Apollo Tyres(BSE Code 500877)

A research analyst tracking the automotive sector in general and tyres in particular is bullish on Apollo Tyres, a leading manufacturer of tyres with operations in India as well as in Europe. The company is doing very well, with its performance outsmarting the projections by various research analysts. The company’s net profit rose by nearly 12 per cent to Rs 195 crore. According to the management, cost control measures and timely pricing actions have given a boost to earning numbers.

Prospects ahead are rated quite promising as the company has started doing very well on the export front also. As compared to three years ago when exports were accounting for 7 to 8 per cent of the annual sales turnover, they currently account for 18 per cent. What is more, the export performance is slated to improve going ahead as the management has devised an aggressive export strategy under which the company has developed portfolios for new geographies of Europe and ASEAN. During fiscal 2022, the company registered 18 per cent growth in its Europe business, crossing the important milestone of euro 100 million in EBITDA. This year, the company is focusing on the Europe region with a premiumisation strategy. It will concentrate on agricultural tyres and high-value, niche segment passenger car tyres which are more profitable. Export prospects in Europe have further improved with the European Union taking harsh measures against Chinese imports. At the same time, the company will also strive to penetrate newer geographies like North America, the Middle East and ASEAN. The company has already made a small beginning in these regions and efforts are now on to penetrate in a big way. For the US, the company has set a target of $ 300 million by 2026.

What is more, a benign commodity price outlook coupled with operational efficiencies, calibrated capex and debottlenecking of the existing manufacturing facility are expected to result in a higher EBITDA margin of 15 to 16 per cent by fiscal year 2024.

The stock price, which had gone down to a low of Rs 165 this year, has shot up to Rs 319 and the analyst expects the price to reach the Rs 350 mark within a year.

(CMP Rs 391.10, 52 week H/L Rs 324/165, BV Rs 177.80, FV Re 01)

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Relaxo Footwear(BSE Code 530517)

Shocked and stunned at the sharp 31 per cent fall from its high level of Rs 1,373 in the price of Relaxo Footwear, investors have turned away from the company and even at an attractive price of Rs 956 are not returning to the stock. Just a few months ago when the stock was in brisk demand, everyone was rushing to buy these shares but after the steep fall in the stock price from Rs 1,373 to Rs 956 – very close to the lowest level during the last 52 weeks (Rs 928) — there are no buyers.

A research analyst, who ‘fails to understand the mentality of investors’, insists that this is an attractive price and discerning investors should start accumulating these stocks at every decline.

According to him, though the company has been facing certain problems – the high cost of raw materials, mounting competition from the unorganized sector etc. which had adversely affected the margins of the company and brought down the earnings during Q2 FY2023 — the fundamentals of the company are still sound and it has a robust balance sheet.

According to another research analyst, the raw material of Relaxo Footwear is derived from crude oil, the price of which had been going up for quite some time. However, of late crude oil prices have started softening. If these prices fall, the prospects for Relaxo will take a favourable turn for the better. This means that though the short-term outlook for Relaxo may be bearish, the long term prospects for the company are quite promising. As a result, shrewd investors should accumulate these stocks at every decline with a long-term perspective.

(CMP Rs 946.40, 52 week H/L Rs 1375/882, BV Rs 70.80, FV Re 01)

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Mishtann Foods(BSE Code 539594)

A research analyst sees a tasty future for Mishtann Foods Ltd, a penny stock company which produces and distributes food products. The company offers spices, cereals, pulses, flours, wheat, Basmati rice, etc. The Ahmedabad-based company is doing quite well of late and during the last seven years its sales turnover has expanded from Rs 116 crore in fiscal 2016 to Rs 50 crore in fiscal 2022, with operating profit shooting up from Rs 2 crore to Rs 52 crore and the profit at net level from Rs 1 crore (in 2017) to Rs 31 crore (2022).

The company is now planning to set up a 1,000 kilolitres per day (klpd) grain-based ethanol manufacturing facility in Gujarat and it has already executed a memorandum of understanding (MoU) with the government of Gujarat. The ethanol plant wil come up at Dalpur village of Sabarkantha district of Gujarat. The plant will be the biggest grain-based ethanol project of 1000 klpd and is estimated to cost around Rs 2,250 crore. According to the management, the plant is expected to go on stream in the second quarter of 2024.

As the importance of ethanol has improved considerably with the government policy of mixing it with petrol, the diversification plan of the company will transform its face as the annual revenue projection for the ethanol plant is placed at around Rs 3,500 crore. And the penny stock company will graduate to a medium-sized company with an annual turnover expected to reach the Rs 5,000-crore mark within the next five years.

(CMP Rs 9.45, 52 week H/L Rs 20/7, BV Rs 1.20, FV Re 01)

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