Apollo Tyres - 4QFY2013 Result Update - Angel Broking

Weak 4QFY2013 performance: Apollo Tyres (APTY) reported lower-than-expected results for 4QFY2013 owing to sluggish performance across the three geographies due to slowdown in demand. The consolidated top-line declined by 6% yoy (5.6% qoq) to Rs. 3,038cr, which was lower than our expectations, largely due to a 9.9% (flat qoq) and 9.3% yoy (24.1% qoq) decline in standalone and South Africa revenues respectively. The revenues at the European operations remained flat in Euro terms due to 3% yoy decline in volumes, however, favorable exchange rates led to a 7.6% yoy (down 10.7% qoq) growth in INR terms. The EBITDA margins declined 16bp qoq and stood at 11.7%, 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. Consequently, adjusted net profit declined 21.9% yoy (31.5% qoq) to Rs. 123cr. A significant increase in the depreciation expense (up 32.8% yoy and 30.3% qoq) too impacted the bottom-line results.

Better-than-expected standalone performance: APTY's standalone net profit at Rs. 88cr was ahead of our expectations of Rs. 81cr driven by a sharp improvement of 261bp yoy (201bp qoq) in EBITDA margins to 12.1% as the natural rubber cost for the company declined by 29.4% yoy. Nevertheless, the top-line at Rs. 2,036cr was below our expectations of Rs. 2,180cr due to a 10% yoy drop in volumes on account of the weak OEM demand and also due to slower off-take in the replacement segment.

Outlook and valuation: We lower our volume estimates for FY2014/15 to account for the continued weak demand environment in India and Europe as guided by the management. However, we expect the operating margins to remain stable as the company will continue to benefit from the softening of commodity prices. Given the slowdown in demand and drop in utilization levels across the geographies, APTY has scaled down the capital expenditure guidance for FY2014 to Rs. 550cr. Further, the company has also put on hold the proposed US$150mn QIP issue. At Rs. 94, the stock is trading at 6.3x FY2015 earnings. We maintain our Accumulate rating on the stock with a target price of Rs. 104.

Source : Equity Bulls

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