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Apollo Tyres -Positive surprise amid rubber headwinds…
Apollo Tyres (ATL) reported its Q3FY11 results above our estimates
while the strong subsidiary performance improved consolidated results
and domestic business performed above expectations. ATL had net
sales of | 1432.0 crore, a jump of 8.2% YoY and 21.8% QoQ as volumes
jumped 20.8% QoQ with the increasing ramp-up in the Chennai facility
and normalisation of production in the Kerala unit. The steep increase in
rubber prices was seen in the recipe cost (without stock adjustment) at
| 150.6/kg (55.6% higher YoY) though the presence of higher low cost
inventory helped reduce net recipe cost to | 126/kg.The EBITDA margin
at 10.4% was further boosted by cost management with lower other
expenses (120 bps QoQ). The consolidated topline and PAT grew to |
2368.7 crore (21.5% QoQ) and | 74.2 crore (127%QoQ) on the back of
strong topline and EBIT margin of Vredestein Banden BV (VBV) at
13.6%( up 540 bps QoQ) and Dunlop at 2.6% (up 540 bps QoQ).
Highlights of the quarter
ATL’s domestic business has seen a strong performance with volume
growth of 20.8% QoQ at ~78,500 MT. Ramp up of the Chennai facility
continues to be strong with operations running close to 150 TPD and to
be ramped up to 200 TPD by March 2011. The strong inventory build-up
was mainly due to demand softening in Q3FY11 in the replacement TBR
segment. However, ATL continued to produce under full capacity. The
VBV subsidiary has performed exceedingly well with strong demand for
winter tyres and saw a PBIT margin of 13.6% and revenue growth of
23.7% QoQ at | 649.2 crore. The Dunlop subsidiary continues to face
challenges with the loss of market share in the previous quarter.
However, operationally it also performed well with the PBIT margin up
540 bps QoQ. Rubber prices remain at lifetime high levels (~| 240/kg) in
wake of which ATL is expected to undergo price hike in February 2011.
Valuation
Domestic demand continues to be promising. With the subsidiary
performance improving we maintain our positive outlook and consider
rubber prices will ease somewhat by Q2FY12. At the CMP of | 55, the
stock is trading at 6.3x FY12E EPS of | 5.7. The SOTP price target of | 62
comprises standalone business value of | 40 (at 7x FY12E EPS) and
subsidiary business value of | 22.We maintain our BUY rating on ATL.
Key highlights
The company had a consolidated tonnage for Q1FY11 at ~1,07,000
tonnes, which was led by strong demand in the European subsidiary VBV
due to the presence of extreme winter conditions. The South African
subsidiary Dunlop has seen a bounce back from the disappointing
Q2FY11 results, which were marred by a plant lockout. Dunlop has seen
an improvement on the operational front with utilisations at ~85% and
PBIT margins trending higher at ~2.6% (up 540 bps QoQ).
On the standalone front, the domestic segment witnessed a slight
moderation in the replacement TBR segment. However, the company had
continued production at full capacity to leverage the low cost production
and future spurt in demand, which seems to be coming through from
January 2011. In this process, due to higher inventory the company was
able to leverage this to arrest the margin fall in the wake of steep rubber
prices. At present, ATL has | 650 crore of finished goods in inventory.
The company had undertaken a price hike in January 2011 of ~1% in
domestic market and is going to follow it with another in February 2011 to
counter rising rubber prices. On the international front, the company has
till date raised prices by 10% and 8%, respectively, in Dunlop and VBV.
Higher rubber prices cause concern
Rubber prices have moved up to ~| 235/kg, more than double its Q3FY10
price with average rubber cost at | 115/kg. The consistent rise in rubber
prices has been fuelled by the supply outages in the domestic market
arising from Kerala, which produces more than 90% of India’s natural
rubber coupled with reduced tapping in Q3, which is normally the
strongest tapping season. The management expects rubber prices to
soften to ~| 180/kg levels by Q2FY11E, however we would be cautious
on the same and as and when it happens we would revise our cost
estimates. However any reduction in prices would provide some relief to
existing margin pressure. The company had an average rubber price of |
185/kg in Q1FY11, this is 61% higher YoY in Q3FY10 when rubber cost
was at | 115/kg. Rubber prices form a significant part (~47% by value) of
the raw material cost whose rise has been a continuous drag on margins.
