The shares of the multinational tyre manufacturer fell by 6 percent despite Sharekhan, a well-known brokerage recommending a ‘Buy’ rating.
With a market capitalization of Rs 30,186.35 crore, the shares of Apollo Tyres Ltd were trading at Rs 475.15 per share, decreasing around 5.54 percent as compared to the previous closing price of Rs 502.85 apiece.
Looking into Apollo Tyres Ltd’s performance, revenue increased by 2.6 percent from Rs 6,423 crore in Q3 FY23 to Rs 6,595 crore in Q3 FY24. During the same period, net profit increased by 70 percent, from Rs 292 crore to Rs 497 crore.
Sharekhan, one of the well-known brokerages in India, gave a ‘Buy’ call on the tyre stock with a target price of Rs 619 apiece, indicating a potential upside of 30 percent from Friday’s price of Rs 475.10 per share.
Here’s the reason for the potential upside target:
● ATL prioritizes cost-saving measures and product mix enhancement for profitable growth, rather than pursuing market share at the expense of profitability. Upsizing tires in India and Europe contributes to increased profitability. ATL’s emphasis on radialization in the domestic CV market anticipates a rise to 75-80% from the current 55-60%.
● The company’s focus on capacity utilization, a robust balance sheet, and profitability has led to a moderation in capex intensity. In the medium term, it plans to serve various markets using existing plants and adopt a capex-light approach, aligning future investments with demand requirements.
● ATL anticipates gradual improvement in the European PCT industry, focusing on market share and profitability. Indian business may remain flat in Q4FY24 but could pick up post-Union elections. Market share gains in Europe, enhanced product mix, and digitization efforts drive profitability without major capex plans.
● ATL prioritizes operating profitability and maintains a healthy balance sheet, planning gradual capex with no major greenfield projects. The present capacity is 68k PCR and 16.2k TBR tyres per day, aiming for an 8-10% Passenger Car Radial (PCR) capacity increase by FY2025E through digitization and industry 4.0 practices.
● The gross debt during the period also came down from Rs 56 bn on March 23 to Rs 43 bn on Dec 23.
Apollo makes automated bias and radial tires, as well as tubes. It operates factories in Kochi, Vadodara, Pune, and Chennai. The product profile comprises well-known tire brands from the T&B, light truck, passenger car, and farm vehicle categories in India, catering to both original equipment manufacturers and the replacement market.
Written by:- Abhishek Singh
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