We expect the company to be weighed down by weak macro trends and recovery is expected to take longer. The stock is currently trading at 10.8x FY20E P/E multiple. We roll forward to FY21E and value Apollo Tyres Limited at ~9x FY21E EPS considering limited visibility on a turnaround. We downgrade the rating to REDUCE with a revised target price of Rs. 151.
We expect 9/10% Revenue/EBITDA CAGR over FY19-21E, however net profit is likely to have flat CAGR, suppressed by higher depreciation and interest cost due to significant capacity addition. We cut our EPS estimates by13/16% and value the India business at 150/share (15x FY21E EPS) and Europe at 40/share (12x FY21E EPS). We recommend BUY rating with TP of 190.
Valuation. We expect revenue to clock a 12% CAGR over FY19-21, and earnings 13% to 11.23bn, leading to an EPS of 19.6. We maintain our Buy rating, at a price of 255 (13x FY21e EPS), earlier `258. Risks: 1) Lower volume growth in India and Europe. 2) Higher RM costs.
Retain estimates; maintain Buy with unchanged PT of Rs. 230: The CVD is unlikely to meaningfully drive demand for ATL. Hence, we retain our earnings estimates for FY2020 and FY2021. Nevertheless, ATL’s earnings are likely to grow in double digits during FY2020-2021 due to healthy growth in the domestic replacement market and a ramp up in European operations. We expect ATL to sustain margins, led by a strong pricing power and dominant market share in the passenger vehicle and commercial vehicle (CV) segments. Further, a low debt:equity ratio, peaking of capex cycle and a reasonable valuation of 11x FY21 earnings, give us comfort for investment. We maintain our Buy rating with an unchanged price target of (PT) of Rs. 230.
We remain cautious on the Europe business, given market uncertainty, especially over pricing. The market share gains in India business, especially TBR, would continue. In our view, strong demand commentary in the replacement segment at the start of Q1FY20 is a positive, given the weak OEM demand scenario. We reiterate Buy with a TP of INR 232 on 11x FY21E P/E.