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During 1QFY25, Apollo Tyres reported consol. adj. EBITDAM of 14.4%, 170bps below JMFe. Domestic replacement demand continues to remain healthy. And, overall replacement segment is expected to grow by high single-digit during FY25. Demand in the International markets has also started to recover, albeit gradually. RM basket continues to inch-up. So far, pricing environment in domestic replacement market has been largely stable. However, with rising competitive intensity (in certain segments), ability to take further price increases remains a key monitorable (APTY took 1% in Jul’24 and another 4% is required). APTY indicated of maintaining a balance between price hike and market share going ahead. Focus on favourable mix and cost control efforts is also expected to support margin performance. Capex intensity is expected to be low in the medium-term. We have cut our EPS estimate for FY26 by 6% to factor-in gradual price increases. 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 Sept’25 TP of INR 550

* 1QFY25 – Muted performance: APTY reported standalone revenue of INR 45.9bn (+4% YoY, +5% QoQ), 3% above JMFe. EBITDA for the quarter stood at INR 6.3bn (-20% YoY, -8%QoQ). EBITDA margin stood at 13.8% (-400bps YoY, -180bps QoQ), 140bps below JMFe. At the consol. level, APTY reported revenue of INR 63.3bn (+1% YoY & QoQ). Consol. EBITDAM stood at 14.4% (-250bps YoY, -210bps QoQ), 170bps below JMFe due to higher than expected RM and employee costs. Adj. consol. PAT stood at INR 3.4bn (- 17% YoY, -12% QoQ), c.14% below JMFe.

* India business: Domestic volumes grew by mid-single digit YoY during 1QFY25. This was led by double-digit YoY growth in exports and mid-single digit YoY growth in replacement segment. However, its OEM volumes declined by mid-single digit YoY during 1Q. Within replacement segment, TBR and PCR segment grew by double-digit YoY. Management indicated that APTY lost some market share during 1QFY25 owing to its focus on profitability (had a 28% / 20% market share in TBR / PCR segment in FY24). Owing to this, the company now plans to maintain balance between market share and profitability. And, APTY has guided for better than industry performance going ahead. Overall, the company expects OE vols (esp. in T&B segment) to recover during 2HFY25 and expects replacement segment to grow by high single-digit during FY25.

* European business: In 1QFY25, the company's EU operations reported revenue of EUR 146mn (+1% YoY). Company continued to outperform PCR tyre industry in EU resulting in marginal market share gains. EBITDA margