Is there an investment opportunity in PSP Projects shares?

Tyre shares have performed well in recent times. Ceat Ltd gained more than 50% in the last one month, Apollo Tyres also zoomed more than 17%,  MRF gained around 11% in one month. The reason for the stellar performance is the good quarterly results. Due to the fall in raw material prices gross margins of the companies have improved. At the same time, volume growth also remained strong. In light of these two factors share prices zoomed.

However, going ahead there are some concerns, that were depicted by April auto sales figures.

Retail auto sales in April declined by 4%. Concerns are visible in the rural economy. As compared to the pre-pandemic level of April 2019, 2-wheeler sales were 19% lower.

PV sales in April slowed due to factors like a good base, increase in car prices and higher purchases in March. Also, it was indicated that inquiries for entry-level cars have softened.

While sales of 3-wheeler increased 57%. The transition to BS6 norms impacted the supply.

So, this means a tough situation for OEM which in turn would impact the sales of tyres. Crisil expects 9-10% growth of PV sales in FY24.

Ceat Tyres

Volumes for OEM remained strong, replacement volume was also strong. The company’s market share increased to 14.2%. Raw material costs declined which improved margins but the benefit will be passed on to consumers which will impact margins.

Concerns for the company are export volumes pressure, high-interest cost and growth expected to remain in the single digit.

The target price given by brokerages has been met.

Apollo Tyres

The company is looking for a capex light model and focusing on sustainability as well as operational efficiency. Most of the brokerages have increased the target price on the stock after the result, so that might have given a boost to the stock.

As per brokerages, the reasons are a fall in commodity prices and an increase in operational efficiencies. In the replacement market, it is expected that prices will continue to hold up and its free cash flows are reported to improve.

Brokerages gave generally, hold accumulate or buy ratings. However most of them increased target price. Target prices for various brokerages have not been met yet.

MRF

Motilal Oswal as well as Kotak Institutional Equities decreased the target price. Motilal Oswal pointed out that the company’s competitive positioning declined due to which its pricing power diluted in PCR (Passenger Car Radial) tyres and TBR (Truck, Bus and Radial) tyres.

There has been a huge downgrade for the share price. Motilal Oswal gave a target price of Rs 75,400 and Kotak institutional equities gave a target price of Rs 66,000