Apollo Tyres - Excessive risk - Kotak

Even as the Cooper acquisition will be EPS accretive in year one itself, given the inherent margin volatility in the tire business and the leverage involved, the transaction clearly involves excessive risk.

Given high the leverage, EPS estimates for the consolidated entity would be highly volatile. Hence, we value the existing operations at 0.8X one-year forward book value and attach zero equity value to the Cooper acquisition.

We downgrade the stock to REDUCE (from BUY) with a revised target price of Rs64 (Rs110 earlier).

Source : Equity Bulls

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