Target: ₹265

CMP: ₹176.4

Apollo Tyre's senior management team showcased its roadmap for the future, revenue growth strategy, and capex at their Corporate Day CY22. It plans to maintain financial discipline by controlling capex and working capital with aim to improve return ratios and control debt.

While it is trying to attain price leadership in the Indian market, exports has emerged as additional avenue to deploy capacity. Lastly, the management is very clear that it wouldn’t bunch large growth capex in order to avoid impact on cashflows.

A large part of the targeted improvement needs to accrue from India, led by demand revival, margin recovery and full utilization of capacity. A large part of its greenfield AP capacity was being commissioned in FY22 and didn’t contribute to P&L in FY22.

Apollo Tyres is all geared for the next leg of growth, with sufficient capacity to cater to demand from India and Europe. With capex for Phase II of the AP plant concluding in FY23, increase in capacity utilisation will generate higher cash flows and further deleverage its Balance Sheet.

As compared to its peers, Apollo Tyres offers the best blend of earnings growth and cheap valuations. The stock trades at 13.6x/8.7x FY23/FY24 consolidated EPS.

We value the stock at 12x Jun’24E EPS (v/s a five/10 year average P/E multiple of about 16x/12x).

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