Apollo Tires Limited is a Mid-cap company with a market cap of 11,206 crore in the tire industry. Shares of Apollo Tires closed 177.70 today, up 1.22 percent from previous close 175.55. Shares hit 52-week high 250.00 on October 18, 2021, and 52-week low of 165.25 as on March 7, 2022, shows that it is now trading at a discount of 28 per cent to its 52-week high and 7.53 per cent above its 52-week low. ICICI Securities has initiated a buy call on Apollo Tires stock with a target price of Rs. 305 represents a potential increase of 71 percent from current levels.
The brokerage has said, “Domestic demand is witnessing a gradual recovery led by the OEM segment, while replacement volume is flat. Overall India utilization was ~80%, with PCR on the higher side vs TBR at ~75%. Andhra Pradesh Phase-II capacity will be on-stream by adding 1.7k TPD capacity in the coming quarters.APTY is using AI and ML to enhance productivity and enhance its capacity to grow without relying heavily on incremental capacity addition. The EU is currently operating at ~85% utilization levels and the Hungarian plant is expected to improve production with the de-bottlenecking exercise.”
According to ICICI Securities, “The company has increased prices in India by 3-4% in a span of 45 days (from the last six months) as compared to a quarter ago. Raw material prices still high. However, APTY expects raw material basket (RMB) inflation to continue till Q2FY23. APTY is targeting exports to contribute 20% of sales with a strong presence in Southeast Asia, Middle East and ASEAN markets. APTY has also added geographic regions of the US and the European Union.”
“Despite taking a higher price hike than competitors, Vredestein was able to outperform the EU replacement market. This allows Vredestein to be able to add new markets to Eastern Europe as a dependency of select competitors sourcing tires from Russia. In the EU, OHT/Agri and premium PCR tires will continue to be under the Veredestine brand and low-end PCR and industrial tires will be under the Apollo brand to maintain product differentiation and avoid cannibalism. India Maintenance in FY23 capex expected to be EU maintenance capex of Rs3bn-3.5bn vs EUR30mn-35mn With 2 consecutive years of positive FCF in FY2011-FY22, despite RM inflationary pressures, and further growth no big deal for capex Not planned, FCF is likely to improve significantly, thus, further reducing financial leverage,” the brokerage said.
“Apollo Tires’ (APTY) is witnessing a pick-up in demand in the tipper, ICV segment, thereby driving the demand for T&B tyres. At ~1,000TPD TBR capacity, up to ~75%,” ICICI Securities claimed. The current capacity utilization is giving APTY visibility to absorb growth in FY23-FY24E without investing for incremental capacity in TBR. Maintain BUY with unchanged DCF-based target price of Rs 305, which means 13x FY24E earnings. “
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