This midcap stock zooms 7%; here is what driving gains

In the early trade on Thursday (May 16), shares of the midcap entity Apollo Tyres zoomed more than 7 per cent to day’s high price of Rs 508.10 even as the tyre manufacturer posted weaker-than-expected Q4 results. The spurt in the stock is likely triggered as global brokerages upgraded the stock on better outlook.

“We expect demand momentum to pick up post general elections. We will continue to focus on business fundamentals, cost control and free cash flow generation,” noted the company in its investor presentation. 

In May this year, the company also resorted to price hike up to 3 per cent across its product range to offset EPR or Extended Producer Responsibility liability and rising raw material expenses. The operating margin after adjusting for EPR expenses stood at 17.2 per cent. 

Further, in respect of its operations in the EU region, the company’s management expects the market growth to improve vis-à-vis last year. Operating performance is expected to remain strong with constant focus on sales mix improvement and cost optimization.

Also, there is anticipated a high-single/ low double-digit growth in the CV/PV replacement demand.

Global brokerages upgrade Apollo Tyres post Q4 show

Global brokerage Citi reiterates its ‘buy’ call on the counter and has given a target of Rs 570, implying over 20 per cent potential gains. Meanwhile, Nomura upgraded the counter to ‘neutral’ from the earlier ‘reduce’ call and raised the target to Rs 512 from the earlier Rs 478. The brokerage maintains that the company’s margins will be aided by better product mix and price increase. Also, there is a possibility of better free cash flow (FCF) on the back of low capex. Further, the brokerage believes that the current valuation of FY26 EV/EBITDA will not be too expensive. 

JP Morgan has also upgraded the stock to ‘overweight’ rating from the ‘neutral’ call earlier with a target of Rs 555. The brokerage expects profit for the entire year to come in better on the back of reduction in interest expense.