Apollo Tyres shares jump over 6% after UBS upgrades stock to Buy from Neutral. Here’s why

Shares of Apollo Tyres jumped as much as 6.4% to their day’s high of Rs 468 on the BSE on Monday after international brokerage UBS upgraded the stock to Buy from Neutral and raised its target price to Rs 590 (34% upside) from Rs 580, noting that the company continues to trade at a valuation discount to peers and has underperformed the sector over the past four years.

The brokerage sees an improving outlook as management takes concrete steps to strengthen the India business, including investments in brand building such as the Indian cricket team jersey sponsorship, while prospects for the Europe business are also becoming more constructive.

UBS believes investors remain overly focused on near-term commodity cost pressures and recent execution challenges, while overlooking the company's significant earnings recovery potential once commodity pressures ease.


Also Read | Natural rubber demand to exceed output, keeping prices high in 2026, says ANRPC

Although Q2 FY27E could face further pressure following a 22% QoQ increase in natural rubber prices in Q1 FY27, UBS expects earnings to improve meaningfully thereafter, with project EBITDA rising 21% YoY in FY28.

With demand remaining robust and strategic initiatives beginning to gain traction, the brokerage believes the market is underappreciating Apollo Tyres' medium-term earnings recovery potential.

Apollo Tyres Q1 results

Apollo Tyres reported a significant improvement in its June-quarter performance on Thursday, with net profit rising sharply year-on-year as the impact of exceptional losses reported a year earlier eased. Revenue also recorded healthy growth, although operating profitability remained under pressure, with margins narrowing from the year-ago period.

Also Read | India facing acute shortage of natural rubber, prices soar

The tyre manufacturer reported consolidated net profit of Rs 348.9 crore for the quarter, compared with Rs 12.9 crore in the corresponding quarter last year. Revenue from operations increased 12.8% year-on-year to Rs 7,397.8 crore, supported by steady demand across its domestic and international businesses.

Operating performance was relatively subdued, however. EBITDA was broadly unchanged at Rs 868 crore, while the operating margin fell to 11.7% from 13.2% a year earlier, reflecting continued pressure on profitability despite the increase in revenue.

The sharp improvement in earnings was partly driven by the significantly different exceptional impact. The company reported an exceptional gain of Rs 24 crore during the quarter, compared with an exceptional loss of Rs 370 crore in the year-ago period, which aided the strong year-on-year increase in reported profit.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)