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At first glance, it appears that investors are not impressed by the management commentary of <a target="_blank" href="https://mintgenie.livemint.com/stocks/apollo-tyres-S0003055">Apollo Tyres.&nbsp;</a>

<a target="_blank" href="https://mintgenie.livemint.com/stocks/apollo-tyres-S0003055">The stock ended almost flat </a>on June 20 even as many brokerages retained faith in the stock after the company's investor presentation on June 17.

Shares of Apollo Tyres have been on a downward spiral in the last few days; the stock is down 30 percent from its 52-week high of ₹250, hit on October 18, 2021. On June 20 on BSE, the stock rose 0.26 percent.

Apollo Tyres (APTY) organised its Corporate Day 2022 to showcase its 'Vision 2026'. As the brokerage firm JM Financial highlighted, the company targets $5 billion revenue (nearly16 percent <a target="_blank" href="https://mintgenie.livemint.com/news/personal-finance/what-is-the-cagr-is-it-a-better-index-to-assess-the-performance-of-your-investment-151639638182904">CAGR</a>), <a target="_blank" href="https://mintgenie.livemint.com/news/personal-finance/all-you-need-to-know-about-ebitda-151655297751102#:~:text=EBITDA%20is%20calculated%20using%20two,other%20that%20uses%20net%20income.&amp;text=EBITDA%20%3D%20Operating%20Income%20%2B%20Depreciation%20%26,are%20the%20two%20EBITDA%20computations.">EBITDA</a> of more than 15 percent, pre-tax ROCE of 12-15 percent (currently at nearly 6 percent) and net debt EBITDA of less than 2 times during next 4 years.

The brokerage firm has a 'buy' call on the stock with a target price of ₹300.

JM Financial further highlighted that the company's near-term focus will be on strengthening business fundamentals, cost control, digitalization, reducing capex intensity and improving the balance sheet. Revenue growth is likely to be achieved through consolidating its position in the domestic market, increasing exports, expanding into the OE segment, outpacing growth in the EU market through product and distribution expansion and deeper penetration in the US market.

Given the current uncertainty, the management is cautious and has re-iterated its intent to reduce capex intensity in the coming years and focus on improving the return ratios and cash flow. Though the revenue target seems challenging, the focus on the growth enablers augurs well.

Brokerages seem convinced by the management's commentary on growth and capex while it remains a fact that the company will face margin headwinds due to increased raw materials prices.

Brokerage firm Motilal Oswal Financial Services has a 'buy' call on the stock with a target price of ₹265, implying a 51 percent upside from the stock's current market price.

"Apollo Tyres is all geared for the next leg of growth, with sufficient capacity to cater to demand from India and Europe. With capex for Phase II of the AP plant concluding in FY23, an increase in capacity utilization will generate higher cash flows and further deleverage its balance sheet," said Motilal Oswal.

The brokerage firm further added that as compared to its peers, the stock offers the best blend of earnings growth and cheap valuations.

"The stock trades at 13.6 times and 8.7 times FY23E and FY24E consolidated earnings per share (EPS), respectively. We value the stock at 12 times Jun’24E EPS against a five and 10-year average P/E multiple of about 16 times and 12 times, respectively," Motilal Oswal said.

Brokerage firm Nirmal Bang expects Apollo Tyres to enter a high growth, low capex phase going forward.

"We remain positive on APTY and expect a consolidated Revenue/EBITDA/PAT CAGR of 9 percent/13 percent/31 percent over FY21-24E. We have maintained our 'buy' rating on APTY with a revised target price of ₹245 (earlier ₹289), valuing it at 14 times FY24E EPS," said Nirmal Bang.

Elara Capital also has a buy rating on the stock with a target price of ₹291. It expects a standalone EBITDA margin of 11.3 percent in FY24E (Q4FY22 at 9.4 percent) on operating leverage and price rise.

"Apollo Tyres has adequate capacity to cater to incremental demand from the structural CV upcycle. Moderation of capex in the upcoming years would lead to a positive FCF of ₹3,100 crore over FY23-24E. We expect a revenue CAGR of 18 percent, an EBITDA CAGR of 25 percent and a PAT CAGR of 55 percent over FY22-24E with EBITDA margin expanding 160bp over the same period," said Elara.

An average of 24 analysts polled by <a target="_blank" href="https://mintgenie.livemint.com/stocks/apollo-tyres-S0003055">MintGenie</a> has a ‘buy’ rating on the stock.&nbsp;

Disclaimer: The views and recommendations made above are those of the broking firms and not of MintGenie.

Brokerages upbeat on Apollo Tyres despite margin headwinds

<ul><li>Given the current uncertainty, the management is cautious and has re-iterated its intent to reduce capex intensity in the coming years and focus on improving the return ratios and cash flow.</li></ul>

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