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1QFY2014 Result Update | Auto Ancillary

August 12, 2013

Apollo Tyres
Performance highlights
Y/E March (consolidated ` cr) 1QFY14 1QFY13 Net sales 3,190 3,165 EBITDA 393 352 EBITDA Margin (%) 12.3 11.1 Adjusted PAT 165 139
Source: Company, Angel Research

NEUTRAL
CMP Target Price
% chg (yoy) 4QFY13 0.8 3,038 11.9 356 123bp 11.7 19.0 123 % chg (qoq) 5.0 10.6 62bp 33.7

`62 -

Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Tyre 3,107 1,947 1.0 102/55 619,972 1 18,789 5,566 APLO.BO APTY@IN

Better-than-expected 1QFY2014 performance: Apollo Tyres (APTY) reported strong results for 1QFY2014, beating our estimates, driven by better-thanexpected operating performance led by softening of natural rubber prices. The consolidated top-line grew 0.8% yoy (5% qoq) to `3,190cr, slightly ahead of our estimate of `3,091cr. A strong revenue growth of 11% yoy in the European operations, aided primarily by volumes, contributed to the overall growth in the companys top-line even though the company faced pricing pressures. The standalone operations too reported a better-than-expected revenue growth of 0.7% yoy, as against our expectations of a decline of ~2%, led by volume growth of 3% yoy. On the operating front, EBITDA margins expanded 62bp sequentially (123bp yoy) to 12.3%, beating our estimates of 11.5%, and were driven primarily on account of softening of raw-material prices. The expansion of margins on a sequential basis surprised given that the company had reduced tyre prices in the domestic markets by 1-2% in 4QFY2013. Led by a strong operating performance, the net profit grew 19% yoy to `165cr, beating our expectations of `123cr. Standalone performance too beats estimates: The standalone top-line posted a better-than-expected growth of 0.6% yoy (6.3% qoq) to `2,165cr driven by ~3% growth in volumes despite a challenging environment. The Net average realization however, registered a decline of 2.4% yoy due to adverse product and price mix. While the EBITDA margin improved 144bp yoy on account of softening of natural rubber prices, it declined 35bp sequentially due to price cuts implemented in 4QFY2013. The Net profit stood at `94cr aided partially by a high other income. Outlook and valuation: We have tweaked our revenue and earnings estimates marginally to account for the demand pressures as guided by the Management and better-than-expected EBITDA margin performance during the quarter. Our revised EPS estimates for FY2014/15 stand at `13.1/ `15.4 respectively. We believe that the stock price movement of the company in the near term would be determined by the combined performance (post-acquisition) of APTY and Copper Tire and Rubber Company (CTB). According to the Management, the acquisition is set to close by October 2013. The proposed acquisition of US based CTB is expected to increase the companys leverage significantly and leaves limited room for error in execution in our view. We maintain our Neutral rating on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 43.4 14.9 26.7 15.0

Abs. (%) Sensex Apollo Tyres

3m (6.0)

1yr 6.8

3yr 3.6 (4.0)

(37.1) (22.4)

Key financials (Consolidated- excluding CTB)


Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2012 12,153 37.1 411 (4.3) 9.4 8.1 7.5 1.1 15.7 14.9 0.4 4.8

FY2013E 12,795 5.3 596 45.1 11.4 11.8 5.2 0.9 19.1 17.3 0.4 3.4

FY2014E 13,409 4.8 662 11.2 11.8 13.1 4.7 0.8 17.9 17.8 0.3 2.9

FY2015E 15,106 12.7 775 17.0 11.6 15.4 4.0 0.7 17.8 18.3 0.3 2.5

Yaresh Kothari
022-3935 7800 Ext: 6844 yareshb.kothari@angelbroking.com

Please refer to important disclosures at the end of this report

Apollo Tyres | 1QFY2014 Result Update

Exhibit 1: Quarterly financial performance (Consolidated)


Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Purchase of traded goods (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Share in profit/(loss of asso. Minority interest Reported PAT Adjusted PAT Adj. PATM Equity capital (cr) Reported EPS (`) Adjusted EPS (`)
Source: Company, Angel Research

1QFY14 3,190 1,708 53.5 393 12.3 170 5.3 525 16.5 2,796 393 12.3 72 99 11 234 234 7.3 68 29.0 (1) 0 165 165 5.2 50.4 3.3 3.3

