Road to wealth creation: MRF, Apollo Tyre & Ceat likely to see up to 25% upside

If you rode D-Street on tyre stocks then chances are that you are sitting on hefty gains. But, the part is not over yet as a global brokerage firm, Deutsche Bank sees up to 25 percent upside in MRF, Ceat, and Apollo Tyres in next 12 months.

Tyre stocks remained in limelight following news reports that the government has imposed the anti-dumping duty on import of certain type of radial tyres used in buses and trucks.

Most of the tyre stocks have been an outperformer so far in the year 2017 despite impositions of the goods & services tax and higher rubber prices. MRF, Apollo Tyres, and Ceat rose in the rage of 30-50 percent in the year 2017.

The government’s move to reimpose anti-dumping duty (ADD) on trucks and radial tyres that are imported from China comes as a big relief to domestic tyre manufacturers.

Since the removal of ADD back in the year 2015, Chinese imports make their way into Indian markets which were nearly 25-30 percent cheaper than domestic ones, said a report.

Deutsche Bank initiated a buy call on MRF with a target price of Rs 80,000 which translates into a potential upside of 25 percent from current levels.

MRF commands a leadership position across key tyre segments and the global investment bank expects the earnings per share (EPS) to grow at CAGR of 16 percent over FY17-20.

Volumes are likely to grow by 10 percent per annum over FY17-20 and free cash flows should increase to Rs 2,500 crore over FY17-20, said the global investment bank.

It also initiated coverage on Ceat with a target price of Rs 2150 which translates into an upside of 22 percent from current levels.

The global investment bank expects the revenue and EPS to grow at 13% and 16% CAGR respectively over FY17-20. Volumes are likely to grow at CAGR of 9 percent over FY17-20

Deutsche Bank maintains a buy rating on Apollo Tyres but raised its target price to Rs 325 from Rs 275 earlier, which translates into an upside of 23 percent from current levels.

Apollo’s capacity expansion is likely to drive volumes and EPS growth. The Volumes/EPS to grow at CAGR of 11% and 12% respectively over FY17-20.