Apollo Tyres - Below expectations, Lower rating to REDUCE ::Emkay

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Apollo Tyres Ltd.

Below expectations, Lower rating to REDUCE

REDUCE

CMP: Rs 71                                       Target Price: Rs70

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n     Adj. EBITDA at Rs 2.3bn is 4% below est.  despite a higher topline. APAT at Rs 866mn is 7% below est. Tax rate stood at 16.9% (est. 28%)

n     Upgrade FY12 EPS by 20% to Rs 8.6 due to lower tax rate. Our FY12 sales/EBIDTA are upgraded by 0.3% and 4.6% respectively. Introduce FY13 est. with an EPS of Rs 9.5

n     The stock has returned 39% since our upgrade to ACCUMULATE post 3QFY11 results. Upgrade was based on replacement cost value

n     Margins headwinds persist but for a sharp correction in rubber prices. Risk reward ratios have turned unfavorable. Lower our rating to REDUCE with a TP of Rs 70 (FY12 PER – 8.2x)