Apollo Tyres reports strong Q3 numbers, keeps brokerages upbeat on the stock

Apollo Tyres | Board approved issue of NCDs on private placement basis aggregating to Rs 1,000 crore. (Image: corporate.apollotyres.com)

A 30 percent jump in consolidated net profit of Rs 292 crore for the December quarter has kept analysts bullish on Apollo Tyres. The company's revenue from operations increased 13 percent to Rs 6,423 crore, as against Rs 5,707 crore a year back.

Apollo Tyre's EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin for the quarter stood at 14.2 percent, expanding 230 bps sequentially and 120 bps annually.

“Margin performance has been resilient owing to the company’s ability to take gradual price hikes. Softening commodity prices is expected to support margins going ahead,” brokerage firm JM Financial said.

As per the brokerage, domestic demand was led by momentum in the original equipment (OE) segment with a price hike in PCR (passenger car radial) segment also aiding performance.

On the Europe front, a better mix with share of UUHP (ultra high performing) tyres standing at 45 percent in the third quarter, coupled with price hikes and restriction on import of tyres from Russia helped performance in EU, the brokerage said.

Analysts at Elara Capital also see the EU EBIT margin improving despite challenging macro headwinds due to favourable product mix after the restructuring and pricing action.

“In Europe, APTY continued to gain market share and brand credibility in the UHP/UUHP PCR and TBR segments from new geographies and given supply disruption from Russia. Expect FY24/ FY25 standalone EBITDA margin of 13.6 percent/ 14.3 percent on operating leverage or price hikes,” Elara said. They have raised their price target to Rs 405 from Rs 350 earlier.

They added that moderation of capex in the upcoming years is a key positive and would lead to a positive FCF (free cash flow) of Rs 4,700 crore in FY23-25.

The company given capex guidance for FY23 stands at Rs 900 crore for FY23, while capex for nine months of FY23 stood at Rs 450 crore.

“Capex peaked during FY16-22 and the company has guided for reduced capex intensity from FY23. We estimate EPS CAGR of 41 percent over FY22-25, driven by healthy demand momentum and margin recovery. They also add softening commodity prices is expected to support margins going ahead and have raised their target price to Rs 380 per share from Rs 350 earlier," JM Financial said.