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Best Tyre Stocks Quantitative Analysis | Invest Yadnya

Best Tyre Stocks Quantitative Analysis | Invest Yadnya

Published on 01 October 2021 .Views 387 .Comments 1
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Which is the best Tyre Stock?  Here is the Quantitative Analysis of Best Tyre companies based on their Q1FY22 performances.


According to an industry report, the domestic automobile industry, which is currently the fourth largest in the world, is expected to become the third-largest by 2021. The industry (including component manufacturing) is expected to grow at a compounded annual growth rate of 5.9 per cent and reach USD 251.4-282.8 billion by 2026, thereby becoming the fastest growing industry in the country, as per the report.
The domestic tyre industry has benefited from strong growth in both original equipment (OE) and replacement segments in the ongoing fiscal, according to the ICRA note.

India’s top tyre manufacturers are expected to report double-digit revenue growth in FY22 on the back of improved sales to automakers and the aftermarket segment. Capacity expansion, improving export demand and stable competitive intensity will help sustain the growth of the Indian tyre industry over the next 5 years. 

“The Indian tyre industry is expected to recover from five years of weakness and be on a linear growth path (12% CAGR over FY21-25E), supported by timely capacity expansion across companies. Improving demand, stable competitive intensity, and peak Capex (Capex of INR116b over FY22-24E v/s INR135.5b over FY19-21) augurs well for profitability
Factors like a favourable base effect, improving pace of vaccination, continued preference for personal mobility, and healthy cash flows in rural centres amid forecast of a normal monsoon will boost vehicle demand across categories, and in turn production.

With the swift rebound in economic activity and vehicle production in August to March period in FY21, tyre manufacturers reported recovery in their financials in the third and fourth quarters. The second wave of covid infections though has derailed the recovery as economic activity has been disrupted by lockdown in most states.

“Since December FY 20, Tyre companies have taken a price hike of 8% till June 21. We estimate the gross margin for Tyre companies to decline by 80-110 bp over FY21-23E. This coupled with operating leverage will enable recovery in profitability (after the impact of higher RM cost in FY22E) and capital efficiency (190bp over FY21E), said the analysts.

“Capex intensity has peaked out in our view, with cumulative Capex for Apollo Tyres, Ceat Ltd and MRF to reduce to ₹116b over FY22-24E (v/s ₹135.5b over FY19- 21). FY21 utilization across segments has been 63%-72% as a large part of capacities is in ramp-up mode after the start of operations over the last 12-18 months

Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on a quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based on risk profile.

Best Tyre companies Quantitative Analysis

Companies selected for Analysis:

We have selected the following Seven Best Tyre companies for our Quantitative Analysis.

Market Capitalization of Best Tyre companies (Rs. Cr):

Valuation as of September 22, 2021

  • Balkrishna Industries- Rs. 52,045
  • MRF- Rs. 33,927
  • Apollo Tyres- Rs. 14,769
  • Ceat- Rs. 5,507
  • JK Tyre & Industries- Rs. 3,826
  • Goodyear India- Rs. 2,399
  • TVS Srichakra - Rs. 1,677

The procedure of Analysis and its Interpretation

  • These 5 Companies are analyzed on the following 15 parameters and ranked and scored accordingly. For example, a company with a higher PE ratio is provided with a lower rank, hence has scored lesser points. Similarly, if a company has higher RoE, it has a higher rank and has scored higher points.
  • Here, 1 means that the company has scored the lowest points and 5 means the company has scored the highest points.
  • In the end, we have added all the points together and companies are ranked accordingly.

Parameters of Quantitative Analysis:

1. PE Ratio:

Best Tyre Stocks – PE Ratio

  • PE of a company means that how much investors should pay for the stock based on their current earnings. A company with a lower PE Ratio is considered to be undervalued and has a huge potential to unlock its value. Hence, full points will be rewarded to that company.
  • With the lowest PE Ratio of 6.78, JK Tyre 7 Industries gets the first position and 7 points. And Balkrishna Industries with the highest PE of 37.81 among peers is awarded 1 point only.


