The quarter's standout feature was the sharp recovery in operating margins, which expanded to 14.94% (excluding other income) from 13.23% in Q1 FY26, signalling improved cost management and operational efficiency. Net sales grew a modest 4.12% quarter-on-quarter to ₹6,831.09 crores, whilst year-on-year growth stood at 6.12%. The company's ability to translate top-line growth into bottom-line expansion despite challenging market conditions underscores management's focus on profitability over pure volume growth.
The quarterly results paint a picture of a company navigating a complex operating environment with disciplined execution. Whilst revenue growth remains moderate, the dramatic improvement in profitability from the previous quarter demonstrates operational leverage kicking in as volumes improve and input costs stabilise. The manufacturing sector continues to face headwinds from volatile raw material prices and competitive intensity, but Apollo Tyres appears to be managing these challenges more effectively than in recent quarters.
| Metric | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 |
|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 6,831.09 | 6,560.76 | 6,423.59 | 6,927.95 | 6,437.03 |
| QoQ Growth | +4.12% | +2.14% | -7.28% | +7.63% | +1.61% |
| YoY Growth | +6.12% | +3.57% | +2.64% | — | — |
| Net Profit (₹ Cr) | 258.05 | 12.88 | 184.62 | 337.25 | 297.46 |
| QoQ Growth | +1,903.49% | -93.02% | -45.26% | +13.38% | -1.50% |
| YoY Growth | -13.25% | -95.74% | -47.86% | — | — |
| Operating Margin % | 14.94% | 13.23% | 13.04% | 13.67% | 13.64% |
| PAT Margin % | 3.78% | 0.20% | 2.87% | 4.87% | 4.62% |
Financial Performance: Margin Expansion Drives Sequential Recovery
Apollo Tyres' Q2 FY26 financial performance showcases a company regaining its operational rhythm after a challenging first quarter. Net sales of ₹6,831.09 crores represented sequential growth of 4.12% and year-on-year expansion of 6.12%, indicating steady demand recovery in both domestic and international markets. The top-line growth, whilst modest by historical standards, reflects the competitive intensity in the tyre industry and pricing pressures from raw material cost fluctuations.
The standout metric was operating profit (PBDIT excluding other income), which surged to ₹1,020.74 crores from ₹867.74 crores in the previous quarter—a robust 17.63% sequential improvement. This translated into operating margin expansion of 171 basis points to 14.94%, approaching the company's FY24 peak of 16.43% seen in March 2024. The margin recovery suggests improved pricing power, better product mix, and operating leverage benefits as volumes normalise.
However, the profit before tax (PBT) figure of ₹386.08 crores, whilst substantially higher than Q1's ₹38.36 crores, remained below the ₹464.58 crores recorded in Q4 FY25. The company's interest burden of ₹101.05 crores stayed relatively stable, reflecting controlled debt levels, whilst depreciation of ₹383.40 crores remained consistent with capital-intensive manufacturing operations. The tax rate of 33.16% in Q2 FY26 was notably higher than the previous quarter's 66.42%, which had been impacted by one-time adjustments.
The quality of earnings showed improvement, with PAT margin recovering to 3.78% from a dismal 0.20% in Q1 FY26, though still trailing the 4.62% achieved in the year-ago quarter. Employee costs of ₹878.57 crores represented 12.86% of sales, marginally higher than the previous quarter's 13.25%, indicating wage inflation pressures being managed through productivity improvements.
Operational Dynamics: Balancing Growth and Profitability
Apollo Tyres' operational performance in Q2 FY26 reflects the delicate balancing act between volume growth and margin preservation that characterises the tyre manufacturing sector. The company's return on equity (ROE) stands at 9.00% on average, whilst return on capital employed (ROCE) averages 10.91%—metrics that indicate moderate capital efficiency in a capital-intensive business. The latest ROCE of 11.27% shows marginal improvement, suggesting the company is extracting better returns from its asset base.
The balance sheet reveals a company with improving financial flexibility. Long-term debt declined to ₹1,829.19 crores as of March 2025 from ₹2,672.75 crores a year earlier, demonstrating commitment to deleveraging. The debt-to-EBITDA ratio of 1.92 times and net debt-to-equity ratio of 0.23 times position Apollo Tyres comfortably within investment-grade territory, providing headroom for future growth investments or economic downturns.
Debt Reduction Progress
Apollo Tyres has systematically reduced its debt burden, with long-term borrowings declining from ₹5,147.88 crores in March 2020 to ₹1,829.19 crores in March 2025—a reduction of over 64%. This deleveraging has strengthened the balance sheet and improved interest coverage, with EBIT-to-interest ratio averaging 4.44 times. The company's ability to generate consistent operating cash flows of ₹1,823 crores in FY25 (despite working capital absorption of ₹1,266 crores) demonstrates underlying business resilience.
