Buy Apollo Tyres, target Rs 335: IIFL

IIFL has a buy call on Apollo Tyres Ltd. with a target price of Rs 335. The current market price of Apollo Tyres Ltd. is Rs 275.1 Time period given by the brokerage is a year when Apollo Tyres Ltd. price can reach defined target. . Apollo Tyres Ltd., incorporated in 1972, is a largecap company with a market cap of Rs 15514.00 crore.

Investment rationale by IIFL

We visited Apollo’s new green-field plant in Hungary and met the company’s management. Hungary production is likely to scale up substantially over upcoming quarters. The plant would reach Ebitda break-even in 1HFY19 and match the cost of production with its existing Dutch plant in 2HFY19. Optimum production at 15-20% lower cost (vs. Dutch) would be achieved by 2HFY20. The demand/pricing environment in India T&B segment remains strong. Higher-than-expected demand may result in preponement of TBR capacity expansion (Andhra Pradesh) to FY20. Higher capex and push out of debt reduction to FY21 (vs. FY20 earlier) leads to 3% cut to FY20 EPS. There is no change in our Ebitda forecast of 28% Cagr over FY18-20.