Apollo Tyres - Acquires Cooper Tires; risky acquisition - Emkay

Reco: UNDER REVIEW
CMP: Rs 92
Target Price: Rs 95

- Apollo Tyres has announced the acquisition of US based tyre manufacturer Cooper Tire in an all cash deal of $2.5bn

- The buyout will be funded entirely through debt - post merger consol Net Debt/EBITDA would stand at ~3.8x

- The acquisition doesn't look cheap to us at 4.7x CY13E EV/EBITDA (6.0x incl pension liabilities) as CY13 margins look unsustainable to us

- We see this as a risky acquisition as the management would have little room for error given the high leverage, very little synergy benefits and the poor demand environment currently

- We put our recommendation UNDER REVIEW for a more detailed work on Cooper Tires - we would AVOID Apollo for now given the expensive acquisition and little room for error.

Source : Equity Bulls

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