Working capital management remains an area requiring attention. The company's cash flow statement for FY25 shows negative working capital movement of ₹1,266 crores, primarily driven by inventory build-up and receivables expansion to support growth. However, operating cash flow generation of ₹1,823 crores provided sufficient cushion to fund capital expenditure and debt reduction simultaneously.
Industry Context: Navigating a Competitive Landscape
The Indian tyre industry continues to experience moderate growth driven by rising vehicle sales, infrastructure development, and replacement demand. Apollo Tyres operates in a highly competitive market dominated by established players including MRF, CEAT, JK Tyre, and Balkrishna Industries, each vying for market share across passenger vehicles, commercial vehicles, and off-highway segments.
The company's 5-year sales growth of 12.01% compares favourably with industry dynamics, whilst EBIT growth of 25.12% over the same period demonstrates operating leverage benefits and margin expansion initiatives bearing fruit. This growth trajectory reflects Apollo Tyres' strategic focus on premiumisation, expanding its international footprint (particularly in Europe through its Vredestein brand), and strengthening its position in high-margin segments.
Raw Material Volatility: A Persistent Challenge
Natural rubber and crude oil derivatives constitute the primary raw materials for tyre manufacturing, and their price volatility significantly impacts margins. The recent stabilisation in commodity prices has provided relief, enabling the margin recovery witnessed in Q2 FY26. However, the company remains exposed to future fluctuations, making hedging strategies and pricing power critical for sustained profitability. The ability to pass through cost increases to customers whilst maintaining volume growth will determine margin sustainability in coming quarters.
Apollo Tyres' institutional holding of 41.73% reflects confidence from sophisticated investors, whilst the promoter stake of 36.93% ensures aligned interests. The company's market capitalisation of ₹32,851 crores positions it as the third-largest player in the listed tyre space, trailing MRF and Balkrishna Industries but ahead of CEAT and JK Tyre.
Peer Comparison: Competitive Positioning Analysis
Apollo Tyres' valuation and operational metrics reveal a company trading at a discount to premium peers whilst delivering competitive returns. The stock's price-to-earnings ratio of 28.93 times compares favourably with Balkrishna Industries' 39.33 times and the broader peer average, suggesting potential value for investors willing to accept moderate ROE in exchange for lower valuation multiples.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Apollo Tyres | 28.93 | 2.10 | 9.00% | 0.23 | 0.98% |
| MRF | 31.50 | 3.00 | 8.81% | -0.05 | 0.17% |
| Balkrishna Inds | 39.33 | 4.94 | 17.07% | 0.22 | 0.60% |
| CEAT | 25.35 | 3.45 | 10.40% | 0.66 | 0.77% |
| JK Tyre | 28.89 | 3.01 | 13.52% | 0.82 | 0.52% |
| TVS Srichakra | 114.72 | 2.74 | 7.27% | 0.67 | 0.41% |
The company's ROE of 9.00% trails Balkrishna Industries (17.07%) and JK Tyre (13.52%) but remains comparable to MRF (8.81%), reflecting the capital-intensive nature of integrated tyre manufacturing. However, Apollo Tyres' price-to-book value of 2.10 times represents the lowest multiple amongst major peers, potentially offering value for investors seeking exposure to the sector at reasonable valuations.
Apollo Tyres' debt-to-equity ratio of 0.23 times compares favourably with JK Tyre (0.82) and CEAT (0.66), indicating conservative financial leverage. The dividend yield of 0.98% leads the peer group, providing income-oriented investors with attractive cash returns alongside capital appreciation potential. The company's dividend payout ratio of 22.13% suggests room for future dividend growth as profitability improves.
Valuation Analysis: Attractive Entry Point Emerges
Apollo Tyres' current valuation presents a compelling case for patient investors willing to look beyond short-term volatility. Trading at a P/E multiple of 28.93 times trailing twelve-month earnings, the stock trades at a modest discount to the industry average of 31 times, despite delivering superior dividend yields and maintaining lower leverage ratios than several competitors.
The EV/EBITDA multiple of 9.85 times appears reasonable given the company's improving margin trajectory and debt reduction progress. With enterprise value-to-capital employed at 1.89 times and EV-to-sales at 1.35 times, the valuation metrics suggest the market is pricing in moderate growth expectations rather than premium multiples commanded by high-ROE peers like Balkrishna Industries.
The stock's 52-week range of ₹368.00 to ₹540.30 provides context for the current price of ₹512.40, which sits just 5.16% below the yearly high. The valuation grade of "Attractive" reflects the combination of reasonable multiples, improving fundamentals, and sector positioning. Historical valuation trends show the stock oscillating between "Very Attractive" and "Attractive" zones over the past year, suggesting current levels offer reasonable entry points for long-term investors.
