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UBS Investment Research
Apollo Tyres
Attractively priced despite rally
Rubber prices have declined
Rubber prices in India have declined from a peak of Rs240/kg to Rs186/kg. We
believe this is a significant positive for Apollo Tyres. We believe that every Rs5/kg
decline in rubber prices conservatively boosts Apollo Tyres’ EPS by 1% assuming
tyre demand does not increase. The sensitivity is likely higher as lower rubber
prices will lead to improved demand.
Lower rubber and tyre prices can potentially drive higher demand
We believe that the tyre demand was partly subdued due to tyre price increases
taken by tyre manufacturers. As tyre prices stabilize, we believe that the tyre
demand will increase. We believe this could provide incremental boost to EPS.
Potential for rerating exists
We believe that Apollo Tyres can rerate above historical valuation as rubber prices
stabilize and Apollo Tyres posts attractive EPS CAGR over next two years.
Valuation: Price target of Rs78, maintain Buy rating
We retain our estimates. We derive our price target from a sum of the parts. 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. Apollo Tyres trade at
8.3x March 2012E PE.
Apollo Tyres
Apollo Tyres is a leading tyre manufacturer in India. It has the highest market
share in truck tyres. It has established a presence in South Africa and Europe by
acquiring Dunlop’s South African operations and Vredestein in the Netherlands.
Statement of Risk
We believe the key risks are: 1) A sustained industrial slowdown, 2) A
continued increase in raw material prices, 3) Further production interruptions,
and 4) Any ruling against Apollo Tyres (and other tyre companies) by the
Competition Tribunal in South Africa.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Apollo Tyres
Attractively priced despite rally
Rubber prices have declined
Rubber prices in India have declined from a peak of Rs240/kg to Rs186/kg. We
believe this is a significant positive for Apollo Tyres. We believe that every Rs5/kg
decline in rubber prices conservatively boosts Apollo Tyres’ EPS by 1% assuming
tyre demand does not increase. The sensitivity is likely higher as lower rubber
prices will lead to improved demand.
Lower rubber and tyre prices can potentially drive higher demand
We believe that the tyre demand was partly subdued due to tyre price increases
taken by tyre manufacturers. As tyre prices stabilize, we believe that the tyre
demand will increase. We believe this could provide incremental boost to EPS.
Potential for rerating exists
We believe that Apollo Tyres can rerate above historical valuation as rubber prices
stabilize and Apollo Tyres posts attractive EPS CAGR over next two years.
Valuation: Price target of Rs78, maintain Buy rating
We retain our estimates. We derive our price target from a sum of the parts. 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. Apollo Tyres trade at
8.3x March 2012E PE.
Apollo Tyres
Apollo Tyres is a leading tyre manufacturer in India. It has the highest market
share in truck tyres. It has established a presence in South Africa and Europe by
acquiring Dunlop’s South African operations and Vredestein in the Netherlands.
Statement of Risk
We believe the key risks are: 1) A sustained industrial slowdown, 2) A
continued increase in raw material prices, 3) Further production interruptions,
and 4) Any ruling against Apollo Tyres (and other tyre companies) by the
Competition Tribunal in South Africa.
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