India demand remains resilient on lower GST rates and improving exports, but weak Europe volumes and sponsorship costs are clouding the near-term margin outlook.
Apollo Tyres Ltd is navigating a rocky patch. Its India business remains on relatively firm ground, supported by a demand boost following cuts in goods and services tax (GST) rates and a recovery in exports, while Europe continues to be a drag amid persistently weak demand.
Apollo Tyres Ltd is navigating a rocky patch. Its India business remains on relatively firm ground, supported by a demand boost following cuts in goods and services tax (GST) rates and a recovery in exports, while Europe continues to be a drag amid persistently weak demand.
In a recent interaction with analysts at Motilal Oswal Financial Services, Apollo's management said demand in India across most key segments stayed healthy in Q3, spanning both replacement and original equipment manufacturer (OEM) channels. Europe, however, told a different story: October saw some growth, but demand weakened in November, with momentum in core markets remaining subdued.
Over the longer term, profitability in Europe is expected to improve following the planned closure of the Enschede facility by the end of June. In the near term, though, overall margin expansion is likely to be constrained by Apollo's appointment as the lead sponsor of the Indian cricket team. It has committed ₹580 crore to the sponsorship, spread over two and a half years. "This impact is likely to reflect in financials from Q3 onwards," Motilal Oswal's analysts noted.
Apollo's consolidated Ebitda margin in the September quarter (Q2FY26) had risen 130 basis points (bps) year-on-year to 14.9%, the highest in the past six quarters, having declined about 110 bps to 13.2% in Q1. Softening raw material costs were a key factor, aiding margin growth.
"Management had earlier guided that input costs were likely to soften in H2. However, based on trends visible in Q3, input costs are now expected to remain stable QoQ, given the INR (Indian rupee) depreciation and cyclone-related disruptions in Thailand impacting rubber production," said the Motilal Oswal report dated 27 December.
The stock has declined around 8% in the past year and now trades at 19x estimated FY27 earnings, according to Bloomberg data. The company continues to struggle to find a balance between market share and profitability, Elara Securities (India) said in its Q2 review last month. Truck and bus radial (TBR) replacement share was at around 29% in Q2, and passenger car radial (PCR) replacement was at 20%.
"Apollo consciously avoided low-margin PCR OEM tenders, leading to share loss, but management emphasized a return to profitable OEM mix rather than chasing volume," pointed out Elara.
Muted demand in Europe, a slow replacement market recovery and relatively soft margin outlook are near-term headwinds.