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Apollo Tyres 3QFY2014 performance highlights and results update

February 19, 2014, Wednesday, 10:13 GMT | 05:13 EST | 14:43 IST | 17:13 SGT
Contributed by Angel Broking

Strong results driven by international business: Apollo Tyres (APTY) posted better-than-expected results for 3QFY2014, led by strong operating performance in the international operations. Additionally, lower tax rate and higher other income too boosted the overall performance. The consolidated top-line grew 8.3% yoy to Rs.3,485cr, in-line with our estimate of Rs.3,447cr, driven by a strong revenue growth (33.4% yoy) in Europe. The growth in Europe was on the back of ~14% yoy growth in volumes and by ~20% due to the favorable exchange rate movement. Standalone operations too posted a 6.8% yoy growth in revenue, primarily led by an ~4% yoy growth in volumes. The consolidated EBITDA margin surprised positively with an expansion of 332bp yoy (204bp qoq) to 15.2%, ahead of our estimate of 12.2%, driven by outperformance in the international business which witnessed margin expansion of 466bp yoy to 19.7%. The adjusted bottom-line at Rs.327cr (ahead of our expectations Rs.195cr) was aided by EBITDA margin outperformance, higher other income and a significantly lower tax expense.

Outlook and valuation: The Management expects domestic OEM demand to remain subdued in the near term; however, replacement demand is expected to grow at a healthy rate of 6-8% going ahead. The company continues to see strong traction in Europe and expects profitability to remain strong led by the benign raw-material pricing environment. With the termination of Copper Tires deal, the Management has indicated that it is looking at organic growth opportunities and plans to set up new facilities in Eastern Europe and South Asia going ahead. Due to the strong operating performance during the quarter, we revise our earnings estimates upwards by 13-16% for FY2014E/15E. We recommend an Accumulate rating on the stock with a target price of Rs.134, valuing the company at 7.5x FY2015E earnings.