Nomura has lifted its target price for Apollo Tyres to ₹468 while maintaining a 'Neutral' rating. While revenue grew 12.8% in the June quarter, investors are weighing profit margin pressures, heavy capital spending, and a recent change in key management.
Nomura has updated its outlook for Apollo Tyres, increasing its target price to ₹468 from the previous ₹452. The adjustment follows the tyre manufacturer's June quarter performance, which showed a consolidated revenue of ₹7,398 crore, a year-on-year growth of approximately 12.8%. Despite these revenue gains, the brokerage has kept its 'Neutral' rating, signaling that the stock's current price appropriately reflects the balance between growth and the challenges ahead.
Margin Pressures and Cost Inflation
A primary focus for investors is the pressure on profit margins. In the first quarter of FY27, the company’s EBITDA margin compressed to 11.7%, down from 13.2% in the same period last year. This dip is largely attributed to a sharp 17% increase in raw material costs during the quarter. Looking ahead, management and analysts anticipate an additional 8% sequential rise in input costs for the second quarter. To counter this inflationary trend, the company may need to implement cumulative price hikes of around 15%. For shareholders, the key monitorable is whether Apollo Tyres can pass these costs onto customers without sacrificing market share, especially in a replacement market that is seeing increased competition.
High Capital Expenditure Plans
The company is in the middle of a significant expansion phase, which requires substantial capital spending. Planned expenditure stands at ₹35 billion for FY27 and another ₹30 billion for FY28. While these investments are aimed at boosting long-term production capacity—including plans for new plant operations in Hungary and India—they also put downward pressure on free cash flow in the near term. Investors may want to keep a close watch on how these projects progress, as any delays or cost overruns could further strain the balance sheet.
Operational and Leadership Shifts
Apollo Tyres is also managing significant internal transitions. The company officially closed its Enschede manufacturing plant in the Netherlands in June 2026, a move that forms part of its broader strategy to optimize its production footprint. Furthermore, the company is dealing with a change in leadership following the resignation of its Chief Financial Officer, Gaurav Kumar, which became effective on August 6, 2026. Coupled with sluggish growth in the commercial vehicle segment, these factors create a complex environment for the company. The path forward for the stock will likely depend on the company's ability to navigate these operational headwinds, manage its leadership transition effectively, and improve profit margins amidst persistent cost inflation.