ICICI Direct's research report on Apollo Tyres
Apollo Tyres (ATL) reported a relatively healthy operational performance in Q1FY21 given circumstances. Consolidated net sales were down 33.7% YoY (volume led) at Rs 2,873 crore (APMEA i.e. largely India revenues down 42.1%, Europe revenues down 12%) EBITDA margins at 8.3% were down 490 bps QoQ. QoQ margin deterioration was largely due to 407 bps fall in gross margins although other expenses were controlled, falling 119 bps QoQ on percentage of sales basis. APMEA EBIT margins dipped 130 bps QoQ to 2% while losses in Europe expanded. Consequent consolidated loss after tax came in at Rs 135 crore, accelerated by jump in interest costs (up ~101% YoY &~29% QoQ). The company received first tranche of CCPS investment by Emerald Sage amounting to ~Rs 540 crore, with the second tranche of similar amount set to be received by October 2020.
We expect sales, PAT CAGR at 4.2%, 8.9%, respectively, in FY20-22E. However, we do not expect return to double digit RoCE trajectory before FY23E courtesy bloated capital employed figures. Hence, we maintain HOLD rating, valuing it at Rs 120 i.e. 5x EV/EBITDA on FY22E numbers.
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