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Apollo Tyres: Back into the fast lane - Views on News from Equitymaster
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Apollo Tyres: Back into the fast lane
Feb 4, 2010

Performance summary
  • Standalone topline grows by a robust 47% YoY during 3QFY10 led primarily by a growth in volumes
  • Operating margins see significant expansion, go from 5.8% in 3QFY09 to 15.5% in 3QFY10
  • Net profits zoom 1,752% YoY during the quarter owing to the expansion in margins as well as a lower growth in depreciation charges and interests costs as compared to the topline


Financial performance snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Sales 9,033 13,233 46.5% 29,599 37,238 25.8%
Expenditure 8,506 11,183 31.5% 27,478 31,246 13.7%
Operating profit (EBDITA) 527 2,050 289.3% 2,121 5,992 182.5%
Operating profit margin (%) 5.8% 15.5%   7.2% 16.1%  
Other income 9 4 -58.2% 33 24 -28.3%
Interest 181 211 16.6% 478 539 12.9%
Depreciation 241 293 21.5% 706 933 32.2%
Profit before tax 114 1,550 1263.1% 970 4,543 368.2%
Tax 59 529 803.3% 351 1,555 342.8%
Extraordinary gain/(loss) - -   - -  
Profit after tax/(loss) 55 1,020 1752.4% 619 2,988 382.5%
Net profit margin (%) 0.6% 7.7%   2.1% 8.0%  
No. of shares       504.1 504.1  
Diluted earnings per share (Rs)*         6.8  
P/E ratio (x)*         8.2  
* On a trailing 12 months earnings

What has driven performance in 3QFY10?
  • The 47% YoY growth in Apollo’s net sales during 3QFY10 was a result of a the good volume growth that the company saw during the quarter. Another contributing factor for the better growth seen was truck tyre OEM sales during the quarter which were riding high on the back of the buoyancy in commercial vehicle sales in the domestic market. The sales mix for the company remained roughly the same as its traditional levels with 70% coming from replacement demand, and another 21% and 9% coming from the OEM and export markets respectively.

  • The operating margins of the company saw a magnificent jump from 5.8% in 3QFY09 to 15.5% in 3QFY10. The biggest reason for this was raw material costs which were exceptionally high during the same quarter last year, and have seen a big drop compared to those levels. Thus the raw material costs as a percentage sales fell significantly for the company.

  • On the back of the expansion in operating margins, and a slower growth in interest costs and depreciation charges as compared to the topline growth, Apollo’s net profits grew 1,752% YoY during 3QFY10. However, it must be noted that the figure looks unusually large due to the low base in comparable previous year when the company profits were impacted by unusually large spike in raw material costs.

  • On a consolidated basis, Apollo’s topline and bottomline grew at a pace of 108% YoY and 2000% YoY. However, it should be noted that the consolidated figures also include the performance of Vredestein Banden BV, the Dutch tyre manufacturing company acquired by Apollo on the 15th of May 2009. Hence the consolidated figures are not strictly comparable on a year on year basis.

What to expect?
At the current price of Rs 56, the stock is trading at a multiple of 11.4 times our expected FY12 standalone earnings. The company has already achieved in nine months what we have projected for it for the full year FY10 in terms of earnings. However, since our target price is based on FY12 estimates, it is not likely to have a significant impact. We would like to wait for a couple of quarters more before we undertake any meaningful upgrade. We maintain our positive view on the stock.

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