Anand Rathi is bullish on Apollo Tyres has recommended buy rating on the stock with a target price of Rs 299 in its research report dated November 15, 2018.
Anand Rathi 's research report on Apollo Tyres
Continuing robust demand in TBR, likely completion of the European capex phase in this fiscal coupled with buoyancy in demand augurs well for Apollo’s growth for the next two years. We maintain our Buy call. Strong growth in truck radials. With the company’s dominant, 29%, market share in TBRs, we believe it will continue its market-share expansion. We expect 15% replacement growth in FY19, and 12% in FY20. The new passenger-car-tyre plant in Andhra Pradesh (16,000 tyres) is expected to commence production from Q4 FY20 and we expect a scale-up in FY21, full capacity available by FY21.
We expect revenue to clock a 19% CAGR over FY18-20 to `211bn and expect a 12.5% margin in FY20. Accordingly, we expect earnings of `12.22bn, leading to an EPS of `21.2. We maintain our Buy rating, at a target price of `299 (14x FY20e EPS). The stock is trading at a historical mean multiple of around 10x and we believe it should quote higher given the better prospects in its India business as well as in Europe.
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