The >Apollo Tyres stock hit its 52-week high of Rs 213.7 today, moving up by 4-5 per cent. The stock has gained a whopping 221 per cent since September 2013. A lot of things have worked in the company’s favour in recent times. First, even though new vehicle sales in the domestic market has been sluggish, the company has benefited from replacement demand for tyres and low raw material (natural rubber) prices in the last few quarters. Besides, the failure to acquire Cooper Tyres has been a blessing in disguise, relieving the company of the high debt burden it otherwise would have incurred for the acquisition.

Had the Rs 14,500 crore acquisition gone through, the company’s debt to equity ratio at the consolidated level was expected to be around 2 times for the year ended March 2014. The additional debt would also have made the announcement of Rs 2,050 crore expansion plans announced yesterday, difficult, which has been the trigger for the stock’s rally today. With increasing radialisation in commercial vehicles, the announcement to increase truck-bus radial tyre capacity at its Chennai plant by almost 50 per cent, bodes well for Apollo Tyre’s profitability in its domestic business. Ditto with the plans to convert its Kerala plant into a unit for manufacturing specialty/industrial tyres. Besides bringing in higher margins, presence of industrial tyres in its product mix will help diversify risk during times of an auto slowdown.

Another reason for the stock’s rally today has been the management’s approval to increase FII investment limit in the stock from 40 to 45 per cent. Apollo Tyres is one of the stocks in which FIIs have increased their stake in recent times. FII holding moved up to 34.5 per cent in March 2014, from 28.9 per cent in December 2013, .