Apollo Tyres Ltd Quarterly Results Q1 FY 26 stock analysis

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Sector Outlook: Neutral

Financial metrics miss estimates; One-offs drag profits

Apollo Tyres Ltd. (ATL) delivered a muted Q1FY26 performance, with consolidated revenue rising 3.6% YoY and 2.1% QoQ to Rs. 65,608 million, marginally below estimates. Growth was supported by modest volume uptick in both OEM and replacement segments, while export weakness, particularly in Europe, weighed on overall traction. Gross profit grew 0.3% YoY and 3.7% QoQ to Rs. 28,923 million, with gross margins at 44.1%, down 143 bps YoY, but improved 66 bps sequentially, aided by stable RM costs and higher inventory. EBITDA came in at Rs. 8,677 million, down 4.6% YoY, reflecting weak operating leverage in the European business. EBITDA margin compressed 113 bps YoY to 13.2%, though improved 19 bps QoQ. Margin pressures were primarily due to higher staff and overhead costs, partially offset by the higher contribution of premium mix. Notably, Europe reported a 293 bps YoY and 354 bps QoQ EBITDA margin decline, despite steady topline in euro terms (+0.2% YoY) due to operational and RM cost pressures. PAT fell sharply by 95.7% YoY and 93.0% QoQ to Rs. 129 million, significantly missing expectations. The steep drop was driven by a large exceptional loss of Rs. 3.7 billion, linked to the imminent shutdown of the manufacturing plant in the Netherlands. The company also highlighted record volumes for its premium Vredestein brand, signalling traction in its premiumisation strategy.

Valuation and Outlook

Apollo Tyres (ATL) delivered a mixed performance in Q1FY26, with a steady uptick in sales but margins remaining under pressure due to negative operational leverage in the European business. Profitability was further impacted by a one-off exceptional charge linked to the planned closure of its Netherlands-based Enschede plant. Excluding this charge, earnings would have been broadly healthy. The India business continued to exhibit resilience, supported by healthy OEM and replacement demand, alongside strong traction in premium PCR, underpinned by record Vredestein volumes. In contrast, European operations remained under strain, weighed down by elevated cost pressures and negative operating leverage, which compressed segment margins. Looking ahead, we remain largely optimistic on the medium-term trajectory. The company’s increasing focus on a higher premium portfolio and the continued strengthening of the Vredestein brand provide a solid strategic foundation to drive topline growth and sustain a richer product mix, aiding margin resilience. From H2FY26, demand prospects are expected to improve, supported by post-monsoon infrastructure and mining activity. In addition, a likely softening in raw material costs, contingent on USD/INR stability, could provide incremental margin uplift from Q2 onwards. Execution, however, remains a key variable, particularly maintaining pricing discipline amid intensifying competition, and restoring European profitability in the face of macro headwinds.

Key concall Highlights

Apollo Tyres (ATL) strengthened its premium segment presence in Q1FY26 with supply approval from a leading German PV OEM for India and Europe and the launch of the ultra-high-performance Apollo Aspire 5 for premium and SUV segments. Its dual-brand strategy saw Vredestein achieve record quarterly volumes. Replacement and OE volumes grew in single digits, while exports declined sharply. Segment-wise, TBR grew mid-single digits, PCR in low single digits, with weak Agri and Space Master performance. The demand outlook is positive from H2FY26, driven by better sentiment and infrastructure activity, targeting higher single-digit topline growth. No near-term price hikes are planned as raw material costs soften. Natural Rubber averaged USD 210/100 kg, Synthetic Rubber USD 180, and Carbon Black USD 120, with a blended RM basket at ~USD 166. European margins stayed weak due to inflation, demand softness, and the Enschede plant closure, but Q2 should see seasonal improvement.