Apollo Tyres shares rally 7% after Q4 results; can this tyre maker drift higher?

Shares of Apollo Tyres Ltd surged during the trading session on Thursday despite the company reporting a muted set of numbers in the March 2024 quarter. However, the brokerage firms, both domestic and global, mostly have a positive view on the counter with some upgrades for the tyre maker after management commentary.

Apollo Tyres reported a 14 per cent fall in the net profit on a year-on-year (YoY) basis to Rs 354 crore for the March 2024 quarter, on account of higher expenses. Revenue from operations remained mostly flat to Rs 6,258 crore in the period under review. The company board recommended a dividend of Rs 6 per share for FY24, subject to the approval of the shareholders.

Apollo Tyres reported a lower profit for the fourth quarter on Tuesday, hurt by increased tax expenses, said market participants. Apollo Tyres is one of the major players in the sector, which has a turnover of $11 billion and manufactures tyres for Maruti Suzuki, Mahindra and Mahindra and TVS Motor Company among others.

Following the Q4 results announcement, shares of Apollo Tyres surged more than 7.18 per cent to Rs 508.10 on Thursday, commanding a total market capitalization of more than Rs 32,000 crore for the day. The scrip had settled at Rs 474.05 in the previous trading session on Wednesday.

Q4FY24 revenue is flat YoY, below estimate due to lower-than-expected India and Europe revenues. However, the trend improved in April with double-digit growth. Ebitda rose 3 per cent YoY to Rs 1,030 crore, but missed estimates due to a provision for extended producer responsibility (EPR) and revenue miss, said Nuvama Institutional Equities.

"We are reducing FY25E and 26E EPS by 6 per cent and 1 per cent, respectively. We are building in revenue and earnings CAGR of 7 per cent and 17 per cent over FY24–26E aided by sales growth across regions and lower interest costs and tax rate. Net debt/Ebitda shall reduce from 1.1 times in FY24 to 0.5 times in FY26E," it added with a 'buy' rating with a target price of Rs 550.

Apollo Tyres offers the best blend of earnings growth, balance sheet deleveraging, improving capital efficiencies and cheap valuations. Its sustained discipline in prudent capital allocation and subsequent improvements in RoCE has been truly commendable, said Motilal Oswal with a 'buy' rating and a target price of Rs 550 on the stock, given encouraging pricing discipline.

On the other hand, Kotak Institutional Equities has a 'sell' tag on Apollo Tyres with a fair value of Rs 400. Apollo Tyres 4QFY24 consolidated adjusted EBITDA came in below estimates due to weaker-than-expected profitability in the standalone business, it said.

"While the company has taken price increases to offset the impact of RM inflation, competitive pricing by MRF will weigh on its overall growth trajectory. Sustenance of current profitability would be challenging over the medium term," Kotak added.

Antique Stock Broking remains optimistic about the volume growth backed by recovering domestic replacement demand, largely driven by the TBR and PCR segments, where Apollo Tyres is the dominant player. "Recovery in EU should lead to volume growth thereby aiding margins in EU," it added with a 'buy' rating and a target price of Rs 591 apiece.

Among the global brokerage firms, Morgan Stanley maintained equal-weight on Apollo Tyres but cut target price to Rs 472 on the back of peak margins, keeping it on sidelines. Nomura upgraded Apollo Tyres to 'neutral' with a target price of Rs 512, while JP Morgan upgraded the stock to 'overweight' with a target price of Rs 555 on the stock.

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