Apollo Tyres (Q3 FY14)

India Infoline News Service | Mumbai |

Apollo Tyres net sales for Q3 FY14 on standalone basis rose by 9.4% yoy. While volumes were higher by 4%, realizations were rose marginally.

CMP Rs119, Target Rs135, Upside 13.4%

Indian Operations

Apollo Tyres net sales for Q3 FY14 on standalone basis rose by 9.4% yoy. While volumes were higher by 4%, realizations were rose marginally. Capacity utilization levels for the Indian operations was higher at 75%. Decline of natural rubber prices led to OPM expansion of 371bps as RM costs declined by 588bps yoy. However, this has to be seen in the light of Rs842mn received from Tamil Nadu Government as incentive related to output VAT and CST refund as part of the structure package of Assistance in connection with investment in Oragadam near Chennai. Of this only Rs100mn is for Q3 FY14 and the company expects a similar run rate every quarter. Impact of operating deleverage was seen with staff costs and overheads rising by 22bps and 194bps yoy respectively. Other expenditure was higher on account of higher marketing spends and one time Rs350mn litigation expenses. Share of replacement market has seen a substantial jump from the previous quarter given the continued decline OEM sales on the back of macro headwinds. Replacement market accounted for 79% share in product mix for the quarter. In terms of product mix, Truck tyres accounted for 66% of revenues.

European Operations

European operations saw a strong revenue growth of 33.4% yoy led by 1) volume growth of 14% and 2) steep depreciation of rupee. Growth had been steeper had it not been for fall in realizations which was on the back of increasing competitive pressure. The volume growth for the company in the European market has been higher than reported by the industry as the company increased its focus on the summer tyre segment which earlier was a weak spot. EBIT margin for the quarter was at 18.5% compared to 17.2% last year and 9.5% in the previous quarter. With softening of rubber prices, most manufacturers are resorting to price cuts leading to additional pressure on realizations. Capacity utilization at Europe is near 95% for Apollo and has limited scope to increase it from here. To meet the capacity constraint the company has plans to increase exports from the Indian operations and raise passenger car capacity from 6mn currently to 6.5mn in next fiscal.

South African Operations

Yoy and sequential comparison for South African operations is redundant as Q3 FY14 had only two months of operations of the plant sold to SRI. However, point worth noting is the EBIT margins were at 9.3%.

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 maintain our BUY rating with a revised price target of Rs135.


Results table (standalone)
(Rs m) Q3 FY14 Q3 FY13 % yoy Q2 FY14 % qoq
Net sales 22,278 20,361 9.4 21,068 5.7
Material costs (14,492) (14,441) 0.3 (14,254) 1.7
Personnel costs (1,255) (1,102) 13.8 (1,145) 9.6
Other overheads (3,460) (2,766) 25.1 (2,989) 15.7
Operating profit 3,071 2,051 49.7 2,680 14.6
OPM (%) 13.8 10.1 371 bps 12.7 106 bps
Depreciation (649) (548) 18.5 (609) 6.5
Interest (635) (668) (5.1) (615) 3.2
Other income 421 191 120.1 158 166.4
Extra ordinary items (548) - -
PBT 1,661 1,026 61.9 1,614 2.9
Tax (558) (287) 94.2 (523) 6.6
Effective tax rate (%) 33.6 28.0 559 bps 32.4 118 bps
Reported PAT 1,103 739 49.3 1,091 1.1
Adj. PAT margin (%) 5.0 3.6 132 bps 5.2 (23) bps
Ann. EPS (Rs) 8.8 5.9 49.3 8.7 1.1
Source: Company, India Infoline Research

Results table (Consolidated)
(Rs m) Q3 FY14 Q3 FY13 % yoy Q2 FY14 % qoq
Net sales 35,593 32,173 10.6 34,335 3.7
Material costs (20,361) (20,105) 1.3 (20,213) 0.7
Personnel costs (4,129) (3,555) 16.1 (4,497) (8.2)
Other overheads (5,414) (4,691) 15.4 (5,406) 0.1
Operating profit 5,689 3,822 48.8 4,220 34.8
OPM (%) 16.0 11.9 410 bps 12.3 369 bps
Depreciation (1,064) (919) 15.7 (1,038) 2.4
Interest (742) (806) (8.0) (756) (1.9)
Other income 496 268 85.3 186 166.7
Extra ordinary items (278) - -
PBT 4,102 2,364 73.5 2,611 57.1
Tax (721) (558) 29.2 (417) 73.2
Effective tax rate (%) 17.6 23.6 996 bps 16.0 1763 bps
Reported PAT 3,380 1,806 87.2 2,195 54.0
Adj. PAT margin (%) 9.5 5.6 388 bps 6.4 311 bps
Ann. EPS (Rs) 26.8 14.3 87.2 17.4 54.0
Source: Company, India Infoline Research

Segmented results
(Rs m) Q3 FY14 Q3 FY13 % yoy Q2 FY14 % qoq
Revenues
India 22,699 20,361 11.5 21,226 6.9
SA 3,626 4,056 (10.6) 3,752 (3.3)
Europe 10,883 8,159 33.4 10,609 2.6
Others 405 530 (23.5) 414 (2.1)
Less: Inter segment (1,524) (932) (1,481)
Net Sales 36,089 32,173 12.2 34,520 4.5
EBIT
India 2,843 1,694 67.9 2,229 27.5
SA 337 48 604.8 83 304.9
Europe 2,010 1,406 43.0 1,003 100.4
Others 13 38 (65.8) 3 356.6
Total 5,204 3,186 63.3 3,319 56.8
EBIT Margin
India 12.5 8.3 421 bps 10.5 202 bps
SA 9.3 1.2 812 bps 2.2 708 bps
Europe 18.5 17.2 124 bps 9.5 902 bps
Blended 14.4 9.9 452 bps 9.6 481 bps
Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E
Revenues 127,946 139,291 156,231 173,518
yoy growth (%) 5.3 8.9 12.2 11.1
Operating profit 14,566 18,267 20,223 22,684
OPM (%) 11.4 13.1 12.9 13.1
Pre-exceptional PAT 5,968 8,620 9,863 11,796
Reported PAT 6,137 8,620 9,863 11,796
yoy growth (%) 48.9 40.5 14.4 19.6
         
EPS (Rs) 11.8 17.1 19.6 23.4
P/E (x) 10.0 7.0 6.1 5.1
Price/Book (x) 1.8 1.4 1.2 0.9
EV/EBITDA (x) 5.5 4.1 3.3 2.6
Debt/Equity (x) 0.7 0.5 0.3 0.2
RoE (%) 19.1 22.6 21.0 20.5
RoCE (%) 19.2 22.2 23.0 24.3
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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