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Apollo Tyres (APTY)
Automobiles
Europe shines, India in recovery phase. Apollo Tyres 3QFY12 results were above
estimates led by higher-than-estimated margins in Indian and European operations as
partial benefits of lower raw material (RM) costs flowed through. RM savings should
continue incrementally in 4QFY12E as well. The other key positive was decline in net
debt from Rs32 bn in 2QFY12 to Rs29.4 bn in 3QFY12 as the company liquidated
excess inventories. We have increased our earnings estimates. Retain BUY with a revised
target price of Rs90.
Above estimates, led by higher-than-estimated margins in India and Europe
Apollo Tyres reported 3QFY12 sales (consolidated) at Rs32.3 bn (+36% yoy; +12.5% qoq).
Reported EBITDA at Rs3.24 bn (+18% yoy; +40% qoq) was 14% higher than our estimates.
Consolidated EBITDA margins (%) at 10% improved 200 bps qoq (-150 bps yoy) as the company
benefitted from lower raw material costs and higher volumes in Europe in a seasonally strong
quarter. Raw material costs have reduced sequentially for the company for the first time in the
past 10 quarters. Reported PAT at Rs980 mn (-19% yoy; +26% qoq) was lower than our estimates
at Rs1.12 bn led by exceptional expenses on account of payment of Rs294 mn as the company
settled its case with the South African Competition Commission, which related to proceedings that
were initiated before the company took over the operations.
EBITDA margins improve qoq – scope for further improvement in 4QFY12E
Except South African operations, there was qoq improvement in margins in India and Europe. India
business reported 3QFY12 EBITDA margins at 8% (+120 bps qoq; -240 bps yoy). European
operations reported EBIT margins at 15.7% (+500 bps qoq; +200 bps yoy) as additional (apart
from lower RMs) benefits on account of higher volumes (seasonal) flowed in. In our view, benefits
of lower raw material costs have partially come in 3QFY12 and 4QFY12E should see further
benefits which underpin our expectation on margins improving further. Even as the European
operation margins have reached higher than FY2011 levels with 9MFY12 EBIT margin at 12.3%
versus 11.3% in 9MFY11, there is considerable scope for increase in EBITDA margins in India.
3QFY12 EBITDA (%) in India at 8% is lower than 9.7% margins achieved in FY2011.
We have increased our earning estimates; retain BUY with a target price of Rs90
We have increased our earning estimates for FY2012E, FY2013E and FY2014E by 7% each at the
EBITDA level led by higher margins in India and Europe. We retain our BUY rating with a target
price of Rs90 at 9X (8.5X earlier) FY2013E EPS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Apollo Tyres (APTY)
Automobiles
Europe shines, India in recovery phase. Apollo Tyres 3QFY12 results were above
estimates led by higher-than-estimated margins in Indian and European operations as
partial benefits of lower raw material (RM) costs flowed through. RM savings should
continue incrementally in 4QFY12E as well. The other key positive was decline in net
debt from Rs32 bn in 2QFY12 to Rs29.4 bn in 3QFY12 as the company liquidated
excess inventories. We have increased our earnings estimates. Retain BUY with a revised
target price of Rs90.
Above estimates, led by higher-than-estimated margins in India and Europe
Apollo Tyres reported 3QFY12 sales (consolidated) at Rs32.3 bn (+36% yoy; +12.5% qoq).
Reported EBITDA at Rs3.24 bn (+18% yoy; +40% qoq) was 14% higher than our estimates.
Consolidated EBITDA margins (%) at 10% improved 200 bps qoq (-150 bps yoy) as the company
benefitted from lower raw material costs and higher volumes in Europe in a seasonally strong
quarter. Raw material costs have reduced sequentially for the company for the first time in the
past 10 quarters. Reported PAT at Rs980 mn (-19% yoy; +26% qoq) was lower than our estimates
at Rs1.12 bn led by exceptional expenses on account of payment of Rs294 mn as the company
settled its case with the South African Competition Commission, which related to proceedings that
were initiated before the company took over the operations.
EBITDA margins improve qoq – scope for further improvement in 4QFY12E
Except South African operations, there was qoq improvement in margins in India and Europe. India
business reported 3QFY12 EBITDA margins at 8% (+120 bps qoq; -240 bps yoy). European
operations reported EBIT margins at 15.7% (+500 bps qoq; +200 bps yoy) as additional (apart
from lower RMs) benefits on account of higher volumes (seasonal) flowed in. In our view, benefits
of lower raw material costs have partially come in 3QFY12 and 4QFY12E should see further
benefits which underpin our expectation on margins improving further. Even as the European
operation margins have reached higher than FY2011 levels with 9MFY12 EBIT margin at 12.3%
versus 11.3% in 9MFY11, there is considerable scope for increase in EBITDA margins in India.
3QFY12 EBITDA (%) in India at 8% is lower than 9.7% margins achieved in FY2011.
We have increased our earning estimates; retain BUY with a target price of Rs90
We have increased our earning estimates for FY2012E, FY2013E and FY2014E by 7% each at the
EBITDA level led by higher margins in India and Europe. We retain our BUY rating with a target
price of Rs90 at 9X (8.5X earlier) FY2013E EPS.
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