1QFY13 3,165 1,777 56.2 388 12.3 179 5.7 468 14.8 2,813 352 11.1 75 94 10 193 193 6.1 54 28.0 (0) 0 139 139 4.4 50.4 2.7 2.7

% chg (yoy) 0.8 (3.9) 1.3 (5.1) 12.1 (0.6) 11.9 (3.6) 5.4 11.9 21.1 21.1 25.4

4QFY13 3,038 1,675 55.1 375 12.3 121 4.0 511 16.8 2,682 356 11.7 74 120 44 206 (17) 223 7.3 82 36.7 (1) 0

% chg (qoq) 5.0 2.0 4.9 40.3 2.8 4.3 10.6 (2.4) (17.7) (74.9) 13.5 4.9 (17.2)

FY2013 12,795 7,343 57.4 1,471 11.5 654 5.1 1,870 14.6 11,338 1,457 11.4 313 397 94 842 (17) 859 6.7 245 28.5 (0) 0

FY2012 12,153 7,379 60.7 1,335 11.0 658 5.4 1,615 13.3 10,987 1,166 9.6 287 326 33 586 29 556 4.6 144 25.9 (0) 0 412 441 3.6 50.4 8.2 8.8

% chg (yoy) 5.3 (0.5) 10.2 (0.6) 15.8 3.2 24.9 8.9 21.8 189.4 43.7 54.3 69.6

19.0 19.0

140 123 4.1 50.4

17.6 33.7

613 597 4.7 50.4

49.0 35.2

19.0 19.0

2.8 2.4

17.6 33.7

12.2 11.8

49.0 35.2

Exhibit 2: 1QFY2014 Actual vs Angel estimates


Y/E March (` cr) Net Sales EBITDA EBITDA margin (%) Adj. PAT
Source: Company, Angel Research

Actual 3,190 393 12.3 165

Estimates 3,091 355 11.5 145

Variation (%) 3.2 10.7 84bp 14.1

Top-line growth beats estimates: The consolidated top-line grew 0.8% yoy (5% qoq) to `3,190cr, slightly ahead of our estimate of `3,091cr. The growth was driven by a strong revenue growth of 11% yoy in the European operations aided primarily by volume growth of 6% yoy, even though the company faced pricing pressures. The standalone operations too reported a better-than-expected revenue growth of 0.7% yoy, as against our expectation of a decline of ~2%, led by volume growth of 3% yoy. South Africa operations reported a flattish performance in INR terms; however, revenue grew strongly by 13% yoy in local currency. The capacity utilization levels for the Indian operations remained stable on a yoy basis at ~75%. The Europe and South Africa operations operated at utilization levels of ~90% and ~80% respectively.

August 12, 2013

Apollo Tyres | 1QFY2014 Result Update

Exhibit 3: Top-line beats estimates


( ` cr) 3,500 3,400 3,300 3,200 3,100 3,000 2,900 2,800 2,700 2,600 2,500 55.0 47.3 36.3 18.4 12.1 Net sales % chg (%) 60.0 50.0 40.0 17.5 (0.3) (6.0) 0.8 30.0 20.0 10.0 0.0 (10.0)

Exhibit 4: Revenue-mix Geography-wise


( ` cr) 2,500 2,000 1,500 1,000 500 280 0 302 383 339 394 391 406 305 391 604 749 820 677 655 795 816 736 726 1,961 1,845 India 2,093 South Africa 2,283 2,259 2,157 Europe 2,036 2,061 2,173

2,822

2,871

3,228

3,231

3,165

3,375

3,217

3,038

3,190

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

Source: Company, Angel Research

1QFY14

Source: Company, Angel Research

Exhibit 5: Segmental performance


Y/E March Revenue (` cr) India SA Europe Others EBIT (` cr) India SA Europe Others EBIT margin (%) India SA Europe
Source: Company, Angel Research

1QFY14 2,173 391 726 19 203 19 89 (2) 9.3 4.7 12.2

1QFY13 2,157 394 655 51 172 5 93 1 8.0 1.4 14.2

% chg (yoy) 0.7 (0.8) 11.0 (63.6) 18.0 247.2 (4.5) (333.8)

