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Apollo Tyres (APTY) reported a mixed set of results for 2QFY2012. The company’s
standalone operating performance was subdued due to adverse product mix,
sluggish demand and continued raw-material cost pressures, while its European
operations posted strong performance led by robust demand for winter tyres
ahead of the peak season. We broadly retain our revenue and earnings estimates
for the company. We continue to maintain our Buy rating on the stock.
Consolidated sales up 47.3% yoy, net profit jumps 46% yoy: Consolidated net
sales posted 47.3% yoy (1.7% qoq) growth to `2,871cr, driven by a 31.9% yoy
(down 4% qoq) jump in volumes and 11.7% yoy (6% qoq) growth in net average
realization. Europe and South Africa operations registered strong revenue growth
of 42.8% and 14.8% yoy, respectively, during the quarter. The company’s
operating margin contracted by 148bp yoy (49bp qoq) to 8%, largely due to
weak operating performance on the standalone front. However, net profit grew by
46% yoy (flat qoq) to `78cr on account of a significant increase in other income.
Weak performance at the standalone level: While standalone net sales grew
strongly by 56.9% yoy to `1,845cr, driven by 37% yoy volume growth on a low
base of 2QFY2011 (lockout at Cochin plant), the company posted a 5.9% qoq
decline in due to ~10% qoq dip in volumes led by weak replacement demand.
OPM for the quarter declined considerably by 356bp yoy (122bp qoq) to 6.8%
due to unfavorable product mix (OEM – 34% of sales in 2QFY2012 vs. 31% in
1QFY2012 and 25% in 2QFY2011) and continued pressures on the raw-material
front – raw-material/sales ratio at 77.8% vs. 67.1% in 2QFY2011). Thus, net
profit declined sharply by 40.9% yoy (50.3% qoq) to `22cr. Lower tax rate
arrested the further decline in net profit during 2QFY2012.
Outlook and valuation: We remain positive on the tyre industry in view of the
structural shift that the industry is going through. We expect the company to
deliver a strong revenue CAGR of 22.5% over FY2011–13E, as production
ramp-up at the Chennai facility continues as per schedule. We expect the
company’s operating margin to improve in FY2013 on gradual softening of
raw-material prices. At `61, APTY is trading at attractive levels of 6.6x FY2013
earnings. We continue to maintain our Buy recommendation on the stock with a
target price of `74, valuing it at 8.0x FY2013E earnings
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Apollo Tyres (APTY) reported a mixed set of results for 2QFY2012. The company’s
standalone operating performance was subdued due to adverse product mix,
sluggish demand and continued raw-material cost pressures, while its European
operations posted strong performance led by robust demand for winter tyres
ahead of the peak season. We broadly retain our revenue and earnings estimates
for the company. We continue to maintain our Buy rating on the stock.
Consolidated sales up 47.3% yoy, net profit jumps 46% yoy: Consolidated net
sales posted 47.3% yoy (1.7% qoq) growth to `2,871cr, driven by a 31.9% yoy
(down 4% qoq) jump in volumes and 11.7% yoy (6% qoq) growth in net average
realization. Europe and South Africa operations registered strong revenue growth
of 42.8% and 14.8% yoy, respectively, during the quarter. The company’s
operating margin contracted by 148bp yoy (49bp qoq) to 8%, largely due to
weak operating performance on the standalone front. However, net profit grew by
46% yoy (flat qoq) to `78cr on account of a significant increase in other income.
Weak performance at the standalone level: While standalone net sales grew
strongly by 56.9% yoy to `1,845cr, driven by 37% yoy volume growth on a low
base of 2QFY2011 (lockout at Cochin plant), the company posted a 5.9% qoq
decline in due to ~10% qoq dip in volumes led by weak replacement demand.
OPM for the quarter declined considerably by 356bp yoy (122bp qoq) to 6.8%
due to unfavorable product mix (OEM – 34% of sales in 2QFY2012 vs. 31% in
1QFY2012 and 25% in 2QFY2011) and continued pressures on the raw-material
front – raw-material/sales ratio at 77.8% vs. 67.1% in 2QFY2011). Thus, net
profit declined sharply by 40.9% yoy (50.3% qoq) to `22cr. Lower tax rate
arrested the further decline in net profit during 2QFY2012.
Outlook and valuation: We remain positive on the tyre industry in view of the
structural shift that the industry is going through. We expect the company to
deliver a strong revenue CAGR of 22.5% over FY2011–13E, as production
ramp-up at the Chennai facility continues as per schedule. We expect the
company’s operating margin to improve in FY2013 on gradual softening of
raw-material prices. At `61, APTY is trading at attractive levels of 6.6x FY2013
earnings. We continue to maintain our Buy recommendation on the stock with a
target price of `74, valuing it at 8.0x FY2013E earnings
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