UBS :: Apollo Tyres - Raising estimates and price target

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UBS Investment Research
Apollo Tyres
R aising estimates and price target
􀂄 Event: Robust Q4 FY11 results despite higher rubber prices
Apollo Tyres reported Q4 FY11 results. Domestic EBITDA was 4% below our
estimates. However, this was driven by higher rubber costs compared to our
estimates; we assumed rubber costs of Rs210/kg compared to actual Q4 FY11
costs of Rs230/kg.
􀂄 Impact: Increase estimates
Apollo Tyres has taken a 5-8% price increase in aftermarket and OEM segments.
These should be applicable during April/May 2011 and will positively impact
FY12 profitability. We raise our EBITDA/kg estimates for the domestic business
by Rs3/kg. We retain our estimates on the international business.
􀂄 Action: Retain Buy rating, raise price target to Rs84
We maintain our Buy rating on the stock, and retain the valuation multiples. We
raise our price target from Rs78 to Rs84.
􀂄 Valuation
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. At our price target, Apollo
Tyres would trade at 8.7x September 2012E PE, in line with its historical PE
multiple