Apollo Tyres Limited’s (ATL) Q2FY19 numbers missed expectation at consolidated EBITDA and PAT level, while revenue was in-line with estimates. Consolidated revenue came in at Rs4,257cr, up 22.5% yoy (down 1% qoq). EBITDA was up 28% yoy (down 12% qoq) at Rs467cr, missing estimate of Rs478cr. However, EBITDA margin expanded 49bps yoy (contracted 134bps qoq) to 11%. Consolidated PAT (adjusted for the EO expense of Rs40cr) was up 33% yoy (down 26% qoq) to Rs186cr. This was below expectation of Rs196cr.
ATL reported exceptional expense of Rs40cr during the quarter. The company holds unsecured, inter-corporate deposit of Rs200cr with IL&FS Financial Services Limited (IL&FS). However, IL&FS defaulted on its repayment due on October 22, 2018. Hence, ATL made a provision of Rs40cr during this quarter.
In another press release post the Q2FY19, ATL mentioned that promoters Neeraj Kanwar and Omkar Kanwar had agreed to take cuts in their compensation to the extent of 30%. Additionally, cap on promoter compensation has been set at 7.5% of PBT. Performance-based remuneration will be targeted at ~70% of total compensation and annual increment of fixed component of promoter compensation will be in line with that of senior professionals of the company.
Standalone performance highlights
Standalone performance (India performance) was robust for ATL in Q2FY19. Revenue was up 25% yoy (2% qoq) at Rs3,109cr on the back of 26% yoy volume growth. Revenue growth was strong across all segments – T&B, Agri, 2Ws and PCR. Slight weakness in OEM sales were offset by strength in after-market sales. Realizations were muted in Q2FY19; however, price hike in November 2018 will lead to better ASP going ahead.
Company maintained EBITDA margin at 12% in Q2FY19, implying expansion of 49bps yoy (contraction of 153bps qoq). We feel that margins could remain weak in Q3FY19 due to rising input costs; however, Q4FY19 could see better margins owing to recent price hike and some correction in crude prices.
PAT for the standalone entity (excluding EO) was up 46% yoy (down 14% qoq) at Rs187cr. PAT growth was helped by lower or flat (as % of sales) depreciation, interest cost and tax rate.
Highlights from post result conference call
Management expects operating performance to improve from Q4FY19 owing to recent price hikes (2.5% in September and 3% in November) and cooling down in crude prices.
Over the period FY19-21E, ATL will spend Rs5,500cr in India for capacity expansion, debottlenecking and maintenance. It will spend Rs1,000cr in Europe for Hungary plant completion and maintenance.
In the India business, PCR capacity has increased from 32,000 tyres per day to 35,000 tyres per day and TBR from 10,000 tyres per day to 12,000 tyres per day. PCR capacity will increase further 10% by FY20.
Capacity was 7,500 tyres per day in Hungary in Q2FY19. It will be ramped up to 12,000 tyres per day by end-FY19. Total capacity in Europe (Hungary + Netherland) will increase to 28,000 tyres per day by end-FY19.
Apollo Tyres Ltd is currently trading at Rs. 223.10, up by 8.6 points or 4.01% from its previous closing of Rs. 214.50 on the BSE.
The scrip opened at Rs. 215.90 and has touched a high and low of Rs. 224.40 and Rs. 212 respectively. So far 99,40,805 (NSE+BSE) shares were traded on the counter. The stock is currently trading above its 200 DMA.
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