Apollo Tyres slumps 8% on debt worries

Shares in Apollo Tyres extend fall to around 8 per cent, as selling resumed on continued concerns about debt levels after its announcement this week of a $2.5 billion deal to buy U.S.-based Cooper Tire & Rubber Co.

Apollo shares fell 25.5 per cent in the previous session, after announcing the deal after market close on Wednesday. (Track stock)

Apollo will fully fund the purchase through new debt, raising the post-acquisition leverage for the combined entity to 3.8 times net debt/EBITDA (earnings before interest, tax, depreciation and amortisation) from 1.4 times now, according to analysts' estimates.

A slew of brokerages including Kotak Institutional Equities downgraded Apollo's stock on Friday citing risks from the leverage involved.

"Even as the Cooper acquisition will be EPS accretive in year one itself, given the inherent margin volatility in the tire business and the leverage involved, the transaction clearly involves excessive risk," Kotak said in a note on Friday.

The company is not currently looking at converting into equity some of the debt it will take to finance the deal, Chief Financial Officer Sunam Sarkar said.

Copyright Thomson Reuters 2013