Apollo Tyres margins poised to recover as Europe restructuring benefits emerge in FY28

Investment View and Earnings Outlook

Motilal Oswal Financial Services’ August 7, 2026 results update on Apollo Tyres retains a BUY rating and identifies resilient demand, premiumisation and European restructuring benefits as the central drivers. The broker expects a steady 8 per cent consolidated revenue CAGR over FY25-FY28E.

Although raw-material cost inflation is expected to keep margins under pressure in FY27E, Motilal Oswal expects full margin recovery in FY28E as cost pressures normalise and restructuring benefits emerge in Europe.

The broker’s target price of Rs 528 is based on 16 times FY28E consolidated EPS. It considers valuations of 16.2 times FY27E EPS and 13.5 times FY28E EPS attractive versus peers.

Q1 FY27 Consolidated Performance

Apollo Tyres reported consolidated revenue growth of about 13 per cent year on year to Rs 73.9 billion in Q1 FY27, in line with Motilal Oswal’s estimate. Consolidated EBITDA was flat year on year at Rs 8.7 billion, also in line with estimates, while EBITDA margin fell 150 basis points year on year to 11.7 per cent versus the broker’s 11.6 per cent estimate, reflecting raw-material inflation.

Consolidated PAT rose 12.1 per cent year on year to Rs 3.3 billion and exceeded the broker’s expectations, supported by higher-than-expected other income of Rs 583 million. Reported earnings also included an exceptional gain of Rs 235 million from interim distribution related to unsecured short-term inter-corporate deposits written off in earlier years.

India Business: Broad-Based Demand and Market-Share Gains

The India business posted its highest quarterly revenue, according to management, aided by broad-based demand across end markets and product categories. Standalone revenue increased 15.6 per cent year on year to Rs 54.6 billion, standalone EBITDA margin improved 80 basis points to 12 per cent, and standalone PAT rose 29.3 per cent year on year to Rs 2.9 billion, ahead of estimates.

Management said Apollo Tyres outperformed the domestic tyre industry, achieved double-digit growth in almost all product segments and gained share in key categories. TBR replacement-market share exceeded 30 per cent, while PCR replacement-market share was about 21 per cent. Management also reported robust July demand across channels and categories, indicating that momentum could continue into Q2 FY27.

Europe: Restructuring and Premiumisation Drive Recovery Potential

Europe revenue, translated into rupees, grew 10.3 per cent year on year to Rs 20.4 billion in Q1 FY27, but EBIT margin contracted 190 basis points to 0.7 per cent. Management remains confident of attaining high-teen EBITDA margins in Europe after ongoing restructuring is fully completed.

Motilal Oswal highlights Apollo Tyres’ premiumisation strategy. PV revenue contribution increased to 22 per cent in FY26 from 18 per cent in FY18, while the European UHP and UUHP mix rose to 50 per cent in Q4 FY26 from 48 per cent in Q4 FY25.

The premium Vredestein brand, the Hungary manufacturing facility, stronger replacement-market competitiveness, OEM inroads and the shutdown of the Enschede plant are expected to support the European business.

Pricing, Capacity and Product Initiatives

Management estimated that cumulative price hikes of 15-16 per cent are needed to fully offset prevailing cost inflation. About 11 per cent has been implemented, leaving potential for one or two further rounds.

India and Europe plants operated at 91 per cent and 94 per cent utilisation, respectively, in Q1 FY27. Apollo Tyres has established Spacemaster tyre capacity at Baroda, received OEM approvals and expects commercial supplies shortly. It also secured multiple new EV-platform OEM approvals.

Capex, Leverage and Financial Forecasts

Management reiterated FY27 capex guidance of around Rs 30 billion. Q1 FY27 consolidated capex was about Rs 6.5 billion, including nearly Rs 5 billion in India, and spending is expected to accelerate as expansion projects enter execution.

Consolidated net debt was about Rs 17 billion, with net debt to EBITDA at around 0.4 times. Management expects moderate leverage growth during FY27 while maintaining a comfortable balance sheet.

Motilal Oswal forecasts India revenue CAGR of 9 per cent over FY26-FY28E, with a 180-basis-point FY27E margin contraction followed by recovery in FY28E. The broker raised FY27E EBITDA by 1.6 per cent and EPS by 3.9 per cent.

Key Risks to the Investment Thesis

• Persistent commodity-cost inflation.
• Incomplete pricing pass-through.
• Margin weakness in Europe.
• Higher capex-led leverage.