Shares of select tire makers fell 2-3.5% in opening deals on the National Stock Exchange on Thursday. The decline was a result of the Competition Commission of India (CCI) announcing monetary penalties on five major tire manufacturers for “engaging in cartelisation”.
In a statement late on February 2, the fair trade regulator announced the imposition of fines 425.53 crore on Apollo Tires, 622.09 crore on MRF Ltd., 252.16 crore on CEAT Limited, 309.95 crore on JK Tire, and 178.33 crore on Birla Tyres.
According to the CCI statement, “The tire manufacturers had exchanged price-sensitive data among them through the platform of their association, the Automotive Tire Manufacturers Association (ATMA) and took collective decisions on the prices of tyres.”
It is to be noted that the tire companies had filed a petition in the Supreme Court challenging the CCI order imposing the total fine 1,788 crore on them for being involved in cartelisation. The top court dismissed the petition of tire companies.
While this dents investor sentiment for the industry, analysts say the impact of the move on the financial health of tire companies is unlikely to be severe.
“The penalty that has been imposed on these companies is 5% of their average turnover for the last three. So, the best response we are seeing in stocks today. One such example happened in cement. A few years back. Earlier, it did not hurt their revenue much. What matters in the medium to long term for tire companies is their demand outlook and their ability to deal with cost pressures,” said an analyst at a domestic brokerage named Nam. Print request house.
Investors feel that the tire industry, like many others, is grappling with severe cost inflationary pressures with a sharp rise in prices of key inputs (natural rubber, carbon black and synthetic rubber, among others). Due to strong demand, many tire makers have hiked prices to save margins.
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