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Apollo Tyres Ltd>
  • CMP : 278.7 Chg : 7.95 (2.94%)
  • Target : 290.0 (16.0%)
  • Target Period : 12-18 Month

17 Aug 2022

Healthy performance, capital efficiency focus retained

About The Stock

Apollo Tyres (ATL) is a leading tyre manufacturer, with operations in India & Europe with an installed capacity of ~7.9 lakh MT p.a. In India, ATL has substantial presence in TBR (31% market share) & PCR space (21% market share)

  • Derives ~67% revenues from APMEA (largely India), ~32% from Europe
  • FY22 segment mix: Truck/bus ~43%, PV ~35%, OHT ~10%, others ~12%

The company posted healthy operational performance

  • Total consolidated operating income was up 6.5% QoQ to ₹5,942 crores
  • EBITDA came at ₹690 crores with margins up 40 bps QoQ to 11.6%
  • Consolidated PAT at ₹191 crores was up 68% QoQ
What should Investors do?

ATL’s stock price has remained largely flat from ~₹ 257 levels in August 2017, underperforming Nifty Auto Index in that time.  

  • We retain our BUY rating on ATL amidst strong intent on sweating of assets, controlled capex spends and return ratios focus for the business
Target Price and Valuation

Upgrading our estimates, we now value ATL at a target price of ₹290 i.e., 6x FY24E EV/EBITDA (previous target price: ₹ 250).

Key Triggers for future price performance
  • CV cyclical upswing, high radialisation levels, uptick in PV space, network expansion & healthy PV recovery in Europe to be major top line drivers. We expect consolidated sales to grow at a CAGR of 11.4% FY22-24E.
  • With calibrated capex, debottlenecking of existing facilities & focus on capital efficiency RoE, RoCE is seen at 9.7%, 10.8% by FY24 respectively   
  • Benign commodity price outlook amid recent cool off in crude prices along with operational efficiencies to result in 13.5% EBITDA margins by FY24E
  • Healthy FCF generation to substantially reduce debt on B/S over FY23-24E
Alternate Stock Ideas

Apart from ATL, in our auto OEM coverage, we like M&M.

  • Focused on prudent capital allocation, UV differentiation & EV proactiveness


  • BUY with target price of ₹1,550

Key Financial Summary

Key Financials FY19 FY20 FY21 FY22 5 year CAGR (FY17-22) FY23E FY24E 2 year CAGR (FY22-24E)
Net Sales 17,548.8 16,327.0 17,344.0 20,947.6 9.7 24,426.0 25,988.6 11.4
EBITDA 1,958.9 1,915.6 2,744.5 2,574.1 6.9 2,896.0 3,512.2 16.8
EBITDA Margins (%) 11.2 11.7 15.8 12.3 - 11.9 13.5 -
Net Profit 680.0 476.4 350.2 638.6 -10.3 814.5 1,268.3 40.9
EPS (₹) 11.9 8.3 5.5 10.1 - 12.8 20.0 -
P/E 21.0 30.0 45.3 24.9 - 19.5 12.5 -
RoNW (%) 6.8 4.8 3.1 5.4 - 6.6 9.7 -
RoCE (%) 7.3 4.5 7.6 6.3 - 7.7 10.8 -
- - - - - - - - -
Source: Company, ICICI Direct Research

Key takeaways of the recent quarter & Concall highlights

Q1FY23 Results:

  • Among geographies, APMEA i.e. largely India revenues grew 10.8% QoQ to ₹4,460 crores while Europe de-grew 4.8% QoQ at ₹1,604 crores.
  • Gross margin was flat QoQ whereas employee cost was down 58 bps QoQ leading to healthy margins for the quarter.
  • EBITDA margins on standalone basis stood at 9.7% (up 30 bps QoQ) supported by decrease in employee cost and other expense down 30 bps & 90 bps QoQ respectively partially offset by gross margin decline (down ~96 bps QoQ). On the standalone basis, company realised healthy operating leverage gains amidst adverse RM price movement

Q1FY23 Earnings Conference Call highlights

  • Capacity utilization for Q1FY23 stood as: India 81%; Europe 88% vs ~84% & 85% for Indian and European operations respectively for Q4FY22
  • Company remains optimistic about demand outlook over medium to long term specially in PV space in European region whereas, demand in Indian CV space remained sluggish due to muted OEM sales. Management expects demand in Q2FY22 to be sluggish given the seasonality with monsoon effecting demand in the replacement segment. However, pickup is expected from CV OEMs in H2FY23 amidst greater infra spend by government.
  • Net debt to EBITDA stood at 1.9x as of Q1FY23 vs ~1.8x in FY22 largely due to increase in working capital borrowing in Indian operations and stocking up of tyres for winter season in European region.
  • Going forward management expects low single digit rise in commodity cost and eventually cooling of post attainment of peak. Company has passed commodity related hike to its customers in Indian operations whereas European operation continued to be effected from energy cost related inflation.
  • During Q1FY23 company took up to ~8% hike in TBR segment (replacement) & ~3% in other segment in Indian operations. In European operations company took ~9% hike in PV segment. Further hikes to extend of 3-4% are planned in Q2FY23.
  • Company has successfully developed tyres for E2W & electric PV and are in discussion with OEMs for the same. Further during the quarter company added key models of M&M, Maruti Suzuki, VW, Skoda as clients
  • Capex for Q1FY23 was ~₹125 crores with management planning to increase 10-15% productivity through debottlenecking & AI learning techniques. On consolidated basis company would incur ~₹1,100 crore capex for FY23.
  • Peak revenue generation capability with 100% capacity utilization is pegged at ~₹25,000-26,000 crores on consolidated basis 

  • Volume growth (YoY) in TBR segment was ~30% & for pass cars was ~35% (on YoY basis)



I/We, Shashank Kanodia, CFA, MBA (Capital Markets), and Raghvendra Goyal, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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