Impressive set of numbers
Apollo’s standalone net sales grew by 23.7% yoy and 6.1% qoq to Rs 22.8bn, most of which came out of volume improvement and the rest from a minimal price hike and product mix improvement. The standalone results were above our expectations as replacement cycle is showing some signs of reversal. Management said that they have seen improvement in demand in this quarter when compared sequentially, on the replacement segment especially TBR side, however are still witnessing softness on the OEM demand. EBITDA grew by 80% yoy, but just 2% qoq to Rs2.25 bn and EBITDA margins went down qoq to 9.9% from 10.3% as natural rubber prices slightly firmed up with other RM costs (74.6% of sales v/s 72.9% qoq). On yoy basis it improved significantly from 6.8%. In spite of higher depreciation on account of the ramp up in Chennai plant, PAT pulled a strong growth of 240% yoy and remained flattish qoq to Rs752 mn. Interest costs went up to Rs 694mn, 33% yoy and 12.4% qoq, while tax rate remained flat at 31.2%.
Outlook and valuation
Apollo came out with a good set of numbers in the quarter, where domestic business led from the front. With expectations of rubber prices moving down, Chennai capacity coming full on stream, radialization in the TBR segment slightly improving and replacement demand showing signs of improvement, Apollo’s story remains intact. In Europe, geographical expansion of Apollo branded tyres and steady volumes will act as drivers and the next two quarters being strong ones will show a good growth. South Africa however is a matter of concern, which we do not believe to breakeven in FY 14 as well as progress seems to be sluggish with intermittent aberrations. The company’s plans of organic growth may put pressure on the bottomline and its gearing. Additionally, with lack of visibility about the QIP, there will remain an overhang on the stock as we await the extent of dilution of promoter’s holding post the issue. With capex cycle again looking to take off post this issue and demand in India and SA still remaining not so buoyant, we cut our estimates on the company. We value the stock based on FY 14 estimates and cut our target price to Rs 103 (@7.5x times FY 14E consol EPS of Rs13.7) from Rs112, and are maintaining our BUY rating on the stock.
LKP Research
No comments:
Post a Comment