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Demand recovery / Profitability focus to drive performance

During 4QFY24, Apollo Tyres reported consol. adj. EBITDAM of 17.5%, in-line with JMFe. EPR liability related cost had an impact of 110bps on consol. margins. Domestic replacement demand has started picking-up from Apr’24. And, overall replacement demand is expected to grow by high single-digit / double-digit during FY25. Demand in the International markets has also started to recover, albeit gradually. Pricing environment in domestic replacement market is largely stable. Recent price hike (3% in May’24) is expected to partially mitigate the impact of increase in RM basket and EPR liability. Focus on favourable mix and tight cost control is expected to support margin performance. Capex intensity is expected to be low in the medium-term. We have marginally tweaked our FY25/26 estimates to adjust for higher than expected tax rate. Consistent focus on driving profitable growth, deleveraging and improving ROCE is expected to support the stock performance. Maintain BUY and ascribe a 15x PE to arrive at Mar’25 TP of INR 550.

* 4QFY24 – Muted performance:

APTY reported standalone revenue of INR 43.8bn (flattish YoY, +1% QoQ), broadly in-line with JMFe. EBITDA for the quarter stood at INR 6.8bn (- 2% YoY, -13%QoQ). EBITDA margin stood at 15.6% (-30bps YoY, -250bps QoQ). EPR liability had an impact of 160bps on standalone margins. Adj EBITDA margin stood at 17.2% (+130bps, -90bps), 30bps below JMFe. YoY margin improvement was led by lower RM costs. At the consol. level, APTY reported revenue of INR 62.5bn (flattish YoY, - 5% QoQ) 2% below JMFe. Consol. EBITDAM (ex. of EPR liability impact of 110bps) stood at 17.5% (+150bps YoY, -80bps QoQ), broadly in-line with JMFe. Adj. consol. PAT stood at INR 3.9bn (-3.5% YoY, -24% QoQ), c.14% below JMFe due to higher tax expenses.

* India business:

Domestic volumes were flattish on YoY basis during 4Q. Replacement and exports segments grew by 4% / 30%+ on YoY basis. However, OEM volumes declined by 10% YoY. APTY’s market share in PCR segment remains stable. However, its TBR market share has declined slightly over last few quarters owing to its focus on driving profitable growth. The management indicated that domestic replacement demand has bounced back with double-digit vol. growth for TBR and PCR segment in Apr’24. Farm segment has also started to recover. Overall the company expects CV / PV replacement demand to grow by high single-digit / double-digit in FY25. Pricing environment largely remained stable With respect to international markets, the company indicated that demand has started recovering in markets like MEA, Africa and US and it expects exports segment to grow in double-digit during FY25.

* European business:

In 4QFY24, the company's EU operations reported revenue of EUR 182mn (+3% YoY & QoQ). PCR tyre industry vols. were flat YoY in EU. However, all season tyres continued to outperform with double-digit YoY growth. APTY gained market share in EU across segments (PCR, TBR and Agri). EBITDA margin stood at 19.1% (+100bps YoY) led by lower RM costs & favourable mix. Share of UUHP tyres stood at 47% in 4QFY24 (vs. 43% in 4QFY23). In terms of outlook, recovery in PCR tyre industry is expected to be gradual and APTY continues to focus on cost control measures and market share gains to drive healthy performance.

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