Apollo Tyres slumps 8 percent on debt worries

Reuters Market Eye - Shares in Apollo Tyres extend fall to around 8 percent, 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 percent in the previous session, after announcing the deal after market close on Wednesday.

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.