IGI Logo

We met the management of APTY. KTAs: 1) Demand is strong, with double-digit YoY growth across channels and segments in Q4, triggered by recent GST cuts; outlook for FY27 also appears healthy. 2) RM prices are expected to be flattish QoQ in Q4FY26, with ~3% rise expected in Q1FY27. 3) Tight demand–supply dynamics should support tyre makers’ pricing power; APTY has already taken certain price hikes in Jan-26 (0.6%/1.5% in PCR/LTR); similar actions are also visible across peers. 4) The management continues to target 14-15% margin for its standalone business despite rising RM costs, supported by calibrated price hikes, lower discounting, and an improved product mix; Q4 margin might witness compression due to sponsorship-related spends being concentrated in Q3/Q4; it reiterated its 15% long-term RoCE target. 5) Over the past few quarters, the tyre industry has refrained from price cuts despite softer RM, reflecting improved pricing discipline and sharper profitability focus (refer to: Tyre demand-supply tightening; focus on margin sharpens). 6) While APTY has announced capacity addition (Rs58bn), the capacities would come onstream only by end-FY28/FY29 (on normal 2-3-year gestation period); FY27 demand would be supported via 4k PCR tyres/day each in India and Hungary and supplemented by outsourcing. 7) Capacity expansion in EU will be limited, with increased exports from India. 8) The Netherlands plant closure and shift of manufacturing from Hungary to India will reduce conversion cost, raise margin (200-300bps in FY28; near-term pressure in H1FY27 due to transition, with stabilization from H2FY27). We build in 8%/14/24% revenue/EBITDA/EPS CAGR over FY26-28E; retain BUY with TP of Rs600, at 17x Dec-27E PER

Healthy demand outlook; capacity additions to lag demand

Demand is strong, with double-digit growth across channels and segments in Q4FY26. This was triggered by economic development, government capex push, recent GST cuts, and enhanced brand visibility via sponsorship of the Indian cricket jersey. Current outlook for FY27 also appears to be healthy. APTY has announced capacity addition of Rs58bn (for TBR and PCR); these will come onstream by the end of FY28/FY29 (normal 2-3-year gestation period). FY27 demand would be supported by the 4k PCR tyres/day capacity coming onstream in both India and Hungary, and supplemented by outsourcing.

Current high margins to be sustained despite RM pressures

RM prices are expected to be flattish QoQ in Q4FY26, with ~3% rise expected in Q1FY27. Tight demand–supply dynamics should support tyre makers’ pricing power. APTY has already taken certain price hikes in Jan-26 (0.6%/1.5% in PCR/LTR). Similar actions are visible across peers. Over the past few quarters, the tyre industry refrained from price cuts despite softer RM, reflecting improved pricing discipline and sharper profitability focus. APTY continues to target 14-15% steady-state margin for its standalone business. Q4 margin may see compression (sponsorship-related spends concentrated in Q3/Q4)

Steady export; Europe restructuring to drive margin uplift

Capacity expansion in Europe would be limited, with increased exports from India. Most PCR SKUs have already been transferred from the Netherlands to Hungary (offering cost benefits). Closure of the Netherlands plant and transfer of TBR capacity to India will lower conversion costs and lift European margins by 200–300bps in FY28; transition-related costs would weigh on H1FY27 margin, with operations stabilizing H2FY27 onward..

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354