Buy Apollo Tyres, target price Rs 137: Geojit

Geojit has given a buy rating to Apollo Tyres with a 12-month target of Rs 137. The share price moved up by 1.00 per cent from its previous close of Rs 109.75. The stock's last traded price is Rs 110.85.

Apollo Tyres manufactures tyres and tubes for cars, trucks from equipment, and light commercial vehicles. Recent push from the government to curb imports and promote domestic manufacturing should be beneficial for the company in the medium to long run. Softer commodity prices (rubber, oil, steel) and appropriate cost control measures will continue to help in margin improvement. The brokerage has factored in 12 per cent earning CAGR over FY20-22E.

Investment Rationale

According to the brokerage, although recovery from the OEMs will be slow, the pick-up in the replacement market should drive growth in near-term, as lockdown restrictions have eased up nation-wide. A similar trend is expected for the replacement market in Europe. Its dominant position in the replacement market provides them with a significant advantage over other players and well placed to take the opportunity with its new plant in Andhra Pradesh. The stock is currently trading at a 3-year low. The brokerage values Apollo Tyres at 13 times FY22 EPS and upgrades its rating to buy from hold with a revised target price of Rs.137.

Quarterly Results
Source: ETMarkets.com

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 3551.22 crore, down -18.31 per cent from last quarter sales of Rs 4347.16 crore and down -14.97 per cent from last year’s same quarter sales of Rs 4176.26 crore. The company reported net profit after tax of Rs 77.86 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 40.90 per cent stake in the company as of March 31, 2020, while FIIs held 22.89 per cent, DIIs 18.81 and public and others 17.4 per cent.