Accumulate Apollo Tyres; target of Rs 100: PLilladher

Prabhudas Lilladher is bullish on Apollo Tyres and has recommended accumulate rating on the stock with a target of Rs 100 in its February 6, 2013 report.

“Apollo Tyres (APTY) reported a 2.7% YoY decline in its standalone top-line at Rs20.4bn (PLe: Rs21.4bn); this was on account of ~3.0% decline in volumes to ~95,000 tonnes. Recipe cost/kg in the current quarter declined by ~7.4% YoY to Rs152/kg. As a result, raw material/sales ratio declined by 600bps YoY. However, on account of higher marketing and brand building exercises (estimated at Rs200-250m), other expense/sales ratio increased by 310bps YoY. As a result, improvement in EBITDA margin was restricted to 210bps at 10.1% .On a sequential basis, margins improved by only 20bps as the improvement in gross margins was negated by increase in other expenses.”

“APTY reported a flat top-line at Rs32.2bn (PLe: Rs32.9bn) on a consolidated basis. Despite a decline in volumes, Netherlands’ Vredestein Banden B.V (VBBV) reported a flat top-line at Rs8.2bn (Rs8.0bn in Q2FY13), with EBITDA margins improving by 160bps YoY to 20.1%, mainly on account of lower rubber prices. Led by higher pricing and richer product mix, South African operations (Dunlop) grew by 5.8% YoY to Rs4.0bn (Q2FY13 – Rs3.9bn) with a positive EBIT of Rs48m. As a result, EBITDA margins improved by 190bps YoY and 100bps QoQ to 11.9% (PLe: 11.0%). This led to a 17.8% YoY growth in EBITDA at Rs3.8bn (PLe: Rs3.6bn). On account of lower interest outgo (up by 10.3% YoY at Rs806m) and higher other income at Rs268m, PAT grew by 41.8% YoY to Rs1.81bn (PLe: Rs1.43bn).”

“With Natural rubber prices remaining stable, cost pressures have eased leading to better margin outlook for tyre companies. At the CMP, the stock trades at 6.8x FY13E EPS and 5.9x FY14E EPS, which seems attractive, given the 28.7% CAGR in earnings for FY12-FY14E period. Hence, we maintain our ‘accumulate’ rating on the stock, with a TP of Rs100 based on 7.0x FY14E EPS,” says Prabhudas Lilladher research report.

Public holding more than 90% in Indian cos

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