Apollo Tyres (Q4 FY14)

India Infoline News Service | Mumbai |

Consolidated revenues at Rs32.3bn higher by 6.3% yoy; lower than our estimates

CMP Rs173, Target Rs200, Upside 15.6%

  • Consolidated revenues at Rs32.3bn higher by 6.3% yoy; lower than our estimates
  • Standalone operations see 8.7% yoy growth in revenues to Rs22.1bn driven by 6% growth in volumes
  • European operations continue to see strong growth in volumes but sees pressure in realizations owing to strong competition
  • Comparison for South African operations is redundant given that company sold a major plant in Q3 FY14
  • Consolidated OPM was at 14.3% a jump of 256bps on the back of sharp improvement in European operations and lower contribution from South African operations, Standalone OPM was lower by 12bps yoy to 12%
  • Maintain BUY with a target price of Rs200 as we expect 1) recovery in domestic CV volumes from H2 FY15 and 2) rubber prices to remain soft  
Result table (Standalone)
(Rs m) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Net sales 22,124 20,362 8.7 22,278 (0.7)
Material costs (14,916) (13,977) 6.7 (14,492) 2.9
Personnel costs (1,321) (1,000) 32.2 (1,255) 5.3
Other overheads (3,240) (2,925) 10.8 (3,460) (6.4)
Operating profit 2,647 2,461 7.6 3,071 (13.8)
OPM (%) 12.0 12.1 (12) bps 13.8 (182) bps
Depreciation (628) (557) 12.7 (649) (3.3)
Interest (564) (629) (10.4) (635) (11.2)
Other income 133 248 (46.3) 421 (68.4)
Extra ordinary items (112) - (548)
PBT 1,476 1,523 (3.1) 1,661 (11.1)
Tax (180) (640) (71.9) (558) (67.7)
Effective tax rate (%) 12.2 42.0 33.6
Reported PAT 1,296 883 46.9 1,103 17.5
Adj. PAT margin (%) 5.9 4.3 152 bps 5.0 91 bps
Ann. EPS (Rs) 10.3 7.0 46.9 8.8 17.5
Source: Company, India Infoline Research

Indian Operations
Apollo Tyres net sales for Q4 FY14 on standalone basis rose by 8.7% yoy. While volumes were higher by 6%, realizations rose marginally. Capacity utilization for the Indian operations was flat at 75%. Gross margins improved by 122bps yoy on the back of decline of natural rubber prices. However, this has to be seen in the light of Rs175mn 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. Impact of operating deleverage was seen with staff costs and overheads rising by 106bps and 28bps yoy respectively. 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 76% share in product mix for the quarter. In terms of product mix, Truck tyres accounted for 64% of revenues.

European Operations
European operations saw a strong revenue growth of 46.4% yoy led by 1) volume growth of 13% 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 13.3% compared to 11.7% last year. 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 increased exports from the Indian operations and raised passenger car capacity from 6mn to 6.5mn. Furthermore, the company has received board approval for setting up of a greenfield plant in Eastern Europe with a spend of €500mn. The plant is slated to have a capacity of 3,000 truck tyres per day and 16,000 passenger car tyres per day. Construction of the plant will commence in 2015 and scale up to full capacity will take four years. In the meanwhile first tyre will roll out of the plant at the end of 18 months. For the year FY15 the company expects to export 1mn tyres from India to European operations.

South African Operations
Yoy and sequential comparison for South African operations is redundant as during Q3 FY14 a major plant was sold to SRI. However, point worth noting is the EBIT margins were at 5.8%.

