On Friday, Elara Securities India downgraded Apollo Tyres Ltd (APTY:IN) stock. The firm shifted its recommendation from 'Reduce' to 'Sell', accompanied by a decrease in the price target to INR 442.00 from the previous INR 506.00. The downgrade is attributed to anticipated margin pressures and a delay in recovery, alongside concerns about market share loss.
The analyst from Elara Securities India provided a rationale for the downgrade, citing a pattern where tyre stock prices tend to peak around the same time as margin peaks. Following these peaks, margins generally experience sharp declines.
The current market situation reflects this trend, which has led to a significant cut in the forecasted earnings per share (EPS) for Apollo Tyres. Specifically, the EPS estimate for the fiscal year 2025 has been reduced by 25%, with a 9-13% decrease for the fiscal years 2026-2027.
The lowered expectations for Apollo Tyres also extend to its projected earnings before interest, taxes, depreciation, and amortization (EBITDA) and profit after tax (PAT) compound annual growth rates (CAGRs).
The analyst predicts a modest 1% EBITDA CAGR and a 6% PAT CAGR over the fiscal years 2024-2027. These subdued growth rates further justify the decision to downgrade the stock rating.
In addition to the downgrade, the price target was adjusted based on a revised price-to-earnings (P/E) ratio. The new target is set using a 14 times multiple of the estimated P/E for September of the fiscal year 2026, which is a decrease from the previously used 15 times multiple.
This change reflects the analyst's expectations of a delayed margin recovery for Apollo Tyres and potential market share losses that could impact the company's financial performance.
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