Apollo Tyres - 4QFY2012 Result Update - Angel Broking

Mixed performance on the consolidated front: Apollo Tyres (APTY) reported a mixed set of 4QFY2012 results, as strong performance in domestic operations was overshadowed by poor South African operations. APTY's consolidated top line jumped by 18.4% yoy (flat qoq) to Rs.3,231cr, driven by 8.8% yoy growth each in total volumes and net average realization. While domestic operations witnessed strong 14% yoy growth in volumes, Europe witnessed 4% yoy volume growth and South Africa witnessed an 18% yoy decline in volumes as its operations were impacted by planned shutdowns and rising threat of imported tyres. The company's EBITDA margin expanded by 110bp sequentially (down 15bp yoy) to 11.1%, mainly due to margin improvement in the domestic business (EBITDA margin improved 200bp yoy and 160bp sequentially) led by lower raw-material expenses. Net profit declined by 18.6% yoy to Rs.157cr mainly on account of higher interest (up 31.5%) and depreciation (up 22.1%) expenses.

Healthy standalone performance: APTY's standalone net sales grew by strong 28.2% yoy (7.9% qoq) to Rs.2,259cr, driven by volume growth of 14% yoy (6.5% qoq) and net average realization growth of 12.5% yoy (1.3% qoq). EBITDA margin expanded by 200bp yoy (160bp qoq) to 9.6%, largely due to a decline in raw-material expenses, leading to 61.9% yoy growth in operating profit. However, net profit grew by just 9.2% yoy to Rs.72cr, led by higher interest, depreciation and tax expenses during the quarter.

Outlook and valuation: We revise upwards our earnings estimates for FY2013/14E at the standalone level, led by the likely improvement in OEM demand as well as replacement segments and stable raw-material prices. We expect APTY to deliver a healthy revenue CAGR of 11.8% over FY2012–14E, led by production ramp-up at Chennai facility and revival in South Africa operations. We expect the company's operating margin to improve in FY2013E, driven by gradual softening of raw-material prices. At Rs.82, APTY is trading at attractive levels of 6.1x FY2014E earnings. We maintain our Buy rating on the stock with a target price of Rs.100.

Source : Equity Bulls

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