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UBS Investment Research
Apollo Tyres
Improving fundamentals
Tyre majors raising
As per media reports, tyre maker Michelin announced a 12% increase in truck tyre
prices in Africa and India. Apollo Tyres is present in both these geographies. As
per an article in Rubber World, Yokohama Tire raised truck tyre prices by 8%. We
believe this sets the stage for price increases by other tyre manufacturers and bodes
well for the fundamentals of the tyre industry.
Natural rubber prices have softened
Over the past two weeks, natural rubber prices in India have declined from
Rs240/kg to Rs220/kg. Natural rubber costs are 30% of revenues for Apollo Tyres.
We assume a natural rubber cost of Rs225/kg for Apollo Tyres over FY11.
Substitution from natural to synthetic rubber can help
We have also analysed the potential for substitution of natural rubber usage in the
glove industry and believe that higher rubber prices would lead to substitution of
natural rubber by synthetic rubber in that industry.
Valuation: price target of Rs78, maintain Buy rating
We derive our price target from our sum-of-the-parts valuation. We value the
company’s India business at 4.5x the average of FY12-13E (September 2012E)
EV/EBITDA and its international business at 5.5x. Apollo Tyres is trading at 7.2x
March 2012E PE.
UBS Investment Research
Apollo Tyres
Improving fundamentals
Tyre majors raising
As per media reports, tyre maker Michelin announced a 12% increase in truck tyre
prices in Africa and India. Apollo Tyres is present in both these geographies. As
per an article in Rubber World, Yokohama Tire raised truck tyre prices by 8%. We
believe this sets the stage for price increases by other tyre manufacturers and bodes
well for the fundamentals of the tyre industry.
Natural rubber prices have softened
Over the past two weeks, natural rubber prices in India have declined from
Rs240/kg to Rs220/kg. Natural rubber costs are 30% of revenues for Apollo Tyres.
We assume a natural rubber cost of Rs225/kg for Apollo Tyres over FY11.
Substitution from natural to synthetic rubber can help
We have also analysed the potential for substitution of natural rubber usage in the
glove industry and believe that higher rubber prices would lead to substitution of
natural rubber by synthetic rubber in that industry.
Valuation: price target of Rs78, maintain Buy rating
We derive our price target from our sum-of-the-parts valuation. We value the
company’s India business at 4.5x the average of FY12-13E (September 2012E)
EV/EBITDA and its international business at 5.5x. Apollo Tyres is trading at 7.2x
March 2012E PE.
Nitrile gloves are used in the USA and EU and contribute to 25% of global
consumption of gloves. We believe the industry can shift marginally towards
nitrile gloves as long as the pricing difference between nitrile and powder-free
gloves lasts.
Substitution of natural rubber with synthetic rubber will likely improve the
supply-demand dynamics of the natural rubber industry and help moderate
natural rubber prices.
Apollo Tyres
Apollo Tyres is a leading tyre manufacturer in India. It has the highest market
share in truck tyres. It has established a presence in South Africa and Europe by
acquiring Dunlop's South African operations and Vredestein in the Netherlands.
Statement of Risk
We believe the key risks are: 1) a sustained industrial slowdown, 2) A continued
increase in raw material prices, 3) Further production interruptions, and 4) Any
ruling against Apollo Tyres (and other tyre companies) by the Competition
Tribunal in South Africa.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Apollo Tyres
Improving fundamentals
Tyre majors raising
As per media reports, tyre maker Michelin announced a 12% increase in truck tyre
prices in Africa and India. Apollo Tyres is present in both these geographies. As
per an article in Rubber World, Yokohama Tire raised truck tyre prices by 8%. We
believe this sets the stage for price increases by other tyre manufacturers and bodes
well for the fundamentals of the tyre industry.
Natural rubber prices have softened
Over the past two weeks, natural rubber prices in India have declined from
Rs240/kg to Rs220/kg. Natural rubber costs are 30% of revenues for Apollo Tyres.
We assume a natural rubber cost of Rs225/kg for Apollo Tyres over FY11.
Substitution from natural to synthetic rubber can help
We have also analysed the potential for substitution of natural rubber usage in the
glove industry and believe that higher rubber prices would lead to substitution of
natural rubber by synthetic rubber in that industry.
Valuation: price target of Rs78, maintain Buy rating
We derive our price target from our sum-of-the-parts valuation. We value the
company’s India business at 4.5x the average of FY12-13E (September 2012E)
EV/EBITDA and its international business at 5.5x. Apollo Tyres is trading at 7.2x
March 2012E PE.
UBS Investment Research
Apollo Tyres
Improving fundamentals
Tyre majors raising
As per media reports, tyre maker Michelin announced a 12% increase in truck tyre
prices in Africa and India. Apollo Tyres is present in both these geographies. As
per an article in Rubber World, Yokohama Tire raised truck tyre prices by 8%. We
believe this sets the stage for price increases by other tyre manufacturers and bodes
well for the fundamentals of the tyre industry.
Natural rubber prices have softened
Over the past two weeks, natural rubber prices in India have declined from
Rs240/kg to Rs220/kg. Natural rubber costs are 30% of revenues for Apollo Tyres.
We assume a natural rubber cost of Rs225/kg for Apollo Tyres over FY11.
Substitution from natural to synthetic rubber can help
We have also analysed the potential for substitution of natural rubber usage in the
glove industry and believe that higher rubber prices would lead to substitution of
natural rubber by synthetic rubber in that industry.
Valuation: price target of Rs78, maintain Buy rating
We derive our price target from our sum-of-the-parts valuation. We value the
company’s India business at 4.5x the average of FY12-13E (September 2012E)
EV/EBITDA and its international business at 5.5x. Apollo Tyres is trading at 7.2x
March 2012E PE.
Nitrile gloves are used in the USA and EU and contribute to 25% of global
consumption of gloves. We believe the industry can shift marginally towards
nitrile gloves as long as the pricing difference between nitrile and powder-free
gloves lasts.
Substitution of natural rubber with synthetic rubber will likely improve the
supply-demand dynamics of the natural rubber industry and help moderate
natural rubber prices.
Apollo Tyres
Apollo Tyres is a leading tyre manufacturer in India. It has the highest market
share in truck tyres. It has established a presence in South Africa and Europe by
acquiring Dunlop's South African operations and Vredestein in the Netherlands.
Statement of Risk
We believe the key risks are: 1) a sustained industrial slowdown, 2) A continued
increase in raw material prices, 3) Further production interruptions, and 4) Any
ruling against Apollo Tyres (and other tyre companies) by the Competition
Tribunal in South Africa.
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