PremiumLeading tyre manufacturer Apollo Tyres is a multibagger stock and has multiplied investors' wealth by nearly 4-folds in the post-pandemic era. In India, Apollo Tyres has a substantial presence in TBR (31% market share) & PCR space (21% market share). Currently, the midcap stock is near ₹271 apiece on Dalal Street. However, ICICI Direct believes the stock can be bought this Muhurat trading for a target price of ₹335 apiece going forward.
Apollo Tyres is one of the largest manufacturers of tyres with operations in India (~67% of sales) & Europe (~31% of sales). On a consolidated basis, the company's segment-wise mix is trucks and buses at 43%, PVs at 35%, OHT at 10%, and others at 12%. The channel mix for FY22 is 81% for the replacement market, and 19% through OEMs.
Investors who invested in Apollo Tyres just a day before the first nationwide lockdown came into effect on March 25, 2022, have probably recorded at least 3.68 times or 268.25% returns in their portfolio to date. Apollo Tyres had hit a low of ₹73.55 apiece on March 24, 2020.
On October 14, the shares closed at ₹270.85 apiece down by 0.55% on BSE. The company's market cap is around ₹17,201.71 apiece.
In the current year, Apollo Tyres have touched a 52-week high and low of ₹303.40 apiece and ₹165.40 apiece. From its 1-year low which was witnessed on March 7 this year, the shares have skyrocketed by nearly 64% as of October 14, 2022. Year-to-date, the shares have jumped by nearly 24%.
Compared to the last Muhurat trading on November 4, 2021, Apollo Tyres shares have jumped by nearly 22%.
In its Muhurat picks report, ICICI Direct said, "Domestically, ATL is expected to benefit from a cyclical upswing in the CV space coupled with double-digit growth in PV domain driven by greater consumer preference for SUVs. It has already restructured its European operations, which now on a consistent basis are reporting higher double-digit margins with share of value-added products on a continuous rise."
Further, ICICI Direct's note said, "Natural rubber and crude derivatives form a majority (~65-70%) of raw material costs for tyre manufacturing. Both these commodities have witnessed a healthy correction with natural rubber down ~15% from April 2022 levels and are now hovering around the ₹150-155/kg levels from the highs of ₹170+/kg. Even crude is down ~20%+ from June 2022 levels and is currently hovering at ~US$90-95/barrel. This bodes well for all tyre manufacturers with ATL a key beneficiary."
Also, the note added, "With a target to achieve revenues of $5 billion by FY26, EBITDA margin of at least 15%, RoCE of 12-15% and net debt to EBITDA of less than 2x, ATL is currently focusing upon capital efficiency, sweating of assets, controlled CAPEX spends, healthy FCF generation & deleveraging of b/s. With a reduction in debt, RoCE at ATL is seen at 13% by FY24E. It is currently trading at inexpensive valuation of ~5x EV/EBITDA on FY24E."
Thereby, ICICI Direct recommends buying Apollo Tyres in the range of ₹260-275 apiece for a target price of ₹335 apiece during muhurat trading.
At the current market price, the stock has a dividend yield of 1.2%. The company paid a whopping 325% dividend aggregating to ₹3.25 per share for FY22.
This Diwali, Muhurat trading will be held in the evening of October 24.