2 Tyre Stocks To Buy With A Good Potential Upside

Motilal Oswal has in its recent report on the tyre industry, picked the stocks of Apollo Tyres and CEAT has its top picks.

Target price of Rs 325 on Apollo Tyres

Apollo Tyres offers the best blend of earnings growth and cheap valuations v/s its peers, the brokerage has said. "The stock trades at 17.4x/11.7x FY23E/FY24E consolidated EPS. We maintain our Buy rating with a target price of Rs 325 (12x Sep'24E consolidated EPS)," the brokerage has said.

CEAT

Ceat is another stock that Motilal Oswal has recommended investors to buy. "Deferment of TBR capacity will ease pressure on its P&L and Balance Sheet. Valuations, at 40.6x/13.1x FY23E/FY24E consolidated EPS, do not fully capture the ramp-up in new capacities and stabilization in RM cost. We maintain our Buy rating with a price target of Rs 1,630 (based on ~13x Sep'24E EPS)," the brokerage has said.

Moderation in natural rubber prices

After witnessing hyper-inflation in its key input cost over the last 15-18 months, the Tyre industry is seeing a moderation in natural rubber as well as crude prices (with a lag in synthetic rubber and carbon black prices). "This augurs well for a margin recovery from 2HFY23. Coupled with asset sweating and controlled capex, it will drive an improvement in FCF, financial gearing, and RoCE. Apollo Tyres is our preferred play on Tyres as it offers the best blend of earnings growth and cheap valuations," the brokerage has said.

Key input prices

"Key input prices have seen an incessant increase (over 50%) since 1HFY21, with the average raw materials basket costing Rs 180 per kg, resulting in an over 10pp fall in gross margin," Motilal Oswal has said in its report.