IGI Logo

Better pricing power drives performance; RM benefit an additional lever

During 1QFY23, Apollo Tyres reported consol. EBITDAM of 11.6% (-80bps YoY, +40bps QoQ), 100bps above JMFe, driven by resilient performance in EU business. Standalone EBITDAM stood at 9.7% (-70bps YoY, +30bps QoQ), c.50bps above JMFe. EBITDAM of EU operations remained resilient at 14.4%, despite high energy and RM inflation. In 1Q, domestic demand remained strong in OE/Export segments and witnessed recovery in replacement market. Management expects double-digit demand growth in FY23 led by steady domestic demand, exports and strong demand tailwind in EU PCR market due to import restrictions from Russia. Margin performance has been resilient owing to the company’s ability to take gradual price hikes. With the softening commodity prices going ahead, we expect margin recovery to sustainable levels during 2HFY23. Capex peaked during FY16-22 and the company has guided for reduced capex intensity from FY23. Focus on productivity improvement (by 10-15%) augurs well for the company. We estimate EPS CAGR of 53% over FY22-24E driven by positive demand momentum and margin recovery. We ascribe a 14x PE to arrive at Mar’23 TP of INR 315 (Maintain BUY). Weakness in domestic auto sales and easing of tyre import restriction are key risks

* 1QFY23 – better than expected margin performance: APTY reported standalone revenue of INR 44.4.bn (+38%YoY, +11% QoQ), c.4% above JMFe driven by mix of healthy volume and realisation growth. EBITDA for the quarter stood at INR 4.3bn (+29% YoY, +14%QoQ), 9% above JMFe. EBITDA margin stood at 9.7% (-70bps YoY, +30bps QoQ), 50bps above JMFe. YoY margin decline was due to RM and other costs (energy and logistics). At the consol. level, APTY reported revenue of INR 59.4bn (+30%YoY, +7%QoQ), 3% higher vs. JMFe, driven by better than expected volume growth for Standalone operations (+21%YoY). EBITDA margin stood at 11.6% (-80bps YoY, +40bps QoQ), 100bps above JMFe. Sequentially, margin improved due to lower employee expense (-60bps QoQ). Adj. consol. PAT stood at INR 1.9bn (+48% YoY, +68% QoQ), led by better operating performance

* India business: Domestic volume was 21% YoY (c.7.5% QoQ) in 1QFY23. OE/export demand was robust and replacement demand witnessed recovery (volume grew +13% YoY) led by PCR and TBR segment. In the OE segment, APTY won order for supplying tyres for new model of Maruti, M&M, Toyota, VW and Skoda. Management expects the near-term growth momentum to be subdued impacted by inflationary pressure and seasonality (primarily in CV tyres). However it has guided for full year growth of c.20% YoY in the replacement market during FY23.

* European business: In 1QFY23, the company's EU operations reported revenue of EUR 151mn (+32% YoY) driven by strong double-digit volume growth. The company undertook price hikes to the extent of 6-9% during the quarter (PCR, TBR and OHT). EBITDA margin stood at 14.4% (-100bps QoQ) impacted by RM and energy inflation. Share of UUHP tyres stood at 41% in 1QFY23 (37% in 1QFY22) which is a higher margin segment. European PCR tyre market is witnessing strong demand tailwind on account of Russia-Ukraine issue as imports of 8-10mn tyres from Russia remains restricted. APTY

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx About=7

SEBI Registration Number INZ000183631

Above views are of the author and not of the website kindly read disclaimer