Broker's call: Apollo Tyres (Hold)

| Updated on February 27, 2020 Published on February 28, 2020

Emkay Global

Apollo Tyres (Hold)

CMP: ₹150.3

Target: ₹175

Apollo Tyres plans to issue compulsorily convertible preference shares (CCPS) worth ₹1,080 crore to Emerald Sage Investment Ltd, an affiliate of Warburg Pincus, and use the proceeds for the repayment of high-cost borrowings. An extraordinary general meeting to obtain shareholder approval for the issuance is planned in March 2020.

Apollo Tyres’s net debt stood at ₹5,900 crore as of September 2019, which represents a net debt/equity ratio of 0.6x, and Net Debt/EBITDA (TTM) of 3.2x. The company’s objective of raising the funds is to reduce leverage and interest cost burden during the current scenario of high capex spends and challenging business environment.

CCPS will be converted into 6.3 crore equity shares at a price of ₹171.29/share, within a maximum period of 18 months, resulting in an equity dilution of 11 per cent. The conversion may take place earlier, either at the option of the investor or if the 21-day VWAP stock price reaches the conversion price. CCPS carries a dividend of 6.34 per cent per annum.

The issuance of CCPS and assuming conversion to equity shares, our FY21E EPS forecast could reduce marginally by about 2 per cent as the negative impact of equity dilution will be mostly offset by the reduction in interest cost.

Published on February 28, 2020

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.