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Apollo Tyres share price today: Kotak Maintains REDUCE rating with a revised Fair Value of Rs 210
Kotak highlights that Apollo Tyres Standalone revenues came in at Rs 34.2 bn (+24% yoy) mostly led by strong growth across segments in Q3 FY21. Adjusted standalone EBITDA margin came in at 18.7% (+570 bps yoy, -10 bps qoq), 190 bps above our estimates due to better-than-expected gross margins on account of a better product mix and benefit of low-cost inventory at the beginning of the quarter.
Kotak highlights that Apollo Tyres Standalone revenues came in at Rs 34.2 bn (+24% yoy) mostly led by strong growth across segments in Q3 FY21. Adjusted standalone EBITDA margin came in at 18.7% (+570 bps yoy, -10 bps qoq), 190 bps above our estimates due to better-than-expected gross margins on account of a better product mix and benefit of low-cost inventory at the beginning of the quarter. The current market price of Apollo Tyres is Rs 240.
Kotak would like to note that Q2 FY21 financials have been restated as the company took an exceptional loss of EUR 69 mn owing to specialization of European plants (EUR 54 mn related to employee benefits). Low return ratios of the business restrict re-rating of Apollo Tyres. The current market price of Apollo Tyres is Rs 240.
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Apollo Tyres reported a consolidated EBITDA of Rs 9.9 bn (+85% yoy), 35% above our estimates led by:
(1) better-than-expected revenue print
(2) better-than-expected gross margins due to low-cost inventory at the start of the quarter and a better product mix
(3) cost savings due to restructuring of the European business
(4) one-time positive impact of Rs1.2 bn due to SIPCOT subsidy received cumulatively from FY2018 onwards in Q3 FY21.
Adjusted for that, consolidated EBITDA of Apollo Tyres was 19% above Kotak’s estimates:
Kotak says Consolidated revenues were Rs 51.5 bn (+17% yoy), 11% higher than our estimates largely due to outperformance in Indian operations. India revenues increased by 24% yoy (20% yoy after adjusting for one-time positive impact) and European geography revenues increased by 8% yoy (in Rs terms) mostly due to the benefit of EUR appreciation against Rs in Q3 FY21.
Key takeaways from the conference call:
Apollo Tyres CAPEX intensity to come down over the next few years:
Kotak says Apollo Tyres plans to incur Rs 16 bn in FY2022E in India towards greenfield capacity in Andhra Pradesh and maintenance capex. Total capacity in Andhra Pradesh would be 15,000 tires per day in PCR segment and 3,000 truck tires per day, which will be completed in two phases. Apollo Tyres may incur additional capex (marginal) in FY2022E if demand trend continues to remain strong. For Europe business, the company will incur annual capex (mostly maintenance capex) of EUR 25-30 mn in FY2021E. Apollo Tyres will mostly incur maintenance capex during FY2023E and FY2024E.
Apollo Tyres Strong demand trends in replacement segment:
Apollo Tyres Standalone volumes increased by 19% yoy in Q3 FY21 led by:
(1) 24% yoy growth in PCR segment (OEM segment has performed better than replacement segment)
(2) 17% yoy growth in truck segment (+30% yoy growth in TBR segment and +5% yoy growth in TBB segment).
Apollo Tyres Key Risks:
Sharekhan says Apollo Tyres derives about 30% of its revenue from European operations, which exposes it to currency risks. Any adverse movement in the INR-Euro pair would affect financial performance.
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