Accumulate Apollo Tyres; target Rs 77: Prabhudas Lilladher

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Accumulate Apollo Tyres; target Rs 77: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Apollo Tyres and has recommended accumulate rating on the stock with a target price of Rs 77 in its December 09, 2011 research report.

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Prabhudas Lilladher is bullish on Apollo Tyres and has recommended accumulate rating on the stock with a target price of Rs 77 in its December 09, 2011 research report.

"Apollo Tyres expects 23% CAGR in the standalone top-line for FY11-FY13E period, driven by capacity expansion at the Greenfield Chennai facility. Standalone margins are likely to improve from Q4FY12E onwards on account of softening of rubber prices. However, with 15- 20% of the rubber requirement being imported, depreciation in rupee has nullified the impact of softening rubber prices for Q3FY12E. Demand scenario is likely to be better in the replacement side of the market, going forward. According to the management, the abolishment of anti-dumping duty on Chinese tyres has not been approved by the Ministry and thereby, they don't see any negative impact on their business."

"Greenfield project at Chennai has a total capacity of 500TPD, with a capex outflow of Rs23bn. For FY13E, the average tonnage from the Chennai plant is pegged at 300TPD. Majority of the capex is already incurred in the current fiscal, with the remaining Rs3-4bn likely to be spent in FY13E.Natural Rubber prices have declined by ~5% in the last one month to Rs200/kg currently, from an average price of Rs215/kg in Q2FY12. The growth rate of rubber production in CY11 in all ANRPC (Association of Natural Rubber Producing Countries) members is expected to be 4.9%, whereas India's rubber production is anticipated to perk up by 5.6%. We expect the rubber prices to remain range-bound with the onset of the tapping season in November. We have assumed rubber prices at Rs 205/kg, going forward."

"At the CMP of Rs 65.45, the stock trades at 7.2x FY13E EPS and 5.0x FY13E EV/EBITDA, which seems attractive, given that the margins are likely to improve from here on. On account of a ~18.5% potential upside in the stock, we maintain our 'Accumulate' rating on the stock with the target of Rs 77," says Prabhudas Lilladher research report.

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