Cost analysis (Standalone)
As a % of net sales Q4 FY14 Q4 FY13 bps yoy Q3 FY14 bps qoq
Material costs 67.4 68.6 (122) 65.1 237
Personnel Costs 6.0 4.9 106 5.6 34
Other overheads 14.6 14.4 28 15.5 (89)
Total costs 88.0 87.9 12 86.2 182
Source: Company, India Infoline Research

Result table (Consolidated)
(Rs m) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Net sales 32,293 30,378 6.3 35,593 (9.3)
Material costs (18,363) (17,965) 2.2 (20,361) (9.8)
Personnel costs (3,858) (3,748) 2.9 (4,129) (6.6)
Other overheads (5,460) (5,105) 6.9 (5,414) 0.9
Operating profit 4,612 3,559 29.6 5,689 (18.9)
OPM (%) 14.3 11.7 256 bps 16.0 (170) bps
Depreciation (1,021) (1,198) (14.8) (1,064) (4.0)
Interest (616) (741) (16.9) (742) (17.0)
Other income 186 439 (57.6) 496 (62.5)
Extra ordinary items 110 169 (278)
PBT 3,270 2,227 46.9 4,102 (20.3)
Tax (454) (816) (44.3) (721) (37.0)
Effective tax rate (%) 13.9 36.6 17.6
Other provisions / minority etc - 7 -
Reported PAT 2,816 1,418 98.6 3,380 (16.7)
Adj. PAT margin (%) 8.7 4.7 405 bps 9.5 (78) bps
Ann. EPS (Rs) 22.3 11.3 98.6 26.8 (16.7)
Source: Company, India Infoline Research

Cost analysis (Consolidated)
As a % of net sales Q4 FY14 Q4 FY13 bps yoy Q3 FY14 bps qoq
Material costs 56.9 59.1 (227) 57.2 (34)
Personnel Costs 11.9 12.3 (39) 11.6 35
Other overheads 16.9 16.8 10 15.2 170
Total costs 85.7 88.3 (256) 84.0 170
Source: Company, India Infoline Research

Segmental performance (Consolidated)
(Rs m) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Revenues
India 22,257 20,362 9.3 22,699 (1.9)
SA 1,425 3,078 (53.7) 3,626 (60.7)
Europe 10,670 7,288 46.4 10,883 (2.0)
Others 414 318 30.2 405 2.2
Less: Inter segment (2,288) (668) (1,524)
Net Sales 32,479 30,378 6.9 36,089 (10.0)
EBIT
India 2,152 2,151 0.1 2,843 (24.3)
SA 82 (73) - 337 (75.7)
Europe 1,421 855 66.2 2,010 (29.3)
Others 21 (187) - 13 61.8
Total 3,676 2,746 33.9 5,204 (29.4)
EBIT Margin
India 9.7 10.6 (89) bps 12.5 (286) bps
SA 5.8 (2.4) 814 bps 9.3 (355) bps
Europe 13.3 11.7 158 bps 18.5 (516) bps
Blended 11.3 9.0 228 bps 14.4 (310) bps

Outlook
The demand for the truck tyres, which account for 65% of the revenues for the company in the domestic business, is expected to recover from H2 FY15 in line with our expectations for CV sales. Margins for the company are expected 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 remain EBIT positive in FY15. We maintain our BUY rating with a revised price target of Rs200.
 
Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 127,946 133,103 148,279 164,770
yoy growth (%) 5.3 4.0 11.4 11.1
Operating profit 14,566 17,739 19,157 21,512
OPM (%) 11.4 13.3 12.9 13.1
Pre-exceptional PAT 5,968 10,518 10,608 12,571
Reported PAT 6,137 10,051 10,608 12,571
yoy growth (%) 48.9 63.8 5.5 18.5
EPS (Rs) 11.8 20.9 21.0 24.9
P/E (x) 14.6 8.3 8.2 6.9
Price/Book (x) 2.6 1.9 1.6 1.3
EV/EBITDA (x) 7.3 5.1 4.2 3.2
Debt/Equity (x) 0.7 0.2 0.1 0.0
RoE (%) 19.1 26.4 20.9 20.2
RoCE (%) 19.2 25.4 25.1 26.1
Source: Company, India Infoline Research


***Note: This is a NSE Chart

 

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