4QFY13 2,061 305 736 35 215 (7) 86 (20) 10.4 (2.4) 11.6

% chg (qoq) 5.4 28.2 (1.4) (47.6) (5.8) (352.8) 3.9 (90.9)

FY2013 8,507 1,497 2,990 184 735 (1) 432 (8) 8.6 (0.1) 14.5

FY2012 8,158 1,305 2,850 105 499 (43) 386 1 6.1 (3.3) 13.6

% chg (yoy) 4.3 14.8 4.9 75.1 47.4 (96.8) 11.9 (690.1)

EBITDA margin expands on softening of commodity prices: On the operating front, the EBITDA margin expanded 62bp sequentially (123bp yoy) to 12.3%, beating our estimates of 11.5%, driven primarily by softening of raw-material prices. The expansion of margins on a sequential basis surprised positively given that the company had reduced tyre prices by 1-2% in 4QFY2013. At the standalone level, while the EBITDA margin improved 144bp yoy on account of softening of natural rubber prices, it declined 35bp sequentially due to price cuts implemented in 4QFY2013. In Europe, EBIT margins declined 200bp yoy to 12.2% largely on account of pricing pressures. South Africa operations on the other hand, staged a smart recovery posting EBIT margins of 4.7% (up 330bp yoy) led by volume growth and lower raw-material prices.

August 12, 2013

1QFY14

Apollo Tyres | 1QFY2014 Result Update

Exhibit 6: Average natural rubber price trend


( ` /kg) 250 200 150
98 102 142 119 165 177 195 225 229 211 203 191 193

Exhibit 7: EBITDA margin ahead of estimates at 12.3%


(%) 75.0 66.0 67.0 65.0
160 169

EBITDA margin 66.3 65.3

Raw-material cost/sales 61.8 66.2 62.5 59.1 58.9

181 174

55.0 45.0 35.0 25.0 8.2 8.3 10.3 11.2 11.1 10.9 11.9 11.7 12.3

100 50 0

15.0 5.0

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY10

3QFY10

1QFY11

3QFY11

1QFY12

3QFY12

1QFY13

3QFY13

Source: Company, Angel Research

1QFY14

Source: Company, Angel Research

Adjusted net profit ahead of estimates at `165cr: Led by a strong operating performance, the consolidated net profit grew robustly by 19% yoy (33.7% qoq) to `165cr, beating our expectations of `123cr.

Exhibit 8: Adjusted net profit at `166cr


(` cr) 200 180 160 140 120 100 80 60 40 20 0 Net profit 4.9 Net profit margin (RHS) 5.6 4.4 4.5 4.7 5.2 (%) 6.0 5.0 4.0 3.0 2.0

2.7

2.7

3.0

157

138

152

181

142

77

78

98

166 1QFY14

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

Source: Company, Angel Research

August 12, 2013

4QFY13

1QFY14

1.0 0.0

Apollo Tyres | 1QFY2014 Result Update

Exhibit 9: Quarterly financial performance (Standalone)


Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Purchase of traded goods (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT Adjusted PAT Adj. PATM Equity capital (cr) Reported EPS (`) Adjusted EPS (`)
Source: Company, Angel Research

1QFY14 2,165 1,428 66.0 115 5.3 64 3.0 304 14.0 1,911 254 11.7 63 59 8 139 139 6.4 46 32.8 94 94 4.3 50.4 1.9 1.9

1QFY13 2,152 1,505 69.9 109 5.1 64 3.0 252 11.7 1,931 222 10.3 62 55 5 110 110 5.1 35 31.5 75 75 3.5 50.4 1.5 1.5

% chg (yoy) 0.6 (5.1) 4.8 0.1 20.4 (1.0) 14.7 2.4 8.4 60.6 26.8 26.8 32.2 24.3 24.3

4QFY13 2,036 1,346 66.1 100 4.9 52 2.6 292 14.4 1,790 246 12.1 63 56 25 152 152 7.5 64 42.0 88 88 4.3 50.4

% chg (qoq) 6.3 6.1 14.7 23.3 3.8 6.7 3.3 0.7 6.7 (67.7) (8.5) (8.5) (28.5) 6.0 6.0

