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Apollo Tyres Ltd
3Q FY11 Results
Apollo Tyres (ATL) reported better than expected numbers for Q3 FY11.In Q3
FY11,ATL’s revenue increased 3.2% on Y-o-Y basis to `23,687.1 million. Operating
profit margins dipped 510 bps on Y-o-Y basis to 11.5% .Net profits declined 35.6%
on Y-o-Y basis to ` 1207.5 million.
Key Highlights
• For Q3 FY11, ATL revenue rose to `23,687.1 million from `19,489.2 million in
Q2 FY11 - an increase of 21.5% on Q-o-Q basis.
• The Operating margins in Q3 FY11 stood at 11.5%. The operating margins
increased 200 basis points on Q-o-Q basis. ATL reported operating profit of
`2,731.7 million as compared to `1,852.9 million in Q2 FY11. Increase in
margins is attributable to greater margins from European operations due to
seasonality factor (greater sales of winter tyres) and also due to better margins
from South African operations (due to plant being operational at full capacity).
• The increase in margins is also attributed to efficient sourcing strategy adopted
by ATL during the quarter. ATL sourced 40% of the rubber requirement from
outside India (as against normal sourcing of 30%). The sourcing arrangement
was for the quarterly period, which helped ATL to keep costs under control, in
scenario of rising prices.
• ATL had taken price increase of 1% in December and January in the domestic
market. ATL had taken price increase of 4% in Africa and 4% in Europe in the
current quarter to offset rising costs.
• Net Profit recorded was `1,207.5 million as against `532.5 million in Q2 FY11.
Business Outlook
The outlook in the domestic market is robust. Sales are expected to recover in
South African market and Europe is expected to maintain steady growth. However,
there would be pressure on the margins for at least next 2 quarters due to rise in the
input costs (especially natural rubber which is currently trading at record levels).
Also in the domestic market, ATL would be able to pass on price increases only in
short quantums (of 1-2%), thereby affecting profitability going forward.
There would however be respite for the companies in case global prices of natural
rubber soften. This is because the import duty on natural rubber would be charged
at 20% or ` 20 per/Kg, whichever is lower, from FY12.
Natural rubber prices have been on continuous uptrend resulting into pressure on
the margins. From `103 per Kg in August 2009, the prices have more than doubled
to `222 per Kg in January 2011. Prices are currently trading at ` 237 per Kg. The
prices are likely to sustain current levels due to heavy rains in Thailand thereby
affecting output.
Valuation
The outlook for domestic market is encouraging with the company looking to
increase revenues, as plants operate at full capacity post sorting out of lockout at
Perambara and ramp up at Chennai. However, given the increase in raw material
costs (due to increased natural rubber prices), which would put pressure on the
margins, we assign a multiple of 8x to its FY13 EPS of `8.5 to arrive at value of `
68 per share for the stock. We give “Buy” recommendation on the stock
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Apollo Tyres Ltd
3Q FY11 Results
Apollo Tyres (ATL) reported better than expected numbers for Q3 FY11.In Q3
FY11,ATL’s revenue increased 3.2% on Y-o-Y basis to `23,687.1 million. Operating
profit margins dipped 510 bps on Y-o-Y basis to 11.5% .Net profits declined 35.6%
on Y-o-Y basis to ` 1207.5 million.
Key Highlights
• For Q3 FY11, ATL revenue rose to `23,687.1 million from `19,489.2 million in
Q2 FY11 - an increase of 21.5% on Q-o-Q basis.
• The Operating margins in Q3 FY11 stood at 11.5%. The operating margins
increased 200 basis points on Q-o-Q basis. ATL reported operating profit of
`2,731.7 million as compared to `1,852.9 million in Q2 FY11. Increase in
margins is attributable to greater margins from European operations due to
seasonality factor (greater sales of winter tyres) and also due to better margins
from South African operations (due to plant being operational at full capacity).
• The increase in margins is also attributed to efficient sourcing strategy adopted
by ATL during the quarter. ATL sourced 40% of the rubber requirement from
outside India (as against normal sourcing of 30%). The sourcing arrangement
was for the quarterly period, which helped ATL to keep costs under control, in
scenario of rising prices.
• ATL had taken price increase of 1% in December and January in the domestic
market. ATL had taken price increase of 4% in Africa and 4% in Europe in the
current quarter to offset rising costs.
• Net Profit recorded was `1,207.5 million as against `532.5 million in Q2 FY11.
Business Outlook
The outlook in the domestic market is robust. Sales are expected to recover in
South African market and Europe is expected to maintain steady growth. However,
there would be pressure on the margins for at least next 2 quarters due to rise in the
input costs (especially natural rubber which is currently trading at record levels).
Also in the domestic market, ATL would be able to pass on price increases only in
short quantums (of 1-2%), thereby affecting profitability going forward.
There would however be respite for the companies in case global prices of natural
rubber soften. This is because the import duty on natural rubber would be charged
at 20% or ` 20 per/Kg, whichever is lower, from FY12.
Natural rubber prices have been on continuous uptrend resulting into pressure on
the margins. From `103 per Kg in August 2009, the prices have more than doubled
to `222 per Kg in January 2011. Prices are currently trading at ` 237 per Kg. The
prices are likely to sustain current levels due to heavy rains in Thailand thereby
affecting output.
Valuation
The outlook for domestic market is encouraging with the company looking to
increase revenues, as plants operate at full capacity post sorting out of lockout at
Perambara and ramp up at Chennai. However, given the increase in raw material
costs (due to increased natural rubber prices), which would put pressure on the
margins, we assign a multiple of 8x to its FY13 EPS of `8.5 to arrive at value of `
68 per share for the stock. We give “Buy” recommendation on the stock
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