Buy Apollo Tyres with target Rs 279: Anand Rathi

Anand Rathi

Continuing robust demand in Truck & Bus Radials (TBR), likely completion of the European Capex phase in this fiscal coupled with buoyancy in demand.

Its greenfield capacity in Andhra would enable PCR market-share gains.

The new plant in Andhra for TBRs at 3,000 tyres a day and PCRs at 16,000 tyres a day is expected to commence production from Q4 FY20 and scale up in FY21. As the first phase of 3,000 TBR per day would take atleast 12 months to ramp-up, we do not foresee impact of capacity utilization, in the event of OEM slowdown in FY21, as we believe that this new capacity can easily get absorbed in the replacement market.

From Q4 FY19, the raw material consumed is expected to be at a lower price; thus, margins would expand sequentially in Q4 FY19 and Q1 FY20. Accordingly, we expect the margin to expand to 12 percent in FY20 and be stable in FY21.

We expect revenue to clock an 11 percent CAGR over FY19-21 and expect earnings to grow at 13 percent CAGR for FY19-21E Rs 12.29bn in earnings, leading to an EPS of Rs 21.5. We maintain our buy rating, at a price of Rs 279.

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First Published on Mar 5, 2019 03:45 pm

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