Shareholding Pattern: Institutional Confidence Building
The shareholding pattern reveals a stable ownership structure with gradual shifts in institutional positioning. Promoter holding declined marginally to 36.93% in December 2025 from 37.36% in March 2025, primarily due to equity dilution rather than outright selling. This stable promoter base ensures continuity in strategic direction whilst providing sufficient free float for liquidity.
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 36.93% | 36.95% | 36.95% | 37.36% | -0.02% |
| FII | 12.26% | 11.90% | 12.27% | 13.43% | +0.36% |
| Mutual Funds | 17.71% | 17.67% | 18.45% | 18.12% | +0.04% |
| Insurance | 9.50% | 9.54% | 8.41% | 7.79% | -0.04% |
| Other DII | 2.26% | 2.29% | 2.26% | 2.18% | -0.03% |
| Non-Institutional | 21.34% | 21.65% | 21.66% | 21.13% | -0.31% |
Foreign institutional investors (FIIs) increased their stake to 12.26% in December 2025 from 11.90% in the previous quarter, reversing a declining trend observed since March 2025 when FII holding stood at 13.43%. This uptick suggests renewed international investor interest, possibly driven by improving operational performance and attractive valuations relative to global tyre manufacturers.
Mutual fund holdings remained relatively stable at 17.71%, with 44 different funds holding positions in the company. This diversified mutual fund ownership provides stability and reflects professional fund managers' conviction in the long-term story. Insurance companies significantly increased their stake from 7.79% in March 2025 to 9.50% in December 2025, indicating long-term institutional confidence in the company's fundamentals and dividend-paying capability.
Stock Performance: Outperforming Broader Markets
Apollo Tyres' stock has delivered impressive returns over multiple timeframes, demonstrating resilience and investor confidence despite operational challenges. The one-year return of 21.85% substantially outpaced the Sensex's 6.66% gain, generating alpha of 15.19 percentage points for shareholders. This outperformance reflects both the stock's recovery from oversold levels and improving fundamental trajectory.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +2.33% | +1.79% | +0.54% |
| 1 Month | +2.97% | -2.27% | +5.24% |
| 3 Months | -1.88% | +0.43% | -2.31% |
| 6 Months | +16.02% | +3.45% | +12.57% |
| YTD | +2.56% | -1.65% | +4.21% |
| 1 Year | +21.85% | +6.66% | +15.19% |
| 3 Years | +55.23% | +37.76% | +17.47% |
| 5 Years | +110.13% | +65.60% | +44.53% |
The three-month performance shows a modest decline of 1.88%, underperforming the Sensex by 2.31 percentage points, reflecting profit-booking after the strong rally in preceding months. However, the six-month return of 16.02% (generating 12.57% alpha) demonstrates the stock's ability to deliver superior returns during periods of improving fundamentals and positive sentiment.
Long-term performance metrics validate the investment case, with three-year returns of 55.23% (alpha: 17.47%) and five-year returns of 110.13% (alpha: 44.53%) showcasing consistent wealth creation. The stock's beta of 1.35 indicates higher volatility than the broader market, which explains both the sharp rallies and occasional corrections. Risk-adjusted returns remain attractive, with the one-year Sharpe ratio positive despite volatility of 26.18%.
Technical indicators present a mixed picture, with the stock currently in a "Mildly Bullish" trend after transitioning from sideways movement on February 03, 2026. The stock trades above all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), indicating positive momentum. However, weekly MACD shows mildly bearish signals, suggesting consolidation may be due after the recent rally.
Investment Thesis: Quality Meets Value
Apollo Tyres' investment proposition rests on four key pillars that collectively support a constructive outlook. The company's quality grade of "Good" reflects consistent long-term financial performance, with 5-year sales CAGR of 12.01% and EBIT growth of 25.12% demonstrating operational excellence despite cyclical headwinds. The balance sheet strength, evidenced by low debt-to-equity of 0.23 and improving interest coverage, provides financial flexibility for growth investments and shareholder returns.
The valuation parameter scores highly, with the stock rated "Attractive" at current levels. Trading at 28.93 times earnings with the lowest price-to-book ratio (2.10x) amongst major peers, Apollo Tyres offers value investors an opportunity to participate in India's automotive growth story at reasonable multiples. The combination of moderate valuation, improving margins, and debt reduction creates a favourable risk-reward profile.
Near-term drivers appear positive, with the quarterly financial trend turning "Positive" in December 2025 and technical indicators showing "Mildly Bullish" momentum. The recent margin recovery in Q2 FY26, coupled with stable revenue growth and improving operating leverage, suggests the company has navigated the challenging period of raw material inflation and is positioned for earnings expansion.
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Margin Recovery Momentum: Operating margins expanded 171 bps QoQ to 14.94%, approaching historical peaks and demonstrating pricing power and cost management effectiveness.
- Strong Balance Sheet: Debt-to-equity of 0.23 and debt-to-EBITDA of 1.40 provide financial flexibility, with long-term debt reduced by 64% since March 2020.