FY2013 8,507 5,860 68.9 427 5.0 254 3.0 1,069 12.6 7,609 898 10.6 261 220 57 475 475 5.6 162 34.1 313 313 3.7 50.4

FY2012 8,158 5,997 73.5 369 4.5 238 2.9 888 10.9 7,492 666 8.2 241 186 18 258 258 3.2 76 29.6 181 181 2.2 50.4 3.6 3.6

% chg (yoy) 4.3 (2.3) 15.8 6.5 20.4 1.6 34.8 8.2 18.5 215.4 84.3 84.3 112.6 72.4 72.4

24.3 24.3

1.8 1.8

6.0 6.0

6.2 6.2

72.4 72.4

Net sales down on 10% yoy decline in volumes: On a standalone basis, the topline posted a better-than-expected growth of 0.6% yoy (6.3% qoq) to `2,165cr led by ~3% growth in volumes despite a challenging environment. The Net average realization however registered a decline of 2.4% yoy due to adverse product and price mix. Effective March 15, 2013, APTY undertook an average price cut of 1-2% which weighed on the companys realization. During the quarter, the replacement market accounted for 65% of standalone revenues and the balance was contributed by the OEMs (27%) and exports (8%). In terms of product-mix, truck tyres accounted for 63% of revenues and passenger car tyres accounted for 16% of the revenues. According to the Management, the radialization levels in the truck tyre segment continue to gain traction and have reached ~25%. The companys market share in the TBR space stands at 27.5% as of FY2013. Further, the Management expects the raw-material prices to remain stable going forward; however, the INR depreciation is likely to keep EBITDA margin under pressure.

August 12, 2013

Apollo Tyres | 1QFY2014 Result Update

Exhibit 10: Top-line grows 0.6% yoy


(` cr) 2,500 2,000 1,500 1,000 74.9 56.9 46.2 28.2 9.8 23.7 (2.7) (9.9) 0.6 Net sales yoy change (RHS) (%) 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 (10.0) (20.0)

1,961

1,845

2,093

2,259

2,152

2,283

2,036

2,036

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

Source: Company, Angel Research

EBITDA margin at 11.7%: On the operating front, while the EBITDA margin improved 144bp yoy largely on account of softening of natural rubber prices, it declined 35bp sequentially due to price cuts implemented in 4QFY2013. The Net profit for the quarter stood at `94cr (up 24.3% yoy and 6% qoq), slightly ahead of our estimate of `91cr and was partially aided by higher other income (up 60.6% yoy).

Exhibit 11: Average raw-material cost trend


Particulars Natural rubber Nylon tyre cord fabric Carbon black
Source: Company, Angel Research

1QFY14 175 225 75

1QFY13 185 255 85

% chg (yoy) (5.4) (11.8) (11.8)

4QFY13 180 230 78

1QFY14

2,165

500

% chg (qoq) (2.8) (2.2) (3.8)

Exhibit 12: EBITDA margin improves to 12.1%


(%) 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 7.6 7.3 8.1 9.5 10.3 9.9 10.1 12.1 11.7 EBITDA margin 77.0 77.0 76.5 75.5 72.9 Raw material cost/sales 74.6 70.9 68.6 68.9

Exhibit 13: Net profit grows strongly


( ` cr) 100 90 80 70 60 50 40 30 20 10 0 Net profit Net profit margin (RHS) 4.3 3.2 2.3 1.2 2.0 3.5 3.3 3.6 4.3 (%) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

