Accumulate Apollo Tyres; target of Rs 95: Emkay

Emkay Global Financial Services is bullish on Apollo Tyres and has recommended accumulate rating on the stock with a target of Rs 95, in its August 9, 2012 research report.

 “Apollo Tyres Consolidated Net Sales at Rs 31.6 bn (12% YoY, -2% QoQ) came in line with expectations. Disappointment in standalone revenues (~4%) was compensated by a sharp jump in revenues from South African operations (40% YoY/16% QoQ) where gain in market share and higher exports led to revenue beat. EBITDA stood at Rs 3.5 bn (46% YoY, -2.4% QoQ), ~5% above est. Margins at 11.1% surprised positively led by better-than-anticipated performance in South Africa/Europe geographies (EBIT of 1.4%/14.3%). Standalone EBITDA margin at 10.3% was in-line. Stable rubber prices and price hike of 1.5% in truck and bias segment supported margin. South Africa margins benefited by price hike of ~3% during Q1 while better product mix and moderation in rubber prices helped margins in Europe.Net profit at Rs 1.4 bn was marginally above est. led by better operational performance in South Africa/Europe.”

“We scale down our tonnage growth estimate for domestic market to 8.5% YoY (vs 12.5% earlier) for FY13 to factor in the subdued demand scenario. However, moderation in rubber prices, stable currency and pricing discipline should aid margin expansion vs last year. Hence, our consolidated margins expand 86 bps/96 bps in FY13/14 to 11.4% /11.5%. However, a higher interest and depreciation cost leads to 3.9%/5.2% revision in EPS estimates to Rs 13/15.1 in FY13/14.”

“At Rs 83.6, the stock trades at PER of 6.5x/5.6x, EV/EBIDTA of 4.5x/4x and P/BV of 1.2x/1.0x on our FY13/FY14 estimates. We believe ROCE for APTY will reach its cyclical peak as growth capex resumes in FY14 (not factored in our est. currently). Hence, we value it on P/B and maintain our target multiple of 1.4x/1.2x on FY13/14 estimate. This implies a target price of Rs 95; we retain our ACCUMULATE rating on the stock. Near term risks arise from volatile currency and weaker than expected off take from OEMs,” says Emkay Global Financial Services research report.

Non-Institutions holding more than 90% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More