The government extended the Countervailing Duty on new, unused pneumatic radial tyres up to July 23, 2024, bringing tyre stocks such as MRF, JK Tyres, and Apollo Tyres into focus.
Why is Countervailing Duty imposed?
A country levies countervailing Duty (CVD) to counterbalance the price impact of major foreign government subsidies on the products or goods.
In simpler words, it is a type of import tax imposed by the importing country on the imported goods/products in order to protect domestic manufacturers by offsetting the negative impacts of import subsidies.
The Countervailing Duty was initially imposed by the government in June 2019 for a five-year period, therefore this extension is for one month.
How does Countervailing Duty affect tyre stocks?
The brokerage firm, Nomura India’s latest analysis on the tyre sector mentions a second instance of price cuts in the TBR segment.
Prices for Truck, Bus And Radial (TBR) tyres have been reduced by Rs. 500 to Rs. 800 per pair.
For leading tyre companies such as Apollo Tyres and JK Tyres, the price cut is in the range of 1.5 percent to 2 percent, after considering an average selling price of Rs. 40,000 per pair. Nomura noted in its analysis that Apollo Tyres and JK Tyre’s price cuts were in response to MRF’s similar price action.
The prices were cut by 1% in both the Truck, Bus and Radial (TBR) and Truck Bus Bias (TBB) segments.
Nomura India expects a 100 basis points hit on margin for Apollo Tyres by Q1 FY25, if the natural rubber prices continue to rise.
Furthermore, the analysis of the brokerage also pointed out that the standalone EBITDA margin of Apollo Tyres for FY24 is estimated at 18.1 percent, which is higher than the historical mean margin of 12-13 percent and is expected to be 22-23 percent in the replacement segment.
As of March 12th, the share price of Apollo Tyres Ltd. moved down by 1.98 percent to Rs. 500.6, compared to its previous closing price of Rs. 510.75.
JK Tyres and Industries Limited’s shares were trading in the red at Rs. 445.75, down by 5.95 percent, from its closing price of Rs. 474.
On the other hand, the shares of MRF Limited on BSE fell by nearly 1.6 percent from its previous close of Rs. 1,44,805.05 to Rs. 1,42,489.60.
Written by Shivani Singh
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