Apollo Tyres (Q3 FY13)

India Infoline News Service | Mumbai |

Apollo Tyres net sales for Q3 FY13 on standalone basis declined by 2.7% yoy and 10.8% qoq to Rs20.4bn primarily on account of volume decline.

CMP Rs85, Target Rs102, Upside 20.0%
 

Indian Operations

Apollo Tyres net sales for Q3 FY13 on standalone basis declined by 2.7% yoy and 10.8% qoq to Rs20.4bn primarily on account of volume decline. Truck tyre sales in the OEM segment de-grew sharply by ~40% on yoy basis. Slowdown in demand from truck tyres resulted into drop in capacity utilization levels for the company to 70%. Decline of average cost of natural rubber by ~15% on yoy basis led to OPM expansion of 207bps on yoy basis to 10.1%. Product mix for Q3 FY13 has shifted marginally towards replacement market, which now accounts for 62% of the sales and the remaining share is contributed by the OEM segment (28%) and exports (10%).

 

European Operations

The overall tyre market in Europe witnessed 12% de-growth in CY12. For Apollo Tyres, revenues in European operations for Q3 FY13 reported flat growth on yoy basis and marginal 2.6% growth sequentially. Apollo brand tyres contributed €15mn in the overall revenues of €116mn for Q3 FY13. Lower raw material cost and better product mix translated into 150bps yoy EBIT margin expansion. The company plans to increase its capacity in the Europe by ~20% over the next two years. 

 

South African Operations

Revenues for the South African operations during Q3 FY13 grew by modest 5.8% on yoy basis. On the EBIT front, the company has managed to report positive EBIT of Rs48mn during the quarter compared to loss reported in Q3 FY12 and Q2 FY13.

 

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 expend 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. The company plans to raise additional equity capital which will be used to: a) to bring down net leverage, b) invest in long term in manufacturing capacity in ASEAN, Australia and Europe c) for conversion of cross ply tyre capacity to industry, OTH tyres, etc. We expect valuations for the company to re-rate with demand revival in the domestic market and improvement in revenue profile as share of international operations increase of the overall sales.  At current levels, we maintain our BUY recommendation with the target price of Rs102.

 
Results table (standalone)
(Rs m) Q3 FY13 Q3 FY12 % yoy Q2 FY13 % qoq
Net sales 20,361 20,932 (2.7) 22,829 (10.8)
Material costs (14,441) (16,096) (10.3) (17,025) (15.2)
Personnel costs (1,102) (957) 15.1 (1,073) 2.7
Other overheads (2,766) (2,203) 25.6 (2,474) 11.8
Operating profit 2,051 1,676 22.4 2,256 (9.1)
OPM (%) 10.1 8.0 207 bps 9.9 19 bps
Depreciation (548) (469) 16.7 (548) 0.0
Interest (668) (614) 8.9 (695) (3.8)
Other income 191 5 - 85 -
PBT 1,026 598 71.7 1,098 (6.6)
Tax (287) (172) 67.1 (346) (17.1)
Effective tax rate (%) 28.0 28.8 - 31.5 -
Reported PAT 739 426 73.5 752 (1.7)
Adj. PAT margin (%) 3.6 2.0 159 bps 3.3 33 bps
Ann. EPS (Rs) 5.9 3.4 73.5 6.0 (1.7)
Source: Company, India Infoline Research
 
Results table (Consolidated)
(Rs m) Q3 FY13 Q3 FY12 % yoy Q2 FY13 % qoq
Net sales 32,173 32,282 (0.3) 33,748 (4.7)
Material costs (20,105) (21,493) (6.5) (22,331) (10.0)
Personnel costs (3,555) (3,511) 1.3 (3,528) 0.8
Other overheads (4,691) (4,035) 16.3 (4,220) 11.2
Operating profit 3,822 3,243 17.9 3,669 4.2
OPM (%) 11.9 10.0 183 bps 10.9 101 bps
Depreciation (919) (824) 11.6 (913) 0.8
Interest (806) (731) 10.3 (829) (2.8)
Other income 268 33 708.3 140 91.8
Extra ordinary items - (294) - - -
PBT 2,364 1,428 65.5 2,067 14.4
Tax (558) (444) 25.7 (535) 4.5
Effective tax rate (%) 23.6 31.1 - 25.9 -
BSE 249.55 8.65 (3.59%)
NSE 249.60 8.85 (3.68%)

***Note: This is a NSE Chart

 

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