Motilal Oswal has started coverage on Apollo Tyres with a target price of Rs 528, banking on a recovery in profit margins by fiscal year 2028. While the company reported a 12.8% revenue growth in the first quarter of fiscal 2027, rising raw material costs and operational challenges in Europe remain key pressure points for investors to monitor.
Motilal Oswal has initiated coverage on Apollo Tyres with a 'Buy' rating, setting a target price of Rs 528. This move comes following the company's first-quarter financial performance for the 2027 fiscal year, which showed a mix of revenue growth and pressure on profitability.
During the quarter, Apollo Tyres reported consolidated revenue of Rs 7,397.8 crore, marking a 12.8% increase compared to the same period last year. While the top-line growth was notable, the company's core operating profit margin (EBITDA margin) dipped to 11.7%, down from 13.2% in the previous year. This decline in margins was primarily driven by a 17% surge in raw material costs, which has created a challenging environment for the company's profitability.
Outlook and Strategy
The brokerage firm expects a recovery in margins to materialize by the 2028 fiscal year. This optimism is based on the company's strategy to normalize costs and the potential long-term benefits from restructuring its European operations. As part of these efforts, Apollo Tyres completed the closure of its Netherlands plant in June 2026, aiming to shift production to more cost-effective manufacturing hubs to improve efficiency.
Risks and Market Context
Investors should be aware that the outlook on the stock is not uniform across the market. Other institutions like Nomura have taken a more cautious stance, maintaining a 'Neutral' rating on Apollo Tyres with a target price of Rs 468.
Beyond valuation differences, there are several operational concerns to track. The company recently saw the resignation of its long-term Chief Financial Officer, Gaurav Kumar, which has introduced a degree of uncertainty regarding its financial leadership. Furthermore, the European segment of the business is experiencing significant stress, reflected in declining operating margins.
Additionally, the broader tyre industry continues to grapple with the volatility of raw material prices. Apollo Tyres also maintains a high exposure to the commercial vehicle segment, where demand can be cyclical and unpredictable. Investors may want to monitor whether the company's restructuring efforts in Europe can effectively offset these headwinds and whether the anticipated margin recovery in fiscal 2028 remains on track as raw material costs evolve.