1 November 2021
2QFY22 Results Update | Sector: Automobile
Apollo Tyres
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
APTY IN
635
140.1 / 1.9
261 / 139
-4/-22/6
1825
CMP: INR221
TP: INR280 (+27%)
Buy
Strong revenue growth dilutes cost inflation
Need 3–5% price hike to offset cost inflation; EU ops on strong footing
Apollo Tyres (APTY)’s 2QFY22 operating performance was in-line, supported
by volume recovery and price hikes. Demand recovery as well as consistent
price hikes would drive margin recovery in India. EU profitability is expected
to sustain, driven by operational restructuring.
We cut our FY22E consol. EPS by ~20%, factoring in RM cost inflation, but
we largely maintain our FY23 estimates. We maintain a
Buy
rating.
Consolidated performance:
Revenue grew 18% YoY (11% QoQ) to INR50.8b
(v/s est. INR48.7b). EBITDA declined 10% YoY (+13% QoQ) to INR6.4b (v/s
est. INR6.6b). Adj PAT grew 37% YoY/QoQ to INR 1.77b (v/s est. INR1.8b).
Standalone
revenue growth was strong at 25% YoY (13% QoQ) to INR36.5b
(v/s INR33.8b), driven by 13% volume growth.
The gross margin declined 160bp QoQ (9.7pp YoY) to 32.6% (v/s est. 35%),
impacted by higher-than-estimated cost inflation. The EBITDA margin
declined 8.6pp YoY (-10bp QoQ) to 10.3% (v/s est. 11.7%). Adj PAT declined
59% YoY (31% QoQ) to INR900m (v/s est. INR1b).
Revenues for Europe operations
grew 6% YoY (+21% QoQ) to EUR138m (in-
line), driven by 4% YoY volume growth. The EBITDA margin expanded
830bps YoY (+130bp QoQ) to 17.6% (v/s est. 16.5%), driven by the mix.
India demand:
Strong demand momentum is seen across key
segments/channels, and demand from Truck and Bus (T&B) OEMs is also
showing signs of recovery. Truck-Bus Bias (TBB) is growing faster than
Truck-Bus Radial (TBR) in the Replacement category on account of lower
costs; however, TBR should also pick up on the back of growth in OEMs.
RM cost inflation:
It stood at 5% QoQ in 2QFY22; smaller inflation is
expected in 3QFY22.
Pricing action:
It took a price increase of 3–7% in 2QFY22 (3–4% in 1QFY22)
and another 3–5% over Oct–Nov’21. It would need another 3–5% price hike
to offset the cost inflation to date. The pricing environment is conducive,
and the management is confident of passing on the cost inflation gradually.
EU demand outlook:
Healthy demand momentum would continue with an
increase in premiumization. It gained market share in the TBR and Off-
Highway Tyres (OHT) segments as well as across segments.
Capex
for FY22 remains unchanged at INR20b at the consol. level (INR11b
complete up to 1HFY22), with no change in the guidance.
Net debt stood at INR50b (v/s INR48b in 1QFY22) on higher inventory.
APTY offers the best blend of earnings growth and cheap valuations. The
stock trades at 15.4x/9.7x FY22E/FY23E consolidated EPS. We maintain BUY,
with TP of INR280 (~12x Sep’23E consol. EPS).
Financials & valuations (INR b)
Y/E March
FY21 FY22E
Sales
172.8 206.7
EBITDA
26.8
27.1
Adj. PAT
6.6
8.2
EPS (Rs)
11.5
14.4
EPS Growth (%)
38.1
24.8
BV/Share (Rs)
200.0 210.3
Ratios
RoE (%)
6.2
7.0
RoCE (%)
5.4
6.3
Payout (%)
57.2
28.0
Valuations
P/E (x)
19.2
15.4
P/BV (x)
1.1
1.0
Div. Yield (%)
1.6
1.8
FCF Yield (%)
10.2
11.8
Shareholding pattern (%)
As On
Sep-21 Jun-21
Promoter
37.3
37.6
DII
19.6
17.2
FII
20.5
22.9
Others
22.6
22.3
FII Includes depository receipts
Raw material cost inflation hurts margins
FY23E
233.6
35.1
13.0
22.7
58.0
228.5
10.3
8.6
19.8
9.7
1.0
2.0
12.7
Highlights from management commentary
Sep-20
41.8
17.4
20.0
20.9
Valuation and view
Jinesh Gandhi – Research Analyst
(Jinesh@MotilalOswal.com)
Research Analyst: Vipul Agrawal
(Vipul.Agrawal@MotilalOswal.com) /
Aniket Desai
(Aniket.Desai@motilaloswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
3 September 2019
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