Oct 15, 2003|
Apollo tyres: An overview
Apollo Tyres is one of India’s leading manufacturers of tyres with a strong presence in the commercial vehicle OEM segment (as a supplier to Telco and the like). It has market leadership in the truck tyre replacement segment. The company also supplies to car and tractor OEM majors (original equipment).
Let us have a look at the company’s recent performance and try and study its future prospects.
The company has shown a continuous improvement in its performance in the past three years. In fact in FY03, it recorded an all time high sales of Rs 20 bn, registering a growth of 18.5% over the previous year. Similarly, net profits of the company jumped 226%, mainly on the back of reduced interest expenses and improved working capital management.
The robust growth in the company’s topline was driven by an increase in truck and bus tyre volumes. Given the growth in the construction sector that eventually led to increased movement of cement, steel and other raw materials, commercial vehicle sales increased by 31% in FY03. This benefited Apollo Tyres in a large way.
Going forward, with the auto sector expected to mirror GDP growth in the long term, to meet high demand, the company is expanding capacity. Already, it has invested over Rs 1 bn in its two plants in Kerala for the purpose of capacity expansion and modernization and another Rs 500 m would be invested in the current year. The company’s new radial truck tyre unit will be operational by April next year. Since higher tonnage vehicle sales is expected to increase in the CV sector in the long term in line with the global trend, the use of radials in these vehicles is imperative. This could boost volume growth of the company.
Also, sops announced for the industry in recent times by way of reduced excise duty on tyres for replacement market and reduction in customs duty on carbon black feedstock (an important raw material) are also likely to help in the growth of the industry. However, instability in the prices of its raw materials remains a cause of concern for the company. While rubber prices have risen sharply in the past few months, the prices of other raw materials such as nylon cord and synthetic rubber (these raw materials are petroleum based) move in tandem with international crude prices and hence are subject to cyclicality. The margins of the company thus stand affected, as any increased in cost cannot be passed on to the consumers as this might affect demand.
The stock of the company is currently trading at Rs 206 implying a P/E multiple of 9.4x annualised 1QFY04 earnings. Valuations seem to be on the higher side for an auto ancillary player considering the high dependence on the performance of the auto sector. However, it has to be borne in mind that the company has set itself an ambitious revenue target of Rs 50 bn by FY05 and a gross profit margin of 10% in the same period. Whether or not the company succeeds in its endeavor remains to be seen.
More Views on News
Mar 1, 2017
Atul Auto has reported a 11.2% YoY decline in the topline while the bottomline has declined by 23% YoY.
Oct 4, 2016
Equitymaster analyses Initial Public Offering (IPO) of Endurance Technologies Limited
Sep 14, 2016
Should you subscribe to GNA Axle IPO?
Jan 27, 2016
Precision Camshafts Ltd (PCL) is one of the world's leading manufacturer and supplier of camshafts, a critical engine component, in the passenger vehicle segment.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 4, 2017
The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407