44

22

43

72

75

75

74

88 4QFY13

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

Source: Company, Angel Research

Source: Company, Angel Research

August 12, 2013

1QFY14

94

Apollo Tyres | 1QFY2014 Result Update

Investment arguments
Tyre industry set for a structural shift: Currently, manufacturing radial tyres is far more capital intensive than manufacturing cross-ply tyres. The investment required for radial tyres per tpd is 3.2x that of cross-ply tyres, at `6.1cr/tpd. On the other hand, the selling price of radial tyres is ~20% higher than that of cross-ply tyres. Thus, to generate a similar RoCE and RoE, tyre companies would need to earn EBITDA margin of ~21% compared to ~9% earned on cross-ply tyres, considering the difference in capital requirements and the consequent impact on asset turnover, interest cost and depreciation. Therefore, higher capital requirements will help protect margins from upward-bound input costs, as the business model evolves, bearing in mind final RoEs rather than margins. With the sector set for a structural shift and the apparent pricing flexibility, RoCE and RoE of tyre manufacturers are expected to improve going forward. Riding on high domestic demand: The Indian tyre industry is currently witnessing a slowdown in demand from the replacement as well as OEM markets, primarily due to macro-economic concerns. However the demand scenario in the long term remains encouraging which will aid APTY to operate at optimal capacities. CTB acquisition to remain an overhang in the near term: APTY and CTB have announced a definitive merger agreement, under which APTY will acquire CTB in an all cash transaction valuing the firm at US$2.5bn (including minority interest). The acquisition would be funded entirely through debt. While the acquisition appears to be a good strategic fit for APTY in the long run, concerns regarding the large size of acquisition, substantial increase in leverage and the Managements ability to successfully integrate the operations has led to an ~40% correction in APTYs stock price since the deal has been announced. According to the Management, post the consolidation, the consolidated net Debt: Equity is expected to jump sharply to ~2x from 0.6x currently. We believe that the execution would be the key thing going ahead, as successful execution will lend stability to the operations and lead to lower leverage over time. Additionally, sustainability of margins of CTB (EBITDA margins have been in the range of 7.5%-12.5% over the last three years) would be very important given the obligation of servicing the huge debt that the company would be undertaking.

Outlook and valuation


We have tweaked our revenue and earnings estimates marginally to account for the demand pressures as guided by the Management and better-than-expected EBITDA margin performance during the quarter. Our revised EPS estimates for FY2014/15 stand at `13.1/ `15.4 respectively.

August 12, 2013

Apollo Tyres | 1QFY2014 Result Update

Exhibit 14: Change in estimates


Y/E March (` cr) Net sales OPM (%) EPS (`) Earlier Estimates FY2014E 13,852 11.4 12.8 FY2015E 15,487 11.5 14.9 Revised Estimates FY2014E 13,409 11.8 13.1 FY2015E 15,106 11.6 15.4 % chg FY2014E (3.2) 36bp 2.3 FY2015E (2.5) 1bp 3.2

Source: Company, Angel Research

We believe that the stock price movement of the company in the near term would be determined by the combined performance (post-acquisition) of APTY and Copper Tire and Rubber Company (CTB). According to the Management, the acquisition is set to close by October 2013. The proposed acquisition of US based CTB is expected to increase the companys leverage significantly and leaves limited room for error in execution in our view. We have not yet incorporated the financials of CTB into our assumptions. We maintain our Neutral rating on the stock. Key downside risks to our call: A sharp rise in input costs from current levels, slower growth in international business and lower-than-anticipated domestic replacement demand pose downside risks to our estimates.

Exhibit 15: Angel vs consensus forecast


Angel estimates FY2014E Net sales (` cr) EPS (`) 13,409 13.1 FY2015E 15,106 15.4 Consensus FY2014E 13,654 13.3 FY2015E 14,940 15.2 Variation (%) FY2014E (1.8) (1.2) FY2015E 1.1 1.4

Source: Company, Angel Research

Exhibit 16: One-year forward P/E band


(`) 180 160 140 120 100 80 60 40 20 0 CMP (`) 2.0 5.0 8.0 11.0

Exhibit 17: One-year forward P/E chart


(x) 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 One-yr forward P/E Five-yr average P/E

Dec-09

Jan-07

Jun-08

Mar-09

Aug-10

Apr-06

Oct-07

Feb-12

Oct-12

Jul-05

Dec-07

Mar-04

Nov-08

Source: Company, Angel Research

Aug-12

Source: Company, Angel Research

August 12, 2013

May-11

Feb-05

Sep-11

Jan-06

Apr-03

Jan-07

Oct-09

Oct-10

Jul-13

Jul-13

Apollo Tyres | 1QFY2014 Result Update

Exhibit 18: One-year forward EV/EBITDA band


( ` cr) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 EV (`cr) 2.0 4.0 6.0 8.0

Exhibit 19: One-year forward EV/EBITDA chart


(x) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 One-yr forward EV/EBITDA Five-yr average EV/EBITDA

