1) Apollo Tyres, after announcing the acquisition of Coopers tyres in USA has become the darling stock of shorters. From the levels of 90 Rs, it has declined to 61 Rs in a matter of week or so.
2) The bearish approach is due to the leverage that the company is taking to make this acquisition. Post acquisition, the debt ratio will be 1.9 which is high, considering the market sentiments now a days.
3) But technically and fundamentally, the correction is overdone now and one may see a bit of consolidation around the current levels. This is evident in today's trading, when stock managed to stay afloat among difficult conditions.
4) Derivatives data also indicate shorts being covered. Futures Open Interest has actually declined by 63 Lakh shares which is a positive indication.
5) One may create a favorable strategy in this counter by buying around 60 tomorrow morning and put up a stop-loss of 58.50 and target levels of 64-65 in next week or so. The risk to reward ratio is very attractive for the stock (at 1:2).
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