Share price of Apollo Tyres has tanked 23 per cent so far in 2022. However, analysts remain bullish and see up to 73% upside going forward. According to analysts, Apollo Tyres is all geared for the next leg of growth, with sufficient capacity to cater to demand from India and Europe. Though the near-term margin is expected to remain muted, analysts expect gradual margin recovery to sustainable levels from the second half of FY23 owing to the company’s ability to take gradual price hikes. Compared to its peers, Apollo Tyres offers the best blend of earnings growth and cheap valuations, said domestic brokerage firm Motilal Oswal Financial Services in its report. Apollo Tyres shares were quoting at Rs 168, down 4% on NSE intraday.
Should you buy Apollo Tyres shares?
Motilal Oswal: Buy
Target price: Rs 265; Upside: 51%
Analysts at Motilal Oswal believe that Apollo Tyres is all geared for the next leg of growth, with sufficient capacity to cater to demand from India and Europe. “With capex for Phase II of the AP plant concluding in FY23, increase in capacity utilization will generate higher cash flows and further deleverage its balance sheet. The stock trades at 13.6x/8.7x FY23E/FY24E consolidated EPS. We value the stock at 12x Jun’24E EPS (v/s a five/10 year average P/E multiple of ~16x/12x),” they said. The brokerage maintains a buy call on the stock with a target price of Rs 265 per share, implying 51% upside.
JM Financial: Buy
Target price: Rs 300; Upside: 70%
According to the brokerage firm’s report, Apollo Tyres’ volumes in 1Q are likely to see modest QoQ improvement. “While replacement segment demand is holding steady, improvement in demand from OEM segment is expected to drive the sequential growth. Headwind from commodity inflation is expected to continue and likely be offset by a) multiple rounds of price hikes taken (APTY has taken 3-4% increase in 1Q) and b) cost saving initiatives,” it said. Though the near-term margin is expected to remain muted, analysts at JM Financial Services expect gradual margin recovery to sustainable levels from 2HFY23. The brokerage maintained a ‘buy’ call on the stock with a target price of Rs 300. Weakness in domestic auto sales, further increase in RM cost and easing of tyre import restriction are the key risks to the upside.
ICICI Securities: Buy
Target price: Rs 305, Upside: 73%
According to ICICI Securities’ analysts, Apollo Tyres is witnessing demand pick-up in tipper, ICV segments, thus pushing T&B tyre demand up. “On ~1,000TPD TBR capacity, present capacity utilisation of ~75% is giving APTY visibility of absorbing growth in FY23-FY24E without investing for incremental capacity in TBR,” they said. The brokerage maintains ‘buy’ rating on the stock with an unchanged DCF-based target price of Rs 305, implying 13x FY24E earnings. Major reduction in RMB cost, improved pricing in TBR replacement, and better-than-expected revenue growth in EU amidst ~17-18% EBITDA margin are the key upside risks to the target.
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