Buy Apollo Tyres, target Rs 232: Elara Capital
"We reiterate Buy with a target price of Rs 232 on 11 times FY21E P/E," said Elara Capital.
Elara Capital has given a buy recommendation on Apollo Tyres with a target price of Rs 232.
Shares of Apollo Tyres traded at Rs 193.5 around 2:15 pm on 12 June, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
"We reiterate Buy with a target price of Rs 232 on 11 times FY21E P/E," said Elara Capital.
As per the brokerage, the company's management targets an Ebitda margin of 15-18 per cent from its Europe operations in the next five years with revenue of more than 1 billion euro.
The company plans to focus on markets, such as the UK, Italy and France, where current market share is less than 0.2 per cent. Incremental capacity expansion will happen only in Hungary. Capacity will reduce gradually in the Netherlands to nearly 20 lakh tyres in the next five years from the current 40 lakh, although it would produce higher tonnage tyres at reduced capacity.
The company currently holds a nearly 30 per cent market share in TBR and aims to increase share further in TBR replacement at more than 30 per cent. It is focused on becoming a leader in truck bias, radial, farm, LCV and PCR in the long run. Its target is to double revenue from India in the next five years.
The company's management acknowledges margin pressure in its India as well as Europe operations, owing to increased competition, the brokerage said.
However, it is focused on offsetting margin pressure by selling higher inch PCR tyres in India and bolster volume in Europe by entering and increasing distribution in new markets in Europe, such as the UK, Austria, Italy and France. Over time it aims to reduce cost of manufacturing in Europe to EUR 1 per kg vs Hankook’s 60-70 cents per kg, the brokerage added.
"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," said the brokerage.
Shares of Apollo Tyres traded at Rs 193.5 around 2:15 pm on 12 June, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
"We reiterate Buy with a target price of Rs 232 on 11 times FY21E P/E," said Elara Capital.
As per the brokerage, the company's management targets an Ebitda margin of 15-18 per cent from its Europe operations in the next five years with revenue of more than 1 billion euro.
The company plans to focus on markets, such as the UK, Italy and France, where current market share is less than 0.2 per cent. Incremental capacity expansion will happen only in Hungary. Capacity will reduce gradually in the Netherlands to nearly 20 lakh tyres in the next five years from the current 40 lakh, although it would produce higher tonnage tyres at reduced capacity.
The company currently holds a nearly 30 per cent market share in TBR and aims to increase share further in TBR replacement at more than 30 per cent. It is focused on becoming a leader in truck bias, radial, farm, LCV and PCR in the long run. Its target is to double revenue from India in the next five years.
The company's management acknowledges margin pressure in its India as well as Europe operations, owing to increased competition, the brokerage said.
However, it is focused on offsetting margin pressure by selling higher inch PCR tyres in India and bolster volume in Europe by entering and increasing distribution in new markets in Europe, such as the UK, Austria, Italy and France. Over time it aims to reduce cost of manufacturing in Europe to EUR 1 per kg vs Hankook’s 60-70 cents per kg, the brokerage added.
"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," said the brokerage.
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