- Consistent Long-Term Growth: 5-year sales CAGR of 12.01% and EBIT growth of 25.12% demonstrate resilient business model and market share gains.
- Attractive Valuation: P/E of 28.93x and P/BV of 2.10x represent lowest multiples in peer group, offering value entry point.
- Dividend Reliability: Yield of 0.98% leads peer group, with payout ratio of 22.13% providing room for future increases.
- Institutional Confidence: Holdings of 41.73% with recent FII and insurance company accumulation signal professional investor conviction.
- Diversified Portfolio: Presence across passenger, commercial, and off-highway segments with international operations providing revenue diversification.
KEY CONCERNS ⚠
- YoY Profit Decline: Net profit down 13.25% YoY despite QoQ recovery, indicating earnings yet to surpass previous year levels.
- Moderate ROE/ROCE: Returns of 9.00% (ROE) and 10.91% (ROCE) trail high-performing peers, suggesting capital efficiency improvements needed.
- Raw Material Volatility: Exposure to natural rubber and crude derivatives creates margin unpredictability during commodity price spikes.
- Working Capital Pressure: Negative working capital movement of ₹1,266 crores in FY25 indicates inventory and receivables management challenges.
- Intense Competition: Crowded market with established players limits pricing power and market share expansion opportunities.
- High Stock Volatility: Beta of 1.35 and volatility of 26.18% create price fluctuations unsuitable for conservative investors.
- Promoter Stake Dilution: Gradual decline from 37.36% to 36.93% over recent quarters, though minimal, warrants monitoring.
Outlook: Key Monitoring Points
POSITIVE CATALYSTS 📈
- Sustained Margin Expansion: Continuation of 14%+ operating margins through pricing discipline and product mix improvement.
- Volume Recovery: Pickup in commercial vehicle sales and replacement demand driving top-line acceleration.
- Debt Reduction Progress: Further deleveraging improving interest coverage and ROE metrics.
- International Growth: European operations (Vredestein brand) gaining traction and contributing higher margins.
- Premiumisation Success: Shift towards high-value segments (SUV tyres, performance tyres) enhancing profitability.
RED FLAGS 🚩
- Margin Compression: Operating margins falling below 13% would signal pricing pressure or cost management failures.
- Working Capital Deterioration: Continued negative cash conversion indicating structural issues in receivables or inventory management.
- Market Share Loss: Volume growth lagging industry expansion suggesting competitive positioning weakness.
- Debt Reversal: Increase in leverage ratios signalling capital allocation concerns or operational stress.
- Institutional Exodus: Sustained FII or mutual fund selling indicating loss of confidence in growth trajectory.
The forward outlook for Apollo Tyres hinges on the company's ability to sustain the margin recovery witnessed in Q2 FY26 whilst accelerating top-line growth. The domestic automotive sector's recovery, infrastructure spending, and replacement demand cycles will significantly influence volume trajectory. Management's execution on premiumisation strategy, international expansion, and operational efficiency initiatives will determine whether the company can consistently deliver ROE above 12-15% to justify premium valuations.
Investors should monitor quarterly margin trends closely, particularly the sustainability of 14%+ operating margins in the face of potential raw material cost fluctuations. Working capital management improvements and cash conversion efficiency will be critical for maintaining balance sheet strength whilst funding growth. The company's ability to gain market share in high-margin segments without aggressive pricing will separate it from commodity-like peers.
The Verdict: Quality Turnaround Story at Reasonable Valuation
Score: 71/100
For Fresh Investors: Apollo Tyres presents an attractive entry opportunity at current levels. The combination of improving operational metrics (14.94% operating margin in Q2 FY26), conservative balance sheet (debt-to-equity of 0.23), and reasonable valuation (P/E of 28.93x, lowest P/BV of 2.10x amongst peers) creates a favourable risk-reward profile. The stock's outperformance over 1-year (21.85% return vs Sensex 6.66%) and strong institutional backing (41.73% holdings) validate the investment thesis. Fresh accumulation in the ₹490-520 range offers value for long-term wealth creation, with a 12-18 month investment horizon recommended.
For Existing Holders: Continue holding with confidence. The recent quarterly performance validates the turnaround thesis, with margin recovery and profit surge demonstrating operational leverage kicking in. The stock's technical positioning above all key moving averages and "Mildly Bullish" trend supports the holding decision. Use any corrections towards ₹480-490 levels to add incrementally. The dividend yield of 0.98% provides income cushion whilst capital appreciation potential remains intact.
Fair Value Estimate: ₹580-600 (13-17% upside from current levels), based on 32-35x FY27 estimated earnings of ₹18-19 per share, assuming sustained margin expansion and volume recovery.
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. The author and publisher are not liable for any investment decisions made based on this analysis.
