Why Does MOSL See Apollo Tyres Compounding Earnings at 22% CAGR?
Motilal Oswal Securities has maintained a Buy rating on Apollo Tyres with a target price of ₹600, reaffirming confidence in the company’s multi-year earnings trajectory despite near-term margin pressures. The brokerage highlights sustained demand momentum across domestic replacement and OEM segments, resilient export performance, and a long-term payoff from European restructuring initiatives.
Apollo Tyres today sits at an interesting inflection point. While headline margins face pressure from promotional spending in India and muted European demand, the underlying volume engine remains intact. MOSL’s conviction stems from the belief that Apollo is emerging from a corrected earnings base, setting the stage for a structurally stronger growth phase.
The tyre sector often reflects broader economic conditions with a lag. Replacement demand signals consumer confidence and freight activity, while OEM demand captures the health of auto production. Apollo’s performance across both segments offers a useful lens into how demand is evolving beneath macro noise.
MOSL Key Observations on Apollo Tyres
🔹 Maintain Buy rating with a target price of ₹600.
🔹 Healthy demand in India across replacement and OEM segments in 3Q.
🔹 Demand momentum likely to sustain into 4Q.
🔹 Commercial vehicle demand outlook remains uncertain.
🔹 Export demand stayed strong in 3Q and expected to continue in 4Q.
🔹 Near-term margin pressure due to higher promotional spending in India.
🔹 Europe demand muted, but Apollo continues to outperform on a low base.
🔹 Enschede restructuring benefits expected from 2HFY27E.
🔹 Earnings CAGR of 22 percent expected over FY25–28E.
MOSL’s analysis separates cyclical noise from structural drivers. While commercial vehicle demand remains uneven due to freight rate volatility and fleet utilisation trends, Apollo’s diversified exposure helps offset this uncertainty.
For traders aligning stock-specific opportunities with index-level positioning, disciplined exposure frameworks such as Nifty Tip approaches can help manage market swings while holding cyclical compounders.
Domestic Demand: Replacement and OEM Engines Intact
Apollo Tyres continues to benefit from a resilient domestic replacement cycle. Replacement demand is less volatile than OEM demand and reflects ongoing vehicle usage rather than new sales alone. MOSL notes that this segment remained healthy through 3Q, indicating stable consumption rather than one-off restocking.
OEM demand has also remained supportive across most segments. While commercial vehicle volumes show uncertainty, passenger vehicle and two-wheeler demand provide balance. This diversification reduces dependence on any single end market.
The replacement market is particularly important for margin stability. It offers better pricing power and repeat demand, allowing tyre manufacturers to smooth earnings even when OEM cycles soften.
Strengths🔹 Strong domestic replacement demand. 🔹 Balanced OEM exposure across segments. 🔹 Resilient export performance. 🔹 Established brand and distribution network. |
Weaknesses🔹 Margin pressure from higher promotions. 🔹 CV demand uncertainty. 🔹 Exposure to volatile raw material costs. 🔹 Europe demand remains subdued. |
Export performance is another pillar supporting MOSL’s positive view. In 3Q, exports remained strong, and the brokerage expects this trend to continue into 4Q. Export markets provide diversification and allow Apollo to benefit from currency movements and regional demand cycles.
Opportunities🔹 Export-led growth momentum. 🔹 Margin recovery post promotional phase. 🔹 European restructuring benefits. 🔹 Replacement cycle longevity. |
Threats🔹 Prolonged weakness in CV demand. 🔹 Sustained promotional intensity. 🔹 Raw material inflation. 🔹 Slower-than-expected Europe recovery. |
Europe remains a mixed picture. Demand conditions are muted, but MOSL points out that Apollo continues to outperform the broader market, aided by a low base and focused execution. This relative outperformance suggests that Apollo is gaining share even in a weak environment.
European Restructuring: Enschede as a Long-Term Lever
A key long-term catalyst highlighted by MOSL is the restructuring of Apollo’s Enschede facility in Europe. While the benefits are not immediate, the brokerage expects meaningful operational and cost improvements to start reflecting from the second half of FY27.
This restructuring is aimed at improving capacity utilisation, lowering fixed costs, and enhancing product mix. Such initiatives typically involve upfront pain but yield sustainable margin expansion over time.
Markets often underestimate the impact of operational restructuring because benefits accrue gradually. For patient investors, these changes can materially alter the earnings profile over a multi-year horizon.
For investors managing portfolios with exposure to cyclicals and financials, aligning broader risk through structured approaches such as BankNifty Tip frameworks can help navigate near-term volatility while holding long-term compounders.
MOSL’s expectation of a 22 percent earnings CAGR over FY25–28E is built on a corrected base. This implies that much of the recent cost pressure and demand uncertainty is already reflected in current earnings, improving the risk-reward balance.
The combination of steady volumes, export strength, eventual margin normalisation, and restructuring benefits creates a layered growth story rather than a single-cycle bet. This is why MOSL remains constructive even as it acknowledges near-term challenges.
Investor Takeaway: According to Derivative Pro & Nifty Expert Gulshan Khera, CFP®, Apollo Tyres represents a classic case of short-term margin pressure masking a strong multi-year earnings trajectory. MOSL’s Buy rating reflects confidence that domestic and export demand will sustain volumes, while restructuring and cost actions support long-term profitability. Investors should view volatility as part of the transition toward a structurally stronger earnings phase rather than a deterioration in fundamentals. For continued sectoral insights and market intelligence, explore Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on Apollo Tyres and Tyre Sector
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SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
