Business Desk – Apollo Tires Share Price: Apollo Tires shares saw a rise of about 5% on August 24. This jump in the stock came after the rating upgrade of brokerage firm UBS. UBS has raised Apollo Tires to 'Buy' from 'Neutral' and set the target price of the share at Rs 590. Compared to Friday's closing price of Rs 439.95, this indicates a potential upside of about 34%.
Why did UBS change its rating?
UBS believes that Apollo Tires' valuation is still low compared to its peers. The company's stock performance has been weaker than the entire tire sector in the last four years. However, according to the brokerage, the company's situation is gradually improving.
The management is taking several strategic steps to strengthen the business in India. These also include investment on brand building. The company's sponsorship of the Indian cricket team's jersey is part of this strategy.
Hope for improvement in Europe business also
UBS expects improvement in Apollo Tires' Europe business. The brokerage believes that the company's strategic initiatives may show impact gradually and this may support earnings in the medium term.
According to UBS, investors are currently paying more attention to commodity cost pressures and recent challenges. Due to this, they are ignoring the possible big improvement in the company's earnings.
Pressure in Q2FY27, earnings expected to improve later
According to the brokerage, Apollo Tires may remain under pressure in Q2FY27. A major reason for this is the prices of natural rubber. Natural rubber prices were up 22% quarter-on-quarter in Q1FY27.
However, UBS expects significant improvement in the company's earnings after this. The brokerage estimates EBITDA to grow 21% YoY in FY28E, as commodity cost pressures are expected to ease and business conditions are expected to improve.
Demand strong, expected to benefit from strategic steps
UBS says demand for Apollo Tires remains strong and the company's strategic initiatives are also moving forward. In such a situation, the brokerage feels that the market is underestimating the company's ability to improve earnings in the medium term.
However, UBS's target of Rs 590 is a brokerage estimate. The actual performance of the stock will depend on many factors, including market conditions, commodity prices, company earnings and business performance.