Quality Assessment: Steady but Uninspiring Financials
Apollo Tyres’ recent quarterly results for Q2 FY25-26 have been largely flat, with the company reporting a 22.27% decline in profit after tax (PAT) over the first nine months, amounting to ₹784.61 crores. This contraction in profitability has weighed on investor sentiment, especially as the return on capital employed (ROCE) has dipped to 11.19% in the half-year period, marking the lowest level in recent times. The debtor turnover ratio also stands at a modest 8.15 times, indicating a slower collection cycle compared to peers.
Despite these challenges, Apollo Tyres maintains a strong ability to service its debt, with a low Debt to EBITDA ratio of 1.40 times. This financial discipline supports the company’s creditworthiness and operational stability. Additionally, the firm’s net sales have grown at a healthy compound annual growth rate (CAGR) of 12.01%, while operating profit has expanded at an even more robust 25.12% annually, underscoring solid underlying business momentum over the longer term.
Valuation: Attractive Yet Reflective of Market Caution
The stock currently trades at ₹496.05, down 1.88% on the day, and remains below its 52-week high of ₹540.50. Apollo Tyres’ valuation metrics suggest an attractive entry point relative to its historical averages and peer group. The company’s Enterprise Value to Capital Employed ratio stands at a modest 1.8, signalling a discount compared to sector norms. This valuation appeal is tempered by the stock’s underperformance over the past year, where it has delivered a negative return of -7.88%, lagging behind the BSE500 index’s positive 5.24% return.
Over longer horizons, however, Apollo Tyres has outpaced the broader market, generating a 5-year return of 174.44% compared to the Sensex’s 77.88%, and a 3-year return of 51.91% versus the Sensex’s 38.54%. This disparity highlights the stock’s potential for recovery and value realisation, contingent on improved operational and market conditions.
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Financial Trend: Flat Quarter Dampens Momentum
The recent flat financial performance in Q2 FY25-26 has contributed to a more cautious stance. While net sales and operating profit have shown commendable long-term growth, the short-term earnings contraction and subdued ROCE have raised concerns about near-term profitability. The company’s PAT decline of 22.27% over nine months and a 25.8% fall in profits over the past year highlight the challenges Apollo Tyres faces amid competitive pressures and raw material cost volatility.
Institutional investors hold a significant 41.4% stake in the company, reflecting confidence in Apollo Tyres’ fundamentals and long-term prospects. These investors typically possess superior analytical capabilities, which may provide some stability to the stock despite recent setbacks.
Technical Analysis: Shift from Bullish to Mildly Bullish Signals
The downgrade in investment rating is largely driven by a change in technical indicators, which have shifted from a bullish to a mildly bullish stance. Key momentum indicators present a mixed picture: the Moving Average Convergence Divergence (MACD) is mildly bearish on both weekly and monthly charts, while the Relative Strength Index (RSI) is neutral weekly but bullish monthly. Bollinger Bands suggest sideways movement weekly and mild bullishness monthly, indicating limited volatility and a cautious upward bias.
Other technical metrics such as the Know Sure Thing (KST) oscillator and On-Balance Volume (OBV) also reflect this ambivalence. KST is mildly bearish on weekly and monthly timeframes, whereas OBV shows no clear trend weekly but bullish momentum monthly. Dow Theory signals remain mildly bullish across both weekly and monthly periods, suggesting some underlying strength despite short-term weakness.
Daily moving averages are mildly bullish, but the overall technical summary points to a consolidation phase rather than a strong uptrend. This technical environment supports the revised Hold rating, signalling that investors should await clearer directional cues before committing further capital.
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Market Performance: Underperformance Amid Broader Gains
Apollo Tyres has underperformed the broader market over the past year, with a negative return of -7.88% compared to the BSE500’s positive 5.24%. This divergence reflects the company’s earnings challenges and cautious technical outlook. However, the stock’s long-term performance remains impressive, with a 10-year return of 216.16%, closely tracking the Sensex’s 224.76% over the same period.
The stock’s 52-week trading range between ₹368.00 and ₹540.50 indicates significant volatility, with the current price of ₹496.05 positioned closer to the upper end. Today’s trading session saw a high of ₹512.20 and a low of ₹494.65, reflecting moderate intraday fluctuations.
Conclusion: Hold Rating Reflects Balanced View on Apollo Tyres
The downgrade from Buy to Hold for Apollo Tyres Ltd. encapsulates a balanced assessment of the company’s current position. While the firm boasts strong long-term growth, attractive valuation metrics, and solid debt servicing capability, recent flat financial results and mixed technical signals warrant caution. Investors are advised to monitor upcoming quarterly results and technical developments closely before increasing exposure.
Given the stock’s underperformance relative to the market and the subdued earnings trend, the Hold rating suggests maintaining existing positions without aggressive accumulation. The company’s strong institutional backing and sector leadership provide a foundation for potential recovery, but near-term risks remain.
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