Being the second largest selling brand in India with a market share of 14.6 per cent, Ceat caters primarily to the replacement market. Due to the strong growth in the OEM sector, the share of the replacement market in the total revenue of the company has fallen. However, the production growth in the automobile sector over the past few years should provide a boost to the replacement market in the coming years and Ceat could be a major beneficiary thereof. With the advent of multinationals like Goodyear, Michelin, Bridgestone and Continental, a major shakeout in the industry is imminent and the same could result in Ceat, which is already operating on thin margins, being hived off as a joint venture with Goodyear, in collaboration with which Ceat has already promoted South Asia Tyres for manufacturing radial tyres in India. With a modest track record on the financial front, the forthcoming results may not be encouraging.
APOLLO TYRES LTD. (ATL)
A slow-down in the tyre market and rubber procurement at high prices has put the brakes on Apollo Tyres Limited (ATL). The company has traditionally been the market leader in the truck and bus tyres segments. ATL caters to the replacement segment of the domestic market. Following its take over of Premier Tyres, ATL's market share has risen. Besides the core truck and bus tyre business, fairly considerable part of its turnover comes from automotive tubes and flaps, for which it has commissioned a plant in Pune. Despite a reversal in the fortune of the automobile industry, the chief user base of the company's products, the demand for truck tyres, particularly in the replacement market, was not encouraging. Even as tyre producers grapple with over-capacity and high levels of inventory, the government stirred a hornet's nest by proposing free imports of used and second-hand tyres. ATL has conversion agreements for small tyres with TCIL, Stallino Tyres and Rado. Its exports are routed through Apollo International to the US, Germany, Brazil, Sudan, Egypt, etc. A well-entrenched position in the replacement market, favours ATL and the declining price trend of key inputs like natural rubber and carbon black may provide relief to its wafer-thin margins. At the current price level the scrip has emerged as an attractive buy; thus accumulate its shares in small lots.