Apollo Tyres – Robust Growth Trend

We rate Apollo Tyres a BUY. Headquartered in Gurgaon, it is a leading Indian tyre manufacturer with 3 manufacturing units in India, 4 in South Africa, 1 in the Netherlands and a greenfield facility currently underway in Chennai, taking current production capacity to around 1,200 metric tonnes per day. Produces automotive tyres for ultra and high speed passenger cars, truck & bus, farm, off-the road, industrial & specialty applications like mining, retreaded tyres. Exports to over 70 countries from India, South Africa and Europe under brands like Apollo, Vredestein and Dunlop with India accounting for ~70% of revenues. During Q2 2010, standalone net sales increased by 24% y-o-y to INR12,203 million. Standalone PAT at INR1,021 million recorded growth of 1311% over Q2 2009.

Investment Highlights

Leadership in commercial vehicles segment. Apollo’s leadership position in the commercial vehicle segment enables it to leverage new and related business opportunities. It has already started leveraging these opportunities with new product segments like Truck/Bus Radial (TBR), Off-The-Road (OTR) tyres, retreading and allied automotive services. Growth within India also supports its aim to be a leader in the global industry and partake in overseas markets like Europe.

Inorganic growth. Apollo is growing with acquisitions in international markets. In May 2009, it acquired Vredestein Banden in the Netherlands which has a high end passenger car tyre manufacturing facility and extensive access to the European market. In April 2006, it acquired Dunlop Tyres International (since renamed Apollo Tyres South Africa Pty Ltd), comprising three tyre manufacturing units and a retreading plant in Southern Africa. It holds brand rights for the Dunlop brand across 30 African countries.

Diversification benefits. Apollo plans to extend its leadership beyond commercial vehicle tyres to other segments. It announced a passenger car radial greenfield project in Chennai to cater to small car tyre segment, which will enhance its participation in this sector. It finalized an agreement with BEML for producing and supplying OTR tyres to them. Apollo successfully launched Regal truck and bus radial tyres (TBR) last year and is now moving towards expanding its TBR capacity to meet increasing radialisation levels in this segment.

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