Shares of tyre companies were firm in a weak market on Monday on sustained buying support, following sops given to the sector in the Union Budget.

Vikrant Tyre (up 4.52% to Rs 10.40), JK Industries (up 2.95% to Rs 24.45), MRF (up 2.80% to Rs 910), Ceat (up 1.10% to Rs 27.60), TVS Srichakra (up 0.42% to Rs 48.15) and Premier Tyres (up 2.04% to Rs 5) were the major gainers. Meanwhile, the BSE Sensex settled at 3,276.23, down 7.43 points.

The rise in tyre scrips was purely due to sops given to the sector in the Union Budget for 2003-04. The Budget has proposed the reduction in excise duty on truck, bus, and passenger car tyres from 32% to 24%, and reduction in the import duty on various oil-based raw materials from 30% to 25%. Similar reduction in import duty has also been proposed on import of tyres.

In addition, the industry will also have an indirect positive impact from the reduction in excise duty on passenger cars from 32% to 24%, which will stimulate demand for passenger cars, especially in the economy segment (this will further lead to improved demand for passenger car tyres). The industry's margins on passenger car tyres have been improving as it has achieved 70% radialisation. With further thrust on roadway and high way projects, the radialisation of the truck and bus segment will be further facilitated, further improving the margins.

However, the reduction in import duty on tyres may not immediately affect the industry adversely. This is due to the fact that India is one of the cost-effective producers of cross-ply tyres, which continues to dominate the domestic tyre industry (except passenger car tyres).

The tyre sector is having a dream run in the past few months following sustained demand for motorcycle and commercial vehicles. Analysts hope to see the sector doing well in the current year on back of a rise in commercial vehicle sales, too. Growth of the tyre industry is directly dependent on the growth in automobile sales.

Between 21 and 28 February 2003, nine tyre companies added Rs 27.09 crore, or 2.46%, in m-cap to Rs 1,125.88 crore (Rs 11.25 billion) from Rs 1,098.79 crore (Rs 10.98 billion).