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Apollo Tyres Ltd. |
Margins yet to bottom out, Lower rating to HOLD |
HOLD
CMP: Rs70 Target Price: Rs70
n Q2 cons. performance below est. Standalone results in line due to inventory increase (12.5% of sales), Europe disappoints on (sales and margins), South Africa reports loss due to strike
n Impact of rubber prices (~Rs 200/kg) to have impact on performance in 2H. Price hike eminent across regions. Assumed sequential price increase 5% in 2H
n Demand structurally strong, expect price hikes in India. Concerned with pricing action in Europe. Expect stock to underperform in the short term
n Lower our FY11/FY12 EPS to Rs 6.0/Rs 8.3. Lower our TP to Rs 70 and rating to HOLD. Key negative risk to our HOLD rating is lack of pricing action
Net profits at Rs 532 mn – below expectation
Adverse operating performance at VBBV and higher interest cost at standalone entity (due to
higher working capital) resulted in below expected net profits. Net profit of standalone entity at
Rs 374mn was in line with estimates.
Valuations and View
At Rs 70, the stock trades at PER of 11.6x and 8.5x EV/EBIDTA of 6.6x and 5.0x our FY11
and FY12 consolidated estimates respectively. We have lowered our FY11/FY12 EPS
estimate by 16.1%/15.9% due to higher rubber price assumption in our estimates. We lower
our TP to Rs 70 (down 12.5%) and rating to HOLD
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