Valuation
Domestic demand continues to be promising. With the subsidiary
performance improving, we maintain our positive outlook and believe
rubber prices will ease somewhat by Q2FY12. At the CMP of | 55, the
stock is trading at 9.6x FY11E standalone EPS of | 3.7 and 6.3x FY12E
standalone EPS of | 5.7. We have valued on an SOTP basis with the
standalone entity valued at 7x FY12 standalone EPS of | 5.7 to arrive at
|40/share, the subsidiaries has been valued at a P/BV of 1x to arrive at a
per share value of | 22. The overall STOP price target stands at | 62
implying an upside potential of 11%. We have maintained our BUY rating
on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Apollo Tyres -Positive surprise amid rubber headwinds…
Apollo Tyres (ATL) reported its Q3FY11 results above our estimates
while the strong subsidiary performance improved consolidated results
and domestic business performed above expectations. ATL had net
sales of | 1432.0 crore, a jump of 8.2% YoY and 21.8% QoQ as volumes
jumped 20.8% QoQ with the increasing ramp-up in the Chennai facility
and normalisation of production in the Kerala unit. The steep increase in
rubber prices was seen in the recipe cost (without stock adjustment) at
| 150.6/kg (55.6% higher YoY) though the presence of higher low cost
inventory helped reduce net recipe cost to | 126/kg.The EBITDA margin
at 10.4% was further boosted by cost management with lower other
expenses (120 bps QoQ). The consolidated topline and PAT grew to |
2368.7 crore (21.5% QoQ) and | 74.2 crore (127%QoQ) on the back of
strong topline and EBIT margin of Vredestein Banden BV (VBV) at
13.6%( up 540 bps QoQ) and Dunlop at 2.6% (up 540 bps QoQ).
Highlights of the quarter
ATL’s domestic business has seen a strong performance with volume
growth of 20.8% QoQ at ~78,500 MT. Ramp up of the Chennai facility
continues to be strong with operations running close to 150 TPD and to
be ramped up to 200 TPD by March 2011. The strong inventory build-up
was mainly due to demand softening in Q3FY11 in the replacement TBR
segment. However, ATL continued to produce under full capacity. The
VBV subsidiary has performed exceedingly well with strong demand for
winter tyres and saw a PBIT margin of 13.6% and revenue growth of
23.7% QoQ at | 649.2 crore. The Dunlop subsidiary continues to face
challenges with the loss of market share in the previous quarter.
However, operationally it also performed well with the PBIT margin up
540 bps QoQ. Rubber prices remain at lifetime high levels (~| 240/kg) in
wake of which ATL is expected to undergo price hike in February 2011.
Valuation
Domestic demand continues to be promising. With the subsidiary
performance improving we maintain our positive outlook and consider
rubber prices will ease somewhat by Q2FY12. At the CMP of | 55, the
stock is trading at 6.3x FY12E EPS of | 5.7. The SOTP price target of | 62
comprises standalone business value of | 40 (at 7x FY12E EPS) and
subsidiary business value of | 22.We maintain our BUY rating on ATL.
Key highlights
The company had a consolidated tonnage for Q1FY11 at ~1,07,000
tonnes, which was led by strong demand in the European subsidiary VBV
due to the presence of extreme winter conditions. The South African
subsidiary Dunlop has seen a bounce back from the disappointing
Q2FY11 results, which were marred by a plant lockout. Dunlop has seen
an improvement on the operational front with utilisations at ~85% and
PBIT margins trending higher at ~2.6% (up 540 bps QoQ).
On the standalone front, the domestic segment witnessed a slight
moderation in the replacement TBR segment. However, the company had
continued production at full capacity to leverage the low cost production
and future spurt in demand, which seems to be coming through from
January 2011. In this process, due to higher inventory the company was
able to leverage this to arrest the margin fall in the wake of steep rubber
prices. At present, ATL has | 650 crore of finished goods in inventory.
The company had undertaken a price hike in January 2011 of ~1% in
domestic market and is going to follow it with another in February 2011 to
counter rising rubber prices. On the international front, the company has
till date raised prices by 10% and 8%, respectively, in Dunlop and VBV.
Higher rubber prices cause concern
Rubber prices have moved up to ~| 235/kg, more than double its Q3FY10
price with average rubber cost at | 115/kg. The consistent rise in rubber
prices has been fuelled by the supply outages in the domestic market
arising from Kerala, which produces more than 90% of India’s natural
rubber coupled with reduced tapping in Q3, which is normally the
strongest tapping season. The management expects rubber prices to
soften to ~| 180/kg levels by Q2FY11E, however we would be cautious
on the same and as and when it happens we would revise our cost
estimates. However any reduction in prices would provide some relief to
existing margin pressure. The company had an average rubber price of |
185/kg in Q1FY11, this is 61% higher YoY in Q3FY10 when rubber cost
was at | 115/kg. Rubber prices form a significant part (~47% by value) of
the raw material cost whose rise has been a continuous drag on margins.
Valuation
Domestic demand continues to be promising. With the subsidiary
performance improving, we maintain our positive outlook and believe
rubber prices will ease somewhat by Q2FY12. At the CMP of | 55, the
stock is trading at 9.6x FY11E standalone EPS of | 3.7 and 6.3x FY12E
standalone EPS of | 5.7. We have valued on an SOTP basis with the
standalone entity valued at 7x FY12 standalone EPS of | 5.7 to arrive at
|40/share, the subsidiaries has been valued at a P/BV of 1x to arrive at a
per share value of | 22. The overall STOP price target stands at | 62
implying an upside potential of 11%. We have maintained our BUY rating
on the stock.
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