Buy Apollo Tyres - PINC Result Review

Lockout Plays Dampener; Subsidiaries Save The Day

Apollo Tyres (APTY) Q1FY11 standalone results were ahead of expectation with the company managing to control fall in margins to 10.4%. The lockout at the Perambra facility led to a 16% fall in volumes and a 5% decline in sales. Standalone profit halved to Rs406mn. The subsidiaries however had a strong quarter, especially VBBV, posting a profit of Rs336mn as against a loss of Rs209mn YoY.

Outlook: Due to lockout at the Indian operations we have reduced FY11 standalone profit estimates by 23% to Rs2.5bn. However, with expectation of higher contribution from VBBV, the impact on consolidated FY11 EPS are estimated at only 15% to Rs8.7.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 7.3x and 5.8x its FY11 and FY12 earnings estimates. While the lockout would weigh high on the stock in the near term, we expect the company to overcome the issues. We maintain our 'BUY' recommendation on the stock with a revised target price of Rs82 (earlier Rs89), discounting FY12E earnings 7.5x.

Source : Equity Bulls

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