Dec-04

Dec-10

Apr-03

Oct-05

Apr-09

Nov-11

Feb-04

Feb-10

Sep-06

Jul-07

Sep-12

May-08

Jul-13

Sep-07

Jul-05

May-11

Jan-07

Jun-08

Mar-09

Nov-09

Aug-10

Apr-06

Jan-12

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 20: Auto Ancillary Recommendation summary


Company Apollo Tyres* Ceat JKI* Reco. Neutral Buy Buy CMP (`) 62 122 92 Tgt. price (`) 170 154 Upside (%) 39.5 67.7 P/E (x) FY14E 4.7 2.8 2.4 FY15E 4.0 2.5 2.1 EV/EBITDA (x) FY14E 2.9 2.1 4.0 FY15E 2.5 1.8 3.8 RoE (%) FY14E 17.9 18.4 16.4 FY15E 17.8 17.5 16.6 FY13-15E EPS CAGR (%) 14.0 17.6 4.4

Source: Company, Angel Research; Note: *Consolidated

Company background
Apollo Tyres (APTY) is India's second largest tyre manufacturer with an overall tyre market share of ~18%. The company has a leadership position in the heavy and light commercial vehicle tyre segments, with a 23% and 26% market share respectively. APTY acquired Dunlop's South African operations in 2006 and Vredestein Branden BV (Netherlands) in May 2009. These acquisitions now account for ~35% of APTY's consolidated revenue. The company has eight manufacturing plants located across India (1,400TPD), South Africa (175TPD) and Europe (170TPD), with a total installed capacity of 1,750TPD. APTY's main brands include Apollo (India); Dunlop (South Africa); and Maloya, Regal and Vredestein (Europe). The company has recently entered into an agreement to acquire US based tyre manufacturer, CTB in an all cash transaction valuing the firm at US$2.5bn (including minority interest). Post the acquisition; the combined entity will be the 7th largest tyre company in the world with combined revenues of US$6.6bn.

August 12, 2013

Oct-12

Jul-13

Apollo Tyres | 1QFY2014 Result Update

Profit and loss statement (Consolidated- excluding CTB)


Y/E March (` cr) Total operating income % chg Total expenditure Net raw material costs Other mfg costs Employee expenses Other EBITDA % chg (% of total op. income) Depreciation & amortization EBIT % chg (% of total op. income) Interest and other charges Other income Recurring PBT % chg Extraordinary items PBT (reported) Tax (% of PBT) PAT (reported) Minority interest PAT (reported) ADJ. PAT % chg (% of total op. income) Basic EPS (`) Adj. EPS (`) % chg FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E 8,121 62.6 6,936 4,581 539 1,088 727 1,185 180.7 14.6 254 931 216.9 11.5 134 177 973 357.3 59 914 261 28.5 653 0 653 594 325.3 7.3 13.0 11.8 325.3 8,868 9.2 7,895 5,322 629 1,134 810 972 (18.0) 11.0 272 700 (24.8) 7.9 204 62 558 (42.6) 11 547 106 19.4 441 1 440 429 (27.8) 4.8 8.7 8.5 (27.8) 12,153 37.1 11,007 8,037 746 1,335 889 1,146 17.9 9.4 326 821 17.2 6.8 297 32 556 (0.5) (1) 556 144 25.9 412 2 410 411 (4.3) 3.4 8.1 8.1 (4.3) 12,795 5.3 11,338 7,997 910 1,471 960 1,457 27.1 11.4 397 1,060 29.2 8.3 313 94 842 51.5 (17) 859 245 28.5 614 1 613 596 45.1 4.7 12.2 11.8 45.1 13,409 4.8 11,827 8,247 979 1,582 1,019 1,582 8.6 11.8 411 1,172 10.5 8.7 292 55 934 11.0 934 271 29.0 663 1 662 662 11.2 4.9 13.1 13.1 11.2 15,106 12.7 13,361 9,366 1,110 1,782 1,103 1,745 10.3 11.6 430 1,315 12.2 8.7 282 61 1,093 17.0 1,093 317 29.0 776 1 775 775 17.0 5.1 15.4 15.4 17.0

August 12, 2013

10

Apollo Tyres | 1QFY2014 Result Update

Balance sheet statement (Consolidated- excluding CTB)


