Apollo Tyres - Focus On Improving Profitability Over Market Share Gain: Motilal Oswal

Motilal Oswal Report

Apollo Tyres Ltd. hosted an investor meet followed by the Andhra Pradesh plant visit. The plant has dedicated lines for passenger car radial and truck-bus radial products with a capacity of 15,000 and 3,000 tyres per day, respectively.

Further, as the current facility for TBR/PCR is at the center of the 104 Hectare Greenfield campus, it has a scope to expand both on the left and right directions. Management discussed about its FY26 vision of:

1. a revenue of $5.0 billion (versus $3.1 billion in FY23),

2. an Ebitda of more than 15.0% (versus 13.5% in FY23),

3. a return on capital employed of 12-15% (versus 10.1% in FY23) and

4. a net debt-to-Ebitda of less than two times (versus 1.4 times in FY23).

While Apollo Tyres indicated that capacities will be added in FY26, the next leg of capex is likely to be prudent and will not be bunched up. Hence, we believe it can be funded from operating cash flows.

Valuation and view:

We have marginally cut our earnings estimates by 1% as Apollo Tyres is likely budget for the next phase of capex starting from FY25. However, unlike in the past, the current phase of capex is going to be brownfield (lower intensity) and would not be bunched up (and hence, manageable from its operating cash flows).

Therefore, we estimate Apollo Tyres to turn net debt free by FY25.

We raise our target multiple for Apollo Tyres to 15 times from 13 times, to factor in the company’s sustained focus on capital allocation and the resultant increase in capital efficiencies (return on capital employed more than 15%).

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