Why Apollo Tyres may add to its sterling run

Moneycontrol BureauShares in Apollo Tyres have had a superb run over the past one year, eclipsing the BSE Midcap index’s nearly 75 percent rise with a 160 percent gain.A number of brokerages have issued research reports recently stating they believe the shares have further room to run.According to reports by ICICI Direct, Sharekhan and FirstCall, the stocks can rise from their current levels (Rs 160) to between Rs 204 and Rs 240 – a upside potential of between 27 percent and 50 percent.Apollo was in the news last year after its ambitious USD 2.5-billion takeover bid for US’s Cooper Tires fell through. Analysts then had expressed concerns over the deal owing to the significant amount of leverage it was taking on.With Apollo’s European business doing well, capex planned for expanding capacity in Eastern Europe augurs well as existing capacity in Europe is operating at about 90 percent utilization, a report by ICICI Direct said. “We believe by benchmarking the R&D budget to industry leaders and focusing on corporate branding, the management is on the right track to become a serious competitor to global tyre players,” it said.In the domestic business, with raw material prices (especially rubber which represents about 60 percent of total raw material cost for Apollo) remaining favourable, ATL’s margin profile is likely to remain stable, the report added.It further said that the increasing trend in radicalization in the trucks & bus (T&B) segment is likely to boost volumes for radial tyres.In a recent interview with CNBC-TV18, Apollo’s vice chairman and managing director Neeraj Kanwar said the company had started a plant in Chennai, which would help volumes in the radial segment.“We have garnered market share. We are clearly the leaders at around 30 percent market share in the Indian truck market,” he said.FirstCall said it expects profit after tax to grow 27 percent between 2013 and 2016.“Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs 11.09 and Rs 12.50 respectively,” it said. “At the current market price of Rs.169.95, the stock P/E ratio is at 15.32 x FY15E and 13.59x FY16E respectively.”