Best Tyre Stocks – EV/EBITDA

  • EV/EBITDA ratio measures Enterprise Value (EV) to the Earnings before Interest, Tax, Depreciation and Amortization (EBITDA). This ratio assesses the overall financial performance of the firm.
  • EV/EBITDA of value below 10 is considered healthy.
  • Here, JK Tyre & Industries bags the first position among the Top 5 Companies with the lowest EV/EBITDA ratio of 5.08.
  • Balkrishna Industries with the highest EV/EBITDA ratio of 23.03 receives the last position and one point only.

Return on Capital Employed (ROCE):

Best Tyre Stocks – Return on Capital Employed (ROCE)

  • ROCE signifies that how the company is using its capital to generate a return for the company and investors. The high ROCE, the better it is for the company.
  • In this parameter, Balkrishna Industries outperforms other peers by scoring the highest ROCE of 24.21% and hence obtains the 1st position as well as 7 points.
  • Apollo Tyres get the last position and 7th rank due to the lowest ROCE of 5.93%.

Return on Equity (ROE):

Best Tyre Stocks – Return on Capital Equity (ROE)

  • RoE signifies how well the company generates the return on shareholders’ investment. Companies with higher RoE are considered good.
  • In this parameter, Balkrishna Industries again beat other peers by scoring the highest ROE of 21.39% and hence obtains the 1st position as well as 7 points.
  • Apollo Tyres with the lowest RoE of 3.28% receives the last rank.

Debt-to-Equity Ratio:

Best Tyre Stocks – Debt to Equity Ratio

  • The debt-to-equity ratio is a leverage ratio that measures the debt of a company against its total shareholder's equity.
  • Accordingly, the lesser is the debt, the better it is for the company and vice-versa.
  • Goodyear India is nearly a debt-free company and hence rewarded with full points and given the first position.
  • MRF has a total D/E of 0.15 and it is ranked 2nd.
  • JK Tyre & Industries has the highest D/E ratio of 1.75 and is hence given 7th rank.

. Interest Coverage Ratio:

Best Tyre Stocks – Interest  Coverage Ratio

  • The Interest Coverage ratio is in direct relation with the D/E ratio. It can be calculated by dividing EBIT from Interest Expenses.
  • This ratio gives the ability of the company to pay interest from its operating profit.
  • Balkrishna Industries maintains a good Interest Coverage Ratio of 133.2, the highest among peers, gets the first rank.
  • Due to higher debt and the lowest Interest Coverage Ratio of 2.1, JK Tyre & Industries is ranked last and scored accordingly.

7. Pledged %:

Best Tyre Stocks – Pledged %

  • 6 companies in the list have not pledged their share and hence are rewarded with full points and first rank.
  • Apollo Tyres have a pledge of 4.96% of its shares, hence, given 7th rank and only 1 point.

8. Institutional Holding (FII + DII):

Best Tyre Stocks – Institutional Holding (FII + DII)

  • Institutional Investors (FII + DII) as a % of Free Float has the highest stake in Ceat, collectively of 70.8% and hence it is rewarded with full points and first rank.
  • FIIs and DIIs also hold around 70.2% stake in Balkrishna Industries and hence it secures the 2nd position in this criterion and scores 6 marks.
  • TVS Srichakra has the lowest stake of institutional investors of 9% in the Company's shareholding pattern and hence is given 1 point only.

