Apollo Tyres rises on hike in FPI holding limit, falling rubber prices

The stock of Apollo Tyres closed 6 per cent up today, on news that the RBI has raised the FPI purchase limit in the stock. FIIs can now purchase up to 45 per cent of the paid-up capital of the company.

This mid-cap stock has indeed been a favourite of the FIIs in the ongoing market rally. From about 28.9 per cent stake in December 2013, FII holdings have steadily moved up to 36.78 per cent in the quarter ended June 2014. The stock has also zoomed over 200 per cent in the last one year, from Rs 69 to Rs 209 currently.

There are a few things that bought cheer to the company in this period. One, the burdensome Rs 14,500 crore acquisition of US-based Cooper Tires was called off in December 2013. Had the deal gone through, the company would have been left with a huge debt burden as the company was supposed to fund the entire deal through debt.

Second, prices of rubber, the key raw material for making tyres have been benign for almost a year now – falling from about Rs 190-200 per kg a year ago to around Rs 120 a kg now. Third, even amidst the slowdown in new vehicle offtakes, all tyre makers have been having reasonably good sales. This is because tyres typically have replacement demand from existing vehicle owners for replacing old tyres. This demand remains independent of new vehicle sales. ​