Apollo Tyres hits 52-week high; BofA-ML raises target price

NEW DELHI: Apollo Tyres surged over 5 per cent to hit its 52-week high of Rs 98.70 on Wednesday after Bank of America-Merrill Lynch raised its target price to Rs 135 from Rs 115 earlier, while maintaining its ‘buy’ rating on the stock in a report dated Wednesday.

The stock has been gaining momentum since the start of the year 2012. It has surged over 60 per cent on the back of strong volumes. At 12:50 pm, Apollo Tyres was trading 5.2 per cent higher at Rs 98.45. It has hit a low of Rs 94.10 today.

“Apollo Tyres looks particularly strong on the charts and has broken another resistance in today’s trade at Rs 96. The stock seems all set to hit levels closer to 110 over the next few weeks,” Kunal Saraogi, CEO, Equityrush.com, said.

“We recommend a buy even at the current levels with a slightly liberal stop loss at 94,” added Saraogi.

BoA-ML expects Apollo’s EBITDA margins to sustain improvement through fiscal 2014 driven by better sales mix and improved utilisation in the city of Chennai.

The investment bank also expects ‘pricing discipline’ at Apollo, while adding ‘strong’ cash generation and ‘sharp moderation’ in capex will lower debt levels.

CLSA in the month of September said the company recorded strong margins in the last two quarters, reinforcing its view that revenue trends are more critical than volume trends for Apollo. CLSA maintains ‘BUY’ on the stock.

Apollo is among the largest tyre manufacturers in India and also has operations in Europe as well as South Africa. The benefits of falling raw material costs have been felt more keenly in Europe given that the currency has not depreciated.

“Moderation in rubber prices alongside incremental improvements in the demand environment is driving margin expansion for the company,” added the CLSA note.

“With debt not beginning to decline, balance sheet worries are easing. The recent collapse in rubber prices adds upside risks to earnings,” CLSA said.