Y/E March (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders Funds Minority Interest Total loans Deferred tax liability Other long term liabilities Long term provisions Total Liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net Block Capital work-in-progress Goodwill Investments Long term loans and advances Other noncurrent assets Current assets Cash Loans & advances Other Current liabilities Net current assets Total Assets 5,563 3,120 2,443 536 118 6 2,439 349 310 1,780 1,614 824 3,926 6,895 3,501 3,394 358 125 11 264 3,154 191 258 2,705 2,227 928 5,079 8,034 4,011 4,024 331 134 16 221 3,667 173 349 3,145 2,467 1,200 5,925 8,545 4,407 4,138 352 144 55 181 3,657 335 301 3,022 2,214 1,444 6,312 8,929 4,818 4,112 367 144 109 181 4,257 594 402 3,261 2,305 1,952 6,865 9,342 5,248 4,095 384 144 109 181 5,051 707 453 3,891 2,483 2,567 7,480 50 1,917 1,968 1,707 251 3,926 50 2,362 2,413 1 2,222 316 21 107 5,079 50 2,782 2,833 1 2,550 403 45 94 5,925 50 3,350 3,401 2,282 493 27 109 6,312 50 3,953 4,004 2,232 493 27 109 6,865 50 4,669 4,719 2,132 493 27 109 7,480 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

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Apollo Tyres | 1QFY2014 Result Update

Cash flow statement (Consolidated- excluding CTB)


Y/E March (` cr) Profit before tax Depreciation Change in working capital Others Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec. in fixed assets (Inc.)/Dec. in investments Other income Cash Flow from Investing Issue of equity Inc./(Dec.) in loans Dividend paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in cash Opening Cash balances Closing Cash balances FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E 973 254 (115) 637 (177) (261) 1,312 (3,627) (1) 177 (3,452) 816 44 1,266 2,126 (13) 362 349 558 272 (261) 16 (62) (106) 416 (1,161) (5) 62 (1,105) 515 29 (14) 530 (158) 349 191 556 326 (291) 345 (32) (144) 759 (1,121) (5) 32 (1,094) 328 29 (59) 299 (18) 191 173 842 397 (81) 114 (94) (245) 932 (531) (39) 94 (476) (268) 29 (297) 162 173 335 934 411 (281) (55) (271) 738 (400) (55) 55 (400) (50) 29 (79) 259 335 594 1,093 430 (533) (61) (317) 612 (430) 61 (369) (100) 29 (129) 113 594 707

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Apollo Tyres | 1QFY2014 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV /Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.7 1.1 6.9 0.8 2.1 3.4 0.8 2.1 2.8 0.6 1.3 3.4 0.4 1.0 4.0 0.3 0.8 4.7 2.1 36 23 41 19 1.4 57 36 65 25 1.6 56 31 59 26 1.5 57 30 49 30 1.5 57 32 48 34 1.7 61 33 46 39 29.3 26.0 35.8 15.6 14.3 19.6 14.9 14.3 15.7 17.3 17.7 19.1 17.8 18.7 17.9 18.3 19.4 17.8 11.5 0.7 2.9 23.6 7.4 0.6 32.7 7.9 0.8 2.1 13.3 8.4 0.8 17.1 6.8 0.7 2.3 11.4 9.2 0.8 13.3 8.3 0.7 2.2 12.9 9.3 0.7 15.4 8.7 0.7 2.2 13.6 9.2 0.5 15.6 8.7 0.7 2.3 14.3 9.2 0.3 16.0 13.0 11.8 16.8 0.7 39.0 8.7 8.5 13.9 0.5 47.9 8.1 8.1 14.6 0.5 56.2 12.2 11.8 20.0 0.5 67.5 13.1 13.1 21.3 0.5 79.4 15.4 15.4 23.9 0.5 93.6 4.8 3.7 1.6 1.2 0.5 3.8 1.1 7.1 4.4 1.3 0.8 0.6 5.3 1.0 7.5 4.2 1.1 0.8 0.4 4.8 0.9 5.2 3.1 0.9 0.8 0.4 3.4 0.8 4.7 2.9 0.8 0.8 0.3 2.9 0.7 4.0 2.6 0.7 0.8 0.3 2.5 0.6 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

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Apollo Tyres | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Apollo Tyres No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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