Analysis of Apollo Tyres Share Sale by White Iris Investment and Impact on Industries, Retail Investors, Stock Prices in Short and Long Term
Analysis for Layman:
White Iris Investment, a foreign portfolio investor, sold 2.85 crore (28.5 million) shares of Apollo Tyres at Rs 448.35 per share for Rs 1,281 crore ($181 million) on the Bombay Stock Exchange. This sale reduces White Iris’ stake in Apollo Tyres from 8.04% to an unspecified amount. Buyers included mutual funds and institutional investors.
Impact on Retail Investors:
The block deal sale of a large number of shares at a slight premium to market price signals institutional investor confidence. Retail investors may see this as a buying opportunity for Apollo Tyres shares given the company’s recent financial performance and share price appreciation over the past month. However, the reduced stake by White Iris could indicate lower future price growth.
Impact on Industries:
Apollo Tyres and the broader tyre industry could benefit from sustained demand if economic conditions remain strong. However, high raw material costs and potential production cuts amidst an economic slowdown could negatively impact the industry. Competitors such as MRF, Ceat Ltd, JK Tyres may be similarly affected.
Long Term Benefits and Negatives:
Apollo Tyres has benefitted from volume growth and operating leverage. If demand conditions persist and raw material costs stabilize, the company could see higher margins and cash flows. However, high inflation and rising interest rates may result in lower sales volumes and profits over the long term. This would negatively impact Apollo Tyres‘ share price.
Short Term Benefits and Negatives:
The block sale allows immediate monetization at a reasonable valuation for White Iris. However, the lower stake signals reduced investor confidence, which could negatively impact stock price in the near term, especially if broader economic weakness affects Apollo Tyres‘ Q3FY24 results. Nevertheless, valuations remain attractive after the recent run-up.
Impact of White Iris Selling Apollo Tyres Shares:
Gainers (5-10 names):
- MRF Ltd. (MRF): This major competitor might benefit from a potential market share shift after White Iris exits. Increased investor scrutiny on tyre companies could also favour MRF with its established brand and strong financials.
- Balkrishna Industries Ltd. (BKT): Another competitor, BKT, could attract investor interest due to its focus on off-highway tyres, a segment less vulnerable to economic downturns.
- Ceat Ltd. (CEAT): With a focus on the two-wheeler tyre segment, Ceat stands to gain if Apollo Tyres faces pressure in the car tyre market.
- Tube Investments of India Ltd. (TUBE): This auto components manufacturer might see increased demand for tyre rims and related parts if Apollo Tyres ramps up production to replace lost sales from White Iris.
- Rubber Companies: Increased rubber demand due to potential production ramp-up at Apollo Tyres could benefit rubber companies like Amrit Bansi Lal Rubber Mills Ltd. and Mangalam Organics Ltd.
Losers (5-10 names):
- Apollo Tyres Ltd. (APOLLO): Short-term market sentiment could be negative due to concerns about investor confidence and potential future stake sales.
- Tyre Dealers: Reduced retail volume due to potential Apollo Tyres production adjustments could impact tyre dealers negatively.
- Auto Companies: Increased competition from MRF and BKT could put pressure on margins for auto companies like Maruti Suzuki and Tata Motors.
- Mutual Funds: Funds with significant Apollo Tyres holdings might face short-term valuation adjustments due to market volatility.
- Logistics Companies: If Apollo Tyres production adjusts, companies like TCI and Container Corporation of India might see reduced demand for tyre transportation services.
Gainers (5-10 names):
- Michelin (France): This global tyre giant could benefit from a potential shift in investor focus towards established international players.
- Bridgestone (Japan): Similar to Michelin, Bridgestone might attract investors seeking stability and diversification in the tyre sector.
- Rubber Producers: Companies like Halcyon Agri Investments (UK) and Socfin (Luxembourg) could see higher rubber prices due to increased global demand.
Losers (5-10 names):
- Smaller Global Tyre Companies: Increased investor preference for larger players like Michelin and Bridgestone could put pressure on smaller companies.
- Global Auto Companies: Similar to Indian auto companies, global players like Volkswagen and Toyota might face pressure from increased competition in the tyre market.
Impact on Market Sentiment:
The news could initially create negative sentiment for Apollo Tyres and potentially the broader Indian auto sector. However, the long-term impact will depend on various factors like Apollo Tyres’ response to the stake sale, market conditions, and performance of competitors.
Remember, this analysis is based on limited information and should not be considered definitive financial advice.
Source: ET Bureau. (2023, December 20). White Iris Sells Apollo Tyres Shares Worth Rs 1,281 crore. The Economic Times.