Apollo Tyres Shares Surge 6% Despite 14% Dip In Profit: Why Are Analysts Upgrading The Stock?

Apollo Tyres’ shares reached a near two-week high early Thursday, despite the company reporting a lower profit for the fourth quarter.

What Happened: For the financial year 2024, Apollo Tyres registered a 65% increase in net profit, although it experienced a 14% decline in net profit for the fourth quarter on a year-on-year basis.

Comparing annual financial performances, the company saw a 3% increase in revenue from operations, reaching ₹25,378 crores up from ₹24,568 crores the previous year. Operating profit surged 34% to ₹4,447 crores from ₹3,314 crores, and net profit significantly grew by 65% to ₹1,722 crores from ₹1,046 crores.

The Gurgaon-based company recorded a deferred tax liability along with its tax expenses for the quarter, a response to a 2023 amendment to income tax laws. During the quarter, analysts noted a significant surge in natural rubber prices, a crucial material for the tyre industry, affecting profits across the sector including for peers like MRF and CEAT.

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Analyst Reactions: Nomura upgraded Apollo Tyres to ‘Neutral’ with a target price of ₹512, citing the company’s focus on a favourable mix and price hikes to support margins, along with limited capital expenditure intensity driving free cash flow.

JP Morgan also upgraded the company to ‘Overweight’ from ‘Neutral’ and raised the target price to ₹555, praising the company’s pricing and capital expenditure discipline.

Citi too maintained a ‘Buy’ rating with a target price of ₹570, anticipating mid to high single-digit volume and revenue growth in FY24 driven by demand in the truck and bus radial (TBR) sectors.

Morgan Stanley, meanwhile, maintained an ‘Equal-Weight’ rating but slightly cut the target price to ₹472, noting challenges in the fourth quarter but recognizing Apollo’s effective execution of its strategy for sustainable and profitable growth.

Price Action: Apollo Tyres shares were trading 6.23% higher at ₹503.65 on Thursday morning.

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