Apollo Tyres - Priced To Perfection; Mean Reversion In Margin Is A Big Risk: ICICI Securities

ICICI Securities Report

Apollo Tyres Ltd. is trading at ~15 times FY25E earnings versus ~7% earning per share compound annual growth rate during FY24E-FY26E. As against ~6% India volume CAGR over FY24-26E, we expect India Ebitdam/ free cash flow / return on capital employed to remain steady during the same period, with business remaining exposed to the mean reversion in GM.

We expect India Ebitdam to remain close to the current elevated levels of 18-19% till Q1 FY25E, based on current RMB cost trends that may be driving the optimism in the stock currently, other than the controlled capex till FY25E.

We believe all good fundamental parameters of the business are priced for perfection in current valuation level, leaving limited room for any earnings upgrade.

Maintain 'Hold' with a revised discounted cash flow -based target price of Rs 436 (earlier Rs 412), implying 15 times FY25E earnings. Change in TP is due to earnings rollover to FY26.

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