Apollo Tyres shares slipped more than two percent on June 26 following a mixed reaction by analysts on the company’s projections in its investor meet. While JM Financials and Motilal Oswal Securities have raised their target prices on the tyre maker's stock, Kotak Institutional Equities and Nomura's target stands below the current market price.
At 1 pm, Apollo Tyres were trading 2.79 percent lower at Rs 404.50 on BSE. In 2023 so far (year-to-date), the stock has given a return of more than 23 percent to its investors as against benchmark Sensex which rose nearly three percent during the period.
A look at key takeaways from Apollo Tyres investors meet
During the meet, the Gurugram headquartered company laid out its vision for the financial year 2025-26 and set the revenue aim at $5 billion as against its revenue of $3.1 billion on the 2022-2023 fiscal.
Apollo Tyres estimates FY23-26 revenue compound annual growth rate (CAGR) at 17 percent and has raised its margin target from 13.5 percent to over 15 percent for FY26. It expects the return on capital employed (RoCE) to come in at 12-15 percent, up from 10.1 percent predicted earlier. The tyre maker also aims to reduce net debt from two times to 1.4 times.
Brokerages’ take on Apollo Tyres
Citi, which has a buy rating at target price of Rs 445 on the stocks, pointed out that the firm’s management expects mid to high single-digit volume and revenue growth in FY24.
It sees volume and revenue growth being led by better demand momentum in truck, bus and radial (TBR) versus passenger car radial (PCR) tyres. The brokerage also expects margin in FY24 to come in better than the previous fiscal.
Citi noted that raw material costs are steady and so is the pricing environment and that there is a strong focus on rationalising capex and improving RoCE.
Nomura, on the other hand, has a neutral stance on the firm and expects its stock price to slip to Rs 386. It said that the current valuation at 7.3x FY24 EV EBITDA factors in recovery.
Motiwal Oswal has marginally cut its earnings estimates by a percent as
Apollo Tyres is likely to budget for the next phase of capex starting from FY25, it said. “However, unlike in the past, the current phase of capex is going to be brownfield (lower intensity) and would not be bunched up (and hence, manageable from its operating cash flows). Therefore, we estimate APTY to turn net debt free by FY25,” it said.
It also raised its target multiple to 15x from 13x, to factor in the company’s sustained focus on capital allocation and the resultant increase in capital efficiencies (RoCE >15 percent). It reiterated a buy rating with a target price of Rs 500.
Brokerage firm Kotak Institutional Equities has maintained its sell rating on the stock and target price at Rs 325 a share. JM Financial, meanwhile, retained its 'buy' tag and increased its target price by eight percent to Rs 450 a share.
(Edited by : C H Unnikrishnan)
