Apollo Tyres - Wheels of growth:: Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Apollo Tyres
Wheels of growth
Event
 Apollo Tyres is an India based multinational tyre company with manufacturing
presence in three continents. In the Indian market, it is a leading producer of
truck and bus tyres (28% market share) and LCV tyres (29% market share);
whereas it is the second largest producer of passenger car tyres (19% market
share).
 Apollo’s geographical segments, India, South Africa and Europe, contributed
62%, 13% and 25%, respectively, to FY10 revenue.

Impact
 Robust growth in de-risked domestic business. Apollo Tyres enjoys the
highest market share in the domestic commercial vehicle space of ~29%.
Further, the company also derives ~71% of domestic revenue from the stable
replacement market. With ramping up of production at the new Chennai plant,
increasing radial penetration in CV space, the company’s market share is
likely to remain strong.
 Capacity expansion to stay ahead of competition. The company is also
investing ~Rs20bn to set up a new radial tyre plant and plans to increase
production from 100 tonnes to 500 tonnes in the next three years. Being one
of the early players to add capacity should help the company improve its
market share in the truck radial market, which should also be positive for
margins over the medium term.
 Wide distribution network. In India, the company has more than 2,000
exclusive dealers and ~200 special Apollo retail outlets. In South Africa, it has
~1,000 dealers and 185 exclusive Dunlop zones that help the company
maintain its market share. The business is further supported by three strong
brands – Apollo in India, Dunlop in Africa and Vredestein in Europe.
 Increasing contribution from global subsidiaries. Dunlop’s operation in
Africa is benefitting from improving macro environment in Africa and will
support margins due to increased utilisation. Vredestein acquisition in Europe
faces least headwinds due to its focus on high performance tyres.
Outlook
 Robust Outlook. Apollo Tyres is a long-term play on increasing radialisation
in the domestic truck and bus segments. Given the strong outlook of Indian
commercial vehicle segment, resilient replacement demand and growing
contribution from its global operation, we believe the overall industry growth
outlook is strong.
 Trading at attractive multiples. The company is currently trading at
Bloomberg consensus estimates of 5.3x FY12E PER and 4x FY12E
EV/EBITDA.


Apollo Tyres Aide Memoire
1. What is your revenue growth guidance for the next couple of years?
2. What are your future capex and capacity expansion plans?
3. With rubber prices remaining firm, what will be your margin guidance, going forward?
4. Will you be able to pass through all raw material cost inflation to your consumers?
5. When do you see rubber prices to cool off?