9. Operating Profit Margin (%):

Best Tyre Stocks – Operating Profit Margin (%)

  • Operating Profit Margin can be calculated by dividing Operating Profit by Total Revenue. It is sometimes also called EBIT (Earnings before Interest and Tax) Margin.
  • Higher the Operating Profit Margin (%) of a company, better the operational efficiency of a company and vice-versa.
  • Balkrishna Industries efficiently post the OPM of 28.4% in June 2021 and secures 1st position, due to its diversified portfolio and favourable revenue mix. Key Factors driving High Margin: Diversified Product Portfolio (2,700 SKUs) Customised Model:  Large Variety Low Volume and Favourable Revenue Mix- 77% Exports: Strong Partnership with Global OEMs and Global Reach: Sales to 160+ Countries
  • With the lowest OPM of 8.7%, Ceat scores last rank among its peers.
  • All Tyre Companies OPM % eroded QoQ due to Rising Input Costs.

Sales and Net Profit Growth- 5 Year CAGR:

Best Tyre Stocks - Sales & Net Profit Growth- 5 Years CAGR

  • In terms of Sales Growth, Balkrishna Industries has posted the highest figures with a 12.3% rise in sales and a 21.4% rise in PAT. Hence, it gets the full points and 1st rank.
  • Key Drivers of High CAGR vs Peers: Favourable Revenue Mix- 77% Exports: Strong Global Reach: Sales to 160+ Countries, 64% of Revenue from the Agriculture segment (Non-cyclical sector), 32% from OTR (Off-the-Road segment Industrial, Construction, Mining, which are Cyclical sectors), While for peers only 10-15% Revenue comes from Farm/Agri segment.
  • MRF has registered the lowest Profit after Tax (PAT) growth on 5 years CAGR basis of negative 4.3%, whereas, Apollo Tyres posted the lowest sales growth of negative 20.8%, hence, got the 7th position.

Sales & Net Profit Growth: 3 Year CAGR:

Best Tyre Stocks - Sales & Net Profit Growth- 3 Years CAGR

  • In terms of Sales Growth, Balkrishna Industries has posted the highest figures with a 9.2% rise in sales and JK Tyre & Industries reported the highest PAT growth of 69.1%. Hence, both get the full points and 1st rank in the respective criteria.
  • JK Tyre & Industries posted the highest rise in PAT with a growth of 65% due to the effect of the low base in FY18.
  • Here, TVS Srichakra has registered the lowest sales growth on 3 years CAGR basis of negative 0.7%, and Apollo Tyres posted the lowest Profit after Tax (PAT) growth of negative 21.5%, hence, got the 7th position.

Operating Performance Ratios- Inventory Turnover Ratio (Higher the Better):

Best Tyre Stocks – Inventory Turnover Ratio

  • Inventory turnover signifies a parameter that measures how fast the inventory is sold or consumed in the given period, the higher the better.
  • Here Goodyear India secured the 1st rank with the highest Inventory turnover of 12.66 and get full 7 points.
  • TVS Srichakra again got the last rank due to a poor Inventory turnover ratio of 4.58, hence only 1 point was given.

Operating Performance Ratios- Cash Conversion Cycle (CCC):

Best Tyre Stocks – Cash Conversion Cycle

  • CCC refers to the no. of days a company takes to sell its inventories and collect its receivables.
  • The shorter (even negative) the cash conversion cycle of a company is, the better it is considered and vice versa.
  • Again Goodyear India secured the highest rank among its peers with the lowest CCC of -2.93 and get full 7 points.
  • Here MRF got the last rank due to the highest CCC of 73.06, hence only 1 point was given.

14. Final Score:

Best Tyre Stocks – Final Score

  • After analyzing and summing up all the marks scored by the Best Tyre companies, Balkrishna Industries is a front runner thereby conquers the first position in our analysis. Balkrishna Industries scores 84, the highest among all 7 companies.
  • Goodyear India and Ceat scored 74 points and 73 points respectively and hence secured 2nd and 3rd rank.
  • Due to poor performance in the majority of parameters, TVS Srichakra gets the lowest score of 37 points.
  • On account of healthy scores, Balkrishna Industries, Ceat and Goodyear India appears to be strong Tyre Companies.
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