Apollo Tyres - 1QFY2013 Result Update - Angel Broking

In-line result on the consolidated front: Apollo Tyres (APTY) reported in-line 1QFY2013 results led by strong performance in South African operations coupled with an EBITDA margin improvement across geographies. The consolidated net revenues grew by 12.1% yoy (down 2.1% qoq) to Rs.3,165cr driven by a 9.8% yoy (down 4.7% qoq) and a robust 40.2% yoy (15.7% qoq) growth in India and South Africa revenues respectively. Europe operations recorded a 7.6% yoy (down 4.1%) growth in revenues which was led by growth in net average realization (volumes remained flat on a y-o-y basis). The EBITDA margin expanded 286bp yoy (flat qoq) to 11.1%, mainly due to a decline in raw-material expenses. Average natural rubber prices, which declined 15.6% yoy (flat qoq), resulted in a margin expansion of 450bp, 300bp and 271bp in Europe, South Africa and India operations respectively. Led by a strong operating performance across geographies, the net profit jumped 78.9% yoy (down 12.1% qoq) to Rs.138cr.

Healthy performance at standalone level: APTY's standalone net sales grew by a healthy 9.8% yoy (down 4.7% qoq) to Rs.2,152cr, driven by a modest volume growth of 4% yoy (down 6.1% qoq) due to weak original equipment manufacturer (OEM) as well as replacement demand. The net average realization however, grew by a strong 5.5% yoy (1.5% qoq) led by a superior product-mix and price increases carried out in FY2012. The EBITDA margin expanded by 271bp yoy (82bp qoq) to 10.3%, largely due to a decline in raw-material expenses, leading to a 69.4% yoy (4.2% qoq) growth in the net profit.

Outlook and valuation: While we have revised our earnings estimates downwards in FY2013E to factor in slowdown in the domestic demand and marginally higher tax-rate, our earnings estimates for FY2014E are revised upwards led by margin expansion. We remain positive on the tyre industry in view of the structural shift that the industry is witnessing and due to softening natural rubber prices. However, due to ~10% run-up in the stock price post the 1QFY2013 results, we recommend Accumulate rating on the stock with a target price of Rs.99.

Source : Equity Bulls

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