Apollo Tyres Ltd. Margins have bottomed, Upgrade to ACCUMULATE ::Emkay

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Apollo Tyres Ltd.

Margins have bottomed, Upgrade to ACCUMULATE

ACCUMULATE

CMP: Rs59                                        Target Price: Rs71

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n     Results below est. due to disappointment in India operations. EBIDTA/PAT at Rs 2.3bn/778mn were ~17%/25% below est. Adverse product mix, the key reason for the disappointment

n     Europe reported strong results. Demand scenario for winter tyres is robust with demand outstripping supply. Non removal of antidumping duty in India to provide cushion to margins 

n     Upgrade FY12/13 EPS est. by 6%/12.6% to Rs 8.1/10.1 (with an upward bias) due to lower rubber prices, strong performance of Europe and sequential improvement in product mix in India

n     Upgrade rating to ACCUMULATE with a TP of Rs 71(FY13 PER/EV-EBIDTA – 7x/5x). Downside risk arise from lack of improvement in replacement demand in India