‘Buy’ on Apollo Tyres with target price of Rs 305

Published: December 26, 2018 1:00:52 AM

Apollo is amongst top two players in T&B segment with 28% market share in domestic tyre sales and technology leader in the PCR segment with an 18% domestic market share.

Apollo’s leadership in the domestic market, ease in raw material costs and potential upside from operation in larger European market makes it a preferred play with a sustained growth outlook.

By Choice Broking

Apollo Tyres is one of the leading global tyre companies having presence across India, Europe, US, Middle East and other growing economies of Asia. Approximately 75% of the revenue is contributed by replacement market, rest 25% caters to OEM market. Apollo is amongst top two players in T&B segment with 28% market share in domestic tyre sales and technology leader in the PCR segment with an 18% domestic market share. Apollo’s leadership in the domestic market, ease in raw material costs and potential upside from operation in larger European market makes it a preferred play with a sustained growth outlook. At a CMP of Rs 233.3, Apollo’s stock is trading at a EV/ebitda multiple of 8.6x (to its TTM ebitda) which is available almost at par to peer average of 8.7x. We assign a ‘buy’ rating with a target price of Rs 305 valuing the business at 8.06 EV/ebitda multiple.

Though international business has faced a tough phase over the past few years, it appears more stable now with management focusing on consolidation in Europe operations by doubling capacity through a new facility in Hungary which commenced operations in beginning of FY18 and is currently ramping up. With additional capacity, Apollo has now started supplying to OEMs and meeting replacement demand over time. Apollo continues expanding to other markets in the APMEA region through increased investment for brand building and expansion of product range. Thailand market experienced high growth in the overall OHT segment, including agriculture.

The company also expanded its two-wheeler business beyond India with the launch of tyres in Bangladesh and Sri Lanka. Despite a slight growth in the winter segment, volumes of summer & winter segments are rising due to a double-digit growth in all-season segment. The SUV segment also showed a positive trend with a high single-digit growth driven by an increase in winter volumes and all-season volumes.

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