Buy Apollo Tyres; target of Rs 345: Emkay Global Financial

Emkay Global Financial's research report on Apollo Tyres

Apollo Tyres’ Q2FY23 revenue increased by 17% YoY (3-yr CAGR at 14%) to Rs59.6bn, slightly below our estimates. EBITDA increased by 12% YoY (3-yr CAGR at 18%) to Rs7.1bn, in line with our estimate. Management expects Q3 RM-cost to reduce by 3% QoQ, owing to commodity deflation. We increase FY23-25E EPS by 2-6%, to account for the higher margin assumptions. Following the revision, we expect FY23E revenue growth to be robust at 18%; this uptrend is likely to endure, with FY23-25E revenue CAGR at 9%, led by robust growth in the OEM segment, stable replacement demand and market-share gains in Europe. Driven by better scale and improved net pricing, we expect EBITDA margin to expand, from 12.3% in FY22 to 12.7% in FY23E and to 14.7% in FY25E.

Outlook

We maintain our BUY rating, with a revised TP of Rs345/share (Rs325 earlier), applying 13x Dec-24E EPS (Sep-24E earlier).