grew by 5.4% YoY in FY17 mainly aided by 9.4% YoY and 5.8% YoY growth in Passenger Vehicle (PV) and Two-wheeler segment, respectively. However, the Commercial Vehicle (CV) segment, which commands a larger pie in tyre consumption, grew by mere 3% YoY.

Automobile industry is still in a developing phase, as India accounts for 18 vehicles per 1,000 people as against 69 vehicles per 1,000 people in China and 786 in the USA. Though the OEMs account for ~31% of total domestic tyre consumption, there is a direct co-relation between tyre consumption and OEM production growth. The production figures of last 15 years reflect that  while the tyre production witnessed a 9% CAGR over FY02-FY17, the OEM production registered 11% CAGR during the same period.

Notably, CV segment accounts for ~55% of India’s tyre demand, while globally, this segment contributes ~25-30% to the industry volume. Low penetration of PVs in India vis-à-vis other countries is the prime reason for variation. Going forward, we foresee the PV segment to post robust volume growth due to a recovery in rural markets and growing aspiration of middle class people in urban and semi-urban areas.

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About Reliance Securities

Reliance Securities, the broking arm of Reliance Capital, is one of the India’s leading retail broking houses, providing customers with access to equities, derivatives, currency, IPOs, mutual funds, bonds, and corporate FDs amongst others. The large array of financial offerings helps customers fulfilling their investment objectives on one platform. Focus on timely & error-free execution represents its core strength. Their best in class research offerings, high degree of compliance with stock exchange regulations, ethical business standards, & strong risk management capabilities; Reliance Securities positions itself amongst strong & innovative brands in the financial services space.

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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.


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