Apollo Tyres - 4QFY2013 Result Review - Angel Broking

Apollo Tyres (APTY) reported lower-than-expected results for 4QFY2013 owing to sluggish performance across the three geographies due to slowdown in demand. The adjusted profit (consolidated) at Rs. 123cr (down 21.9% yoy and 31.5% qoq) came in below our expectations of Rs. 181cr as the performance was impacted by drop in standalone volumes (down 10% yoy) and also due to significant increase in the depreciation expense (up 32.8% yoy and 30.3% qoq).

For 4QFY2013, APTY's consolidated top-line declined by 6% yoy (5.6% qoq) to Rs. 3,038cr, which was lower than our expectations of Rs. 3,228cr, largely on account of a 9.9% (flat qoq) and 9.3% yoy (24.1% qoq) decline in standalone and South Africa revenues respectively. While the revenues at the European operations remained flat in Euro terms due to 3% yoy decline in volumes; favorable exchange rate movement led to a 7.6% yoy (down 10.7% qoq) growth in INR terms. On the standalone front, the company registered a volume decline of 10% yoy on account of the weak OEM demand and also due to slower off-take in the replacement segment. The Management stated that the utilization level across the three geographies remains in the range of 70-80%. On the operating front, EBITDA margins declined 16bp qoq and stood at 11.7%, which was slightly lower than our expectations of 12.2%, despite the 9.1% qoq decline in raw-material expenditure. This was on account of increase in other expenditure which as a percentage of sales surged 220bp qoq led by higher marketing spends and increase in research and development expenditure. Employee expense as a percentage of sales too witnessed an increase of 80bp on a sequential basis. However, on a yoy basis, EBITDA margins improved 53bp driven by softening of natural rubber prices which led to a 12.2% yoy decline in raw-material costs. At the standalone level, EBITDA margins witnessed a sharp improvement of 261bp yoy (201bp qoq) to 12.1% as the natural rubber cost for the company declined by 29.4% yoy.

We lower our volume estimates for FY2014/15 to account for the subdued demand scenario in the key geographies, India and Europe. However, we expect the operating margins to remain stable as the company will continue to benefit from the softening of commodity prices. We expect the company to register ~10% and 12% CAGR of in net sales and net profit respectively over FY2013-15. At Rs. 94, the stock is trading at 6.3x FY2015E earnings. We retain our Accumulate rating on the stock with a target price of Rs. 104.

Source : Equity Bulls

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