Apollo Tyres Ltd is the second largest tyre manufacturer in the country having built a healthy market share in the commercial vehicle and passenger vehicle segment. The Indian business contributes around 70% to the overall revenue, while the overseas European business contributes around 30% of the balance revenue. The company has become a full- fledged tyre manufacturer with its recent entry in the two-wheeler space. The original equipment manufacturer (OEM) segment contributes around 28% to the revenue, while the replacement segment accounts for the balance 72% of the overall revenue. Apollo Tyres posted good Q2FY21 results as against the same quarter of the last fiscal, with significant improvement in the Indian business segment. Net sales went up by 4.88% from Rs 2,773 crore to Rs 2,910 crore, while quarterly net profit went up by a whopping 116% from Rs 99 crore to Rs 216 crore. EBIDA stands at Rs 578 crore as of September 2020, up 77% from Rs 326 crore in September 2019. The company’s earnings per share also increased to 3.58 for the current quarter from 1.74 as against September 2019. The management of Apollo Tyres has commented that the demand recovery continues to be extremely positive in India and the company has also been able to maintain a flattish top line in its European operations despite Covid 19 challenges. There was significant increase in volumes of both the replacement and original equipment market segments on account of reduced raw material cost and fixed costs and overall manufacturing costs. Apollo Tyres is also focusing on digitisation and online collaboration, bringing down supply chain and fixed costs, achieving positive free cash flows and optimisation of working capital. The Apollo Tyres stock, currently quoting at Rs 170 on the Indian bourses, is a strong buy for portfolio investors with a five-month investment horizon with a target price of Rs 225 by April 2021.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.