Apollo Tyres Sell

We recommend a sell in the stock of Apollo Tyres from a short-term perspective. It is seen from the charts of the stock that after recording an all-time high of Rs 88.8 in September 2010, it changed direction and has been on a medium-term downtrend. In early December, the stock encountered resistance at Rs 72 — a significant intermediate-term resistance level and resumed its downtrend. Moreover, the stock once more encountered resistance just below this key level around Rs 71, where its 200-day moving average also provided resistance and tumbled 4.7 per cent with good volumes on Wednesday.

With this decline, we observe that the stock has formed a bearish engulfing candlestick pattern that implies bearish reversal. The daily relative strength index has re-entered in to neutral region from the bullish zone and weekly RSI is hovering in the neutral region. Daily moving average convergence divergence oscillator is featuring in the negative territory and weekly MACD is on the verge of entering this territory, indicating a downward momentum. Our short-term forecast on the stock is bearish. We expect it to decline further until it hits our price target of Rs 65 or Rs 63 in the approaching trading sessions. Traders with short-term perspective can consider selling the stock with stop-loss at Rs 69.5.

Yoganand D.

BL Research Bureau

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Buy Apollo Typres

Apollo Tyres (ATL), India’s premier tyre company which is currently ramping up its capacities to 1,000TPD from 744TPD in India (through both green and brown-field additions, entailing an investment of Rs 1, 000cr) is well-positioned to take advantage of the revival in the domestic and global auto industries. Further, the substantial decline in the prices of natural rubber and other crude related raw materials from their peak levels in 1HFY2009 is expected to boost ATL’s profitability going ahead. Also, we expect ATL stands to benefit on account of a demand-supply mismatch in the cross-ply segment on account of the existing players concentrating on building new radial facilities which would lead to better realisations in cross-ply segment thereby improving its margins and profitability in the long term. Further, in May 2009, Apollo acquired 100% shareholding of Vredestein Banden (VBBV), a Dutch tyre manufacturing company, with a production capacity of 5.5mn tyres and enjoying a market share of 1.67% in the European market. This acquisition is expected to add further impetus to the company’s growth in overseas markets. At Rs 42, the stock is currently trading at 6.4xFY2011E Earnings. We recommend a Buy on the stock with a Target Price of Rs 53.