CMP Rs82, Target price Rs95, Upside 15.9%

• Apollo Tyres net sales on standalone basis surged by 28.2% yoy to Rs22.6bn for Q4 FY12. Volumes on standalone basis increased by ~14% yoy, while realizations were higher by ~14% yoy on the back of better product mix and price hikes. European operations reported 8.7% yoy revenue growth contributed by 4% volume growth. Sequentially revenues witnessed 17.4% decline on account of moderation in demand for the winter tyre sales with Q3 being seasonally the strongest quarter for the European operations.  Revenues for South African operations decelerated by 4% yoy, on account of plant shut down in Q4 FY12. On consolidated level net sales grew by 18.4% yoy to Rs32.3bn.
• The company reported an OPM of 9.6% v/s 8.3% in Q4 FY11 at standalone level, an expansion of 130bps owing to decline in other overhead cost as percentage of sales by 167bps. Additionally, large part of rise in the overall raw material cost of 8% on yoy basis was offset by price hikes taken during the year. Sequentially OPM was higher by 160bps supported by decline in raw material cost as percentage to sales by 217bps. South African operations reported negative EBIT as a result of company’s inability to fully pass on the higher cost of raw material as it faces intense competition from imports and loss of production caused by plant shut down.  EBIT margin for European operations stood at 17.6%, contraction of 86bps on yoy basis. On consolidated basis OPM declined by 62bps yoy to 11.1%, while sequentially it grew by 110bps.
• Interest cost (consolidated) for Q4 FY12 jumped by 60% on yoy basis and 18.8% on qoq basis primarily on account of reclassification of interest income based on changes in accounting norms. Interest income, under new accounting norm, is included as part of other income against a deduction from interest expense taken previously. Net profit margin at standalone level for Q4 FY12 stood at 3.2% v/s 3.8% in Q4 FY11.
• Volume growth to remain strong aided by strong demand for tyres in CV segment for both OEM and replacement market and increasing level of radialization in truck segment.  Management has guided for 20%+ revenue growth on the standalone front and 15%+ top line growth for the consolidated entity. While management expects European operations to report flattish growth for FY13, for South African subsidiary volume growth is expected to be robust for FY13. Raw material cost has stabilized in past two quarters and management expects rubber price to remain steady. Share of high margin replacement market is expected to increase from ~70% currently translating into better margins.  We maintain our BUY recommendation with the revised target price of Rs95.

Result table (standalone)

Source: Company, India Infoline Research

Result table (Consolidated)