It is the sixth biggest overseas buyout by an Indian company. Yet the acquisition of US-based Cooper Tire and Rubber Co by Apollo Tyres
was given the thumbs down by analysts a day after Apollo Tyres announced the deal. The Apollo stock price closed at Rs 68.6 apiece on the Bombay Stock Exchange on June 13, 25.43 per cent lower than the previous day. In the morning, the stock opened in red and slipped further as the day progressed.
With the entire $2.5 billion (Rs 14,533 crore) buyout funded through debt, analysts are particularly concerned with Gurgaon-based Apollo's ability to pay back the debt. A part of the debt - $2.1 billion - will be taken by Cooper Tire and Apollo's European operations (Vredestein). The remaining $450 million will be raised by Apollo's Mauritius subsidiary and will be serviced by Indian operations.
India's largest tyre manufacturer in terms of total income, Apollo has registered decent growth in profits and revenues over the past two years - 20 per cent CAGR growth in revenues and 18 per cent in profit after tax. The company's current debt (long and short-term borrowings) stands at Rs 2,282 crore as on March 2013.
Analysts say that the risk of acquiring such a huge entity outweighs Apollo's current strengths. Cooper's 2012 sales, $4,200.80 million (Rs 24420 crore), is roughly twice Apollo's 2012/13 revenues (Rs 12,795 crore).
Cooper's 100 per cent acquisition will make Apollo the seventh largest tyre maker in the world and give it access to newer markets.