Apollo Tyres (Q1 FY14)

India Infoline News Service | Mumbai |

Apollo Tyres net sales for Q1 FY14 on standalone basis grew marginally by 0.9% yoy.

CMP Rs60, Target Rs65, Upside 8.3%


Indian Operations

Apollo Tyres net sales for Q1 FY14 on standalone basis grew marginally by 0.9% yoy. Volume growth of 3% was partially offset by 2% decline in realizations. Capacity utilization levels for the Indian operations remained stable at ~75%. Decline of average cost of natural rubber for Q1 FY14 by ~14% on yoy basis led to OPM expansion of 144bps on yoy basis to 11.7%. Replacement market accounted for 65% share in product mix for the quarter and the remaining share was contributed by the OEM segment (27%) and exports (8%). In terms of product, Truck tyres accounted for 63% and passenger car tyres accounted for 16% of the revenues.


European Operations

Auto industry in Euorpe continued to face challenges with decline in volumes for trucks and cars for Q1 FY14 leading to 6% yoy contraction in demand for tyres.  Revenues for Apollo tyres in the European operations reported 6% growth on you basis on constant currency terms. Entire growth in revenue was accounted by volume increase with flat pricing. EBIDTA margin for the company stood at 16.2% in Q1 FY14. Management highlighted that pricing pressures in the European market have increased substantially in the past two quarters on account of slowdown in demand. Resultantly tyre players offer various discounting schemes which have curtailed the realization levels.  EBIT margin witnessed 209bps contraction on yoy basis largely on account of increase in marketing spend and limited scope of price hike. 


South African Operations

Revenues for the South African operations during Q1 FY14  grew by 13% yoy on constant currency terms. On the EBIDTA front, the company report positive margin of 7.5%. Net profit margin for the South African operations stood at 2%. The capacity utilization levels for Q1 FY14 remained at ~80%. 


Outlook

The demand for the truck tyres, which account for 65% of the revenues for the company in the domestic business, is expected stay sluggish with subdued volumes in CV sales. However, we expect margins for the company to expand with stable raw material prices coupled with increase in share of high margin replacement market. For overseas operation, we believe strong revenue growth in the South African operations and modest growth for Europe. On the margin front, we foresee EBIT margin to remain stable for European operations and expect South African operations to turn EBIT positive in FY14.


We believe, proposed acquisition of Cooper Tires & Rubber Ltd would pose risk of strain on the balance sheet for the consolidated entity. In case of an extended slowdown in US and Europe, debt servicing will be an issue. We maintain our rating of Market Performer for the stock with the revised target price of Rs65.


Results table (standalone)
(Rs m)
Q1 FY14
Q1 FY13
% yoy
Q4 FY13
% qoq
Net sales
21,647
21,524
0.6
20,362
6.3
Material costs
(14,925)
(15,695)
(4.9)
(13,977)
6.8
Personnel costs
(1,146)
(1,094)
4.8
(1,000)
14.7
Other overheads
(3,035)
(2,520)
20.4
(2,925)
3.8
Operating profit
2,540
2,215
14.7
2,461
3.2
OPM (%)
11.7
10.3
144 bps
12.1
(35) bps
Depreciation
(594)
(548)
8.4
(557)
6.7
Interest
(633)
(618)
2.4
(629)
0.7
Other income
80
50
60.6
248
(67.7)
PBT
1,393
1,099
26.8
1,523
(8.5)
Tax
(458)
(346)
32.2
(640)
(28.5)
Effective tax rate (%)
32.8
31.5
-
42.0
-
Reported PAT
936
753
24.3
883
6.0
Adj. PAT margin (%)
4.3
3.5
83 bps
4.3
(1) bps
Ann. EPS (Rs)
7.4
6.0
BSE 247.45 [0.25] ([0.10]%)
NSE 246.75 [1.15] ([0.46]%)

***Note: This is a NSE Chart

 

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