Apollo Tyres shares in focus after Q2 net profit falls 37% YoY. What should investors do?

Synopsis

Apollo Tyres reported a 37% drop in quarterly profit, primarily due to weak demand in the Indian market and increased raw material costs. Despite growth in the European passenger vehicle segment, the company's overall performance was impacted by a slowdown in the commercial vehicle segment in India.

Apollo Tyres shares will be in focus on Thursday after the firm said its consolidated profit after tax declined 37% to Rs 297 crore in the September 2024 quarter, hit by tepid demand in the domestic market and an increase in raw material prices. The tyre maker posted a profit after tax (PAT) of Rs 474 crore in the July-September quarter of last fiscal.

Revenue from operations stood at Rs 6,437 crore in the second quarter against Rs 6,280 crore in the year-ago period.

"We witnessed a weak demand scenario in the OEM (Original Equipment Manufacturer) segment in our largest market -- India, which negated the strong growth in the replacement segment," Apollo Tyres Chairman Onkar Kanwar stated.

In Europe, the company saw positive revenue growth in the passenger vehicle segment, which is the largest segment for Apollo in that geography, he added.

"Unprecedented increases in raw material prices have impacted our profitability," Kanwar noted.

The company said its board approved the raising of funds of up to Rs 1,000 crore by issue of non-convertible debentures, to be allotted in one or more tranches, through private placement.

Here's what analysts say about Apollo Tyres:

JPMorgan

JPMorgan maintained an 'Overweight' rating for Apollo Tyres with a target price of Rs 555.

The report noted that the second quarter was weak as expected, emphasizing that the company's commentary on pricing for the second half (H2) will be crucial. Additionally, the report highlighted an increase in net debt, which is attributed to a seasonal rise in working capital.

UBS

The Q2FY25 results showed that the company's India operations were below expectations and lagged behind peers due to weak commercial vehicle (CV) demand. In contrast, European operations were robust, with revenue and profit before interest and tax (PBIT) increasing by 6% and 19% year-on-year (YoY), respectively. Standalone revenue grew by 1% YoY, which was lower compared to the 8% and 11% growth observed in CEAT and MRF, respectively. Apollo's higher exposure to the CV segment, which experienced significant slowdown, was a notable factor impacting its performance.

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