Apollo Tyres sees strong domestic volumes as raw-material pressure is expected to ease

Investment View and Key Drivers

ICICI Direct Research, in its August 10, 2026 company update on Apollo Tyres, maintains a BUY view. The recommendation is supported by robust domestic tyre demand, market-share gains, prospective moderation in raw-material costs and a substantially deleveraged balance sheet.

Apollo Tyres is a tyre manufacturer operating in India and Europe. India contributes about 63% of sales. The FY26 product mix comprised Truck/Bus tyres at 40%, passenger-vehicle tyres at 38%, off-highway tyres at 10% and other categories at 12%.

• Domestic demand: Strong replacement, OEM and export volume growth in India.
• Market share: Management estimates that Apollo regained share, with TBR replacement share above 30% and passenger-car replacement share above 21%.
• Capacity: Utilisation above 90% makes capacity a constraint, while the Andhra Pradesh expansion is expected to start towards the end of FY27 and ramp through FY28.
• Balance sheet: Net debt has declined substantially, supporting financial flexibility.

Q1FY27 Financial Performance

Consolidated operating income in Q1FY27 was Rs 7,398 crore, up 12.8% year on year and 0.8% quarter on quarter. EBITDA was flat year on year at Rs 868 crore but declined 18.8% sequentially. EBITDA margin stood at 11.7%, down 149 basis points year on year and 284 basis points quarter on quarter. Reported PAT was Rs 349 crore, compared with Rs 13 crore in Q1FY26 and Rs 631 crore in Q4FY26.

APMEA revenue rose 14.5% year on year to Rs 5,529 crore, while Europe revenue increased 10.3% to Rs 2,039 crore. Segment EBIT margins were 8.7% in APMEA and 0.7% in Europe.

Indian Operations and Capacity Expansion

Management indicated strong Indian demand in Q1FY27. Replacement volumes grew 13% year on year, OEM volumes increased 10% and exports rose 15%. Indian revenue reached a record Rs 5,460 crore, up 15.6% year on year and 4.3% sequentially, driven by around 12% volume growth.

Management estimates that Apollo regained market share, with TBR replacement share above 30% and passenger-car replacement share above 21%. Utilisation above 90% makes capacity a constraint. India capex was Rs 500 crore in Q1FY27 and is expected to increase in Q2 and Q3. The Andhra Pradesh expansion is expected to begin towards the end of FY27 and ramp through FY28.

Raw-Material Costs and Margin Outlook

The principal near-term concern is raw-material inflation. Raw-material costs rose about 17% in Q1FY27, and management expects a further roughly 8% sequential increase in Q2, mainly due to natural rubber.

Apollo implemented price increases of 7-9% during Q1FY27. Cumulative increases were about 9% in TBR and 11% in other categories, compared with an estimated 15-16% increase needed to fully offset cost inflation. Only 3-4% of the price increases flowed into Q1 revenue.

Management expects the fuller benefit of the price increases from Q2. Natural-rubber prices are expected to begin cooling from Q3, potentially supporting margin recovery from H2FY27.

European Operations and Footprint Optimisation

Europe reported revenue of Euro 147 million, up 0.5% year on year, and EBITDA of Euro 13 million. EBITDA margin was 8.9%, compared with 10.8% a year earlier. The Enschede closure and manufacturing transition weighed on reported performance, although core passenger-car replacement growth remained in double digits.

The Netherlands plant stopped production in June 2026. Much of its approximately 750,000-tyre capacity is shifting to Hungary, while lower-end 14-inch and 15-inch tyres are moving from Hungary to India. The transition is expected to be completed around September-October 2026.

Hungary passenger-car capacity is expected to increase from about 17,000 to 21,000 tyres per day, with the ramp-up beginning from H2FY27. Management targets high-teens European EBITDA margins after footprint optimisation. Anti-dumping duties on Chinese tyres, the Hungary ramp-up and the removal of overlapping Netherlands costs are expected to support the improvement.

Financial Forecasts and Leverage

The report cites controlled leverage, with net debt reduced from about Rs 6,000 crore in FY20 to about Rs 1,700 crore in Q1FY27. Net debt to EBITDA stood at 0.4 times.

Valuation and Recommendation

The front page displays a 12-month target price of Rs 510. However, the detailed rating paragraph refers to valuation at Rs 425 based on 7 times FY28E EV/EBITDA, creating an inconsistency within the report. ICICI Direct consequently maintains its BUY view on Apollo Tyres.

Key Risks

• Weaker-than-expected recovery in domestic demand.
• Prolonged margin pressure if raw-material prices remain high.