Apollo tyres: An overview - Views on News from Equitymaster

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

  • MyStocks

MEMBER'S LOGINX

     
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

Sorry! There are no related views on news for this company/sector.

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS