Why is Apollo Tyres falling/rising?

Recent Price Performance and Market Comparison

Apollo Tyres has been on a downward trajectory over the past week, with its stock price declining by 3.7%, significantly underperforming the Sensex benchmark which fell by only 0.4% during the same period. This trend extends over the last month as well, where the stock dropped 5.18% compared to a marginal 0.23% decline in the Sensex. Year-to-date, the stock has recorded a negative return of 6.52%, contrasting sharply with the Sensex’s robust gain of 8.12%. Over the last year, Apollo Tyres’ shares have fallen by 6.76%, while the Sensex has appreciated by 5.36%. Despite this recent weakness, the stock has delivered strong long-term returns, rising 53.25% over three years and an impressive 158.55% over five years, outperforming the benchmark’s respective gains of 37.73% and 79.90%.

Short-Term Trading Dynamics and Investor Behaviour

On 17 Dec, investor participation in Apollo Tyres increased, with delivery volumes rising by 11.06% to 2.36 lakh shares compared to the five-day average. This heightened activity suggests that while the stock is experiencing selling pressure, liquidity remains sufficient to accommodate trades worth approximately ₹0.43 crore based on 2% of the five-day average traded value. The stock’s price currently sits above its 100-day and 200-day moving averages, indicating some underlying support, but remains below its 5-day, 20-day, and 50-day moving averages, signalling short-term weakness and a potential bearish momentum.

Fundamental Factors Influencing the Stock

Apollo Tyres’ recent price decline is partly attributable to a significant contraction in profitability. Over the past year, the company’s profits have fallen by 25.8%, which has weighed heavily on investor sentiment despite the stock’s attractive valuation metrics. The company maintains a strong ability to service its debt, with a low Debt to EBITDA ratio of 1.40 times, which mitigates financial risk. Additionally, Apollo Tyres has demonstrated healthy long-term growth, with net sales increasing at an annual rate of 12.01% and operating profit margins at 25.12%. Its return on capital employed (ROCE) stands at a respectable 11.3%, and the enterprise value to capital employed ratio of 1.8 indicates the stock is trading at a discount relative to its peers’ historical valuations.

Institutional Confidence and Market Positioning

Institutional investors hold a significant 41.4% stake in Apollo Tyres, reflecting confidence from market participants with greater analytical resources and a longer-term investment horizon. This institutional backing provides some stability amid short-term volatility. However, the stock’s recent underperformance relative to its sector and benchmark indices suggests that investors remain cautious, likely due to the profit decline and the stock’s failure to keep pace with broader market gains.

Outlook and Investor Considerations

While Apollo Tyres’ stock has experienced a recent decline, its strong long-term growth trajectory and solid balance sheet fundamentals suggest that the company remains well-positioned for recovery. Investors should weigh the current profit pressures against the company’s ability to generate consistent sales growth and maintain operational efficiency. The stock’s discount valuation relative to peers may offer an attractive entry point for long-term investors, but the near-term price weakness and underperformance relative to the Sensex warrant cautious monitoring.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →