ICICI Securities sees a new high for Apollo Tyres in 3 months: Should you buy?
Premium- With a market valuation of ₹15,690.17 crore, Apollo Tyres Ltd. is a mid-cap company that engages in the tyre industry.
With a market valuation of ₹15,690.17 crore, Apollo Tyres Ltd. is a mid-cap company that engages in the tyre industry. One of the top tyre producers in the world is Apollo Tyres. Apollo Tyres' shares ended trading today on the NSE at ₹247.40 per share, down 1.04% from the previous close of ₹250. 1,811,459 shares were traded in total, which is less than the 20-Day average volume of 3,774,125 shares. On the NSE, the stock had touched a 52-week-high of ₹268.30 on 19th August 2022 and a 52-week-low of ₹165.25 on 7th March 2022 which means that at the current market price the stock is trading 7.78% below the high and 49.71% above the low. ICICI Securities, a brokerage, has set a buying range of ₹244–252, a target price of ₹285, and a stop loss recommendation of ₹227.00 since it believes the stock has excellent upside potential. The stock has a 15% potential upside from its current market price to achieve its target price, which would be a new high for the shares of Apollo Tyres in a set target period of 3 months.
The research analysts of the broking firm ICICI Securities have said in a note that “The auto and auto ancillary space continued to outperform as the Nifty Auto index is seen extending its strong up move after last month’s resolute breakout above its multiyear highs since CY17. Tyre stocks have remained resilient over the past two months and are witnessing catch up activity with the rest of the auto ancillary space. Within the tyre companies Apollo Tyre is our top pick as it has recently generated a resolute breakout above the long term supply line joining the highs CY18 ( ₹307) and CY21 ( ₹261) with strong volume of more than double of its 50-week average volume signalling a structural turnaround and offers fresh entry opportunity."
“Key observations is that the stock has witnessed a faster retracement of the 16 months decline ( ₹261-167) in just two months. A faster retracement in one fourth of the time interval signals strength and a robust price structure. We expect the stock to continue with its current up move and head towards ₹285 levels in coming months as it is the 123.6% external retracement of the entire preceding decline of the last 16 months ( ₹261-167)," said the research analysts.
“The company posted a healthy operational performance in Q1FY23. Total consolidated operating income was up 6.5% QoQ to ₹5,942 crore. EBITDA for the quarter came in at ₹690 crore with margins up 40 bps QoQ to 11.6%. Consolidated PAT stood at ₹191 crore, up 68% QoQ. Among geographies, APMEA i.e. largely India revenues grew 10.8% QoQ to ₹4,460 crore while Europe de-grew 4.8% QoQ at ₹1,604 crore. Gross margin was flat QoQ whereas employee cost was down 58 bps QoQ leading to healthy margins for the quarter. EBITDA margins on a standalone basis were at 9.7% (up 30 bps QoQ) supported by a decline in employee cost and other expense which were down 30 bps & 90 bps QoQ, respectively, partially offset by gross margin decline (~96 bps QoQ). On a standalone basis, the company realised healthy operating leverage gains amid adverse RM price movement," they further added.
“With calibrated capex, debottlenecking of existing facilities & focus on capital efficiency RoE, RoCE at the company is seen at 9.7%, 10.8% by FY24, respectively. Benign commodity price outlook amid recent cool off in crude prices along with operational efficiencies to result in 13.5% EBITDA margins by FY24E. We expect the company to realize healthy FCF which will be eventually used to substantially reduce debt on b/s over FY23-24E. At the current market price, it trades at inexpensive valuations of <13x P/E on FY24E EPS and <6x EV/EBITDA on FY24E," stated the research analysts of ICICI Securities.
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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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