Emkay Global Financial recommended hold rating on Apollo Tyres with a target price of Rs 95 in its research report dated May 20, 2020.
Emkay Global Financial's report on Apollo Tyres
Q4FY20 revenues declined by 16% yoy to Rs36.1bn (est.: Rs35.5bn) and earnings plunged by 58% yoy to Rs779mn (est.: Rs353mn). Earnings came in above estimates due to higher-than-expected operating margin of 13.2% (est. 10.7%) and a lower tax rate. We expect revenues to grow at a muted 2% CAGR over FY20-22E. Growth is likely to be subdued due to near-term weakness and gradual recovery in both Europe and India regions. Any delay in demand pick-up could impact margins and liquidity position, as current debt is large at Rs60bn and capex is expected at Rs13bn in FY21. The ROE is likely to remain below 10% over FY20-22E due to low asset turnover and margins. We reduce FY21E EBITDA estimate by 11% to Rs18.3bn, but broadly retain FY22E forecast at Rs23.8bn. Our FY22E EPS is reduced by 9% to Rs10.6 due to higher depreciation and interest costs. Retain UW stance and Hold rating with a TP of Rs95 (Rs105 earlier), based on 9x FY22E EPS.
Our FY21/22E EPS forecast has been reduced by 50%/9% to Rs4/Rs10.6, due to a reduction in revenue assumptions and increase in depreciation/interest costs. We are introducing FY23E EPS of Rs13.3, factoring in revenue growth of 10% and EBITDA margin of 14%. Retain Hold rating with a TP of Rs95 (Rs105 earlier), based on 9x FY22E EPS. In sector EAP, we have an UW stance on the company. Key upside risks are higher-than expected demand in key geographies, faster ramp-up of production at the Hungary plant, decrease in commodity prices, and benign currency movements.
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