Last Update 29 Oct 25
Fair value Increased 0.33%The analyst price target for Apollo Tyres has increased slightly from ₹519.58 to ₹521.30, reflecting analysts' continued optimism regarding earnings potential, even as there have been modest adjustments in valuation assumptions and market headwinds.
Analyst Commentary
Recent analyst discussions highlight both supportive factors and ongoing concerns affecting Apollo Tyres' valuation and outlook. While certain analysts have maintained confidence in long-term growth, others note specific risks that could temper future performance.
Bullish Takeaways- Increased estimates for earnings over the coming years are driven by stronger management fees and credit fundraising. This indicates ongoing confidence in Apollo Tyres’ strategic execution and growth potential.
- Favorable trends in fee and trading day growth point to potential tailwinds for revenue. Robust distribution remains a positive factor.
- Stable claims experience is viewed as a good indicator for actuarial review periods and could support future earnings emergence. This contributes to a robust earnings outlook.
- Supportive flows and capital markets activity are providing the company with opportunities for continued expansion, which underpins analysts' optimistic valuations.
- Recent modest reductions in target prices reflect analyst caution around near-term market headwinds and ongoing credit concerns. These factors could pressure valuation multiples.
- Certain secular headwinds, such as normalization of investment income and anticipated flow challenges, may limit upside despite underlying operational strengths.
- Analysts note that while several tailwinds are already priced in, new or unexpected market volatility could weigh on sentiment and execution in the short to medium term.
- Potential vulnerabilities related to the broader capital market environment remain a factor in more cautious analyst outlooks.
What's in the News
- Apollo Global is seeking to sell its Heritage Grocers Group, a Hispanic grocery chain, with a potential valuation of about $1.5 billion. The decision comes amid reduced consumer demand attributed to immigration fears (Reuters).
- The U.S. Army has invited Apollo and other private equity groups to propose strategy projects focused on funding a $150 billion infrastructure overhaul (Financial Times).
- Apollo submitted a new bid to take Papa John's private at $64 per share. Negotiations are ongoing and the situation is described as "fluid" (Reuters).
- Paramount has held discussions with Legendary and Apollo regarding a possible bid to acquire Warner Bros. Discovery. Apollo is considered a potential investor in the deal (Bloomberg).
- Orsted is negotiating to sell a 50% stake in its GBP 8.5 billion Hornsea 3 wind farm to Apollo. The developer is seeking to reinforce its balance sheet following recent setbacks (Financial Times).
Valuation Changes
- Consensus Analyst Price Target has risen slightly from ₹519.58 to ₹521.30, reflecting a marginal increase in future expectations.
- Discount Rate has ticked up from 14.79% to 14.85%, indicating a minor increase in the risk premium factored into valuations.
- Revenue Growth projections remain essentially unchanged, holding steady near 6.8% year-on-year.
- Net Profit Margin estimates have been maintained at 7.33%, with no meaningful variance in outlook.
- Future P/E multiple has increased marginally from 22.35x to 22.47x, which suggests a small uplift in expected earnings valuation.
Key Takeaways
- Strategic focus on profitability and product mix shift towards Ultrahigh Performance Tires in Europe is likely to boost margins.
- Market share gains and debt reduction efforts in India, U.S., and Middle East will enhance revenue growth and earnings.
- High raw material costs and CapEx needs, coupled with missed export opportunities, are pressuring Apollo Tyres' profitability and cash flow.
Catalysts
About Apollo Tyres- Manufactures and sells automotive tires, tubes, and flaps in the Asia Pacific, the Middle East, Africa, Europe, and internationally.
- Apollo Tyres is expecting to see a recovery in demand momentum in both India and Europe, which should positively impact revenue growth in the coming quarters.
- The company's strategic focus on enhancing profitability through internal initiatives and a better product mix, especially in Europe with a shift towards the Ultrahigh Performance Tire (UUHP) segment, is likely to boost net margins.
- The expected stability and potential reduction in raw material costs, coupled with previous price increases, should help improve gross margins and, consequently, overall earnings.
- Continued market share gains in key segments like the domestic passenger car replacement (PCR) and agricultural sectors in India indicate potential revenue growth.
- Debt reduction efforts, as seen with a decline in net debt, and plans for growing demand in new markets like the U.S. and Middle East are set to improve net margins and positively impact earnings through reduced interest costs and expanded revenue streams.
Apollo Tyres Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Apollo Tyres's revenue will grow by 6.8% annually over the next 3 years.
- Analysts assume that profit margins will increase from 3.2% today to 7.3% in 3 years time.
- Analysts expect earnings to reach ₹23.5 billion (and earnings per share of ₹37.24) by about September 2028, up from ₹8.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹20.1 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, down from 37.1x today. This future PE is lower than the current PE for the IN Auto Components industry at 29.3x.
- Analysts expect the number of shares outstanding to grow by 1.31% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 14.73%, as per the Simply Wall St company report.
Apollo Tyres Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Elevated levels of raw material costs continue to exert pressure on margins, potentially impacting net margins and profitability if not mitigated.
- Declines in domestic OEM segment margins suggest challenges in maintaining profitability across all segments, which could impact overall earnings.
- Interest costs remain stable despite reductions in debt, driven by increased working capital borrowings due to profitability challenges, potentially affecting net profitability.
- Weak performance in India’s exports, unlike some peers, suggests missed revenue opportunities in global markets, which could affect revenue growth.
- High short-term CapEx needs for increasing capacity in passenger car tires could strain cash flows and potentially impact free cash flow generation negatively.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of ₹509.292 for Apollo Tyres based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹600.0, and the most bearish reporting a price target of just ₹399.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹320.8 billion, earnings will come to ₹23.5 billion, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 14.7%.
- Given the current share price of ₹485.65, the analyst price target of ₹509.29 is 4.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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