Apollo tyres: An overview - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Apollo tyres: An overview

Oct 15, 2003

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.

Equitymaster requests your view! Post a comment on "Apollo tyres: An overview". Click here!


More Views on News

India's Top EV Battery Makers are set for Sky High Returns (Views On News)

Sep 30, 2021

These 5 leading EV battery makers are poised to transform India's EV ecosystem.

Amara Raja Batteries Dips 1% Even as Net Profit Doubles (Views On News)

Aug 16, 2021

The company's net profit doubled to Rs 1.2 bn on strong aftermarket demand across product segments.

MRF's Multifold Jump in Bottomline Doesn't Excite Investors (Views On News)

Aug 10, 2021

Here's a rundown on MRF's June quarter results.

Auto Components Maker Rolex Rings to Hit the Market on 28 July. Price Band Fixed at Rs 880-900 (Views On News)

Jul 26, 2021

Rolex Rings grey market premium is at around Rs 530 from its issue price of Rs 880-900.

5 Indian EV Battery Makers to Watch Out for (Views On News)

Jul 6, 2021

These companies are racing at warp-speed to make India the hub of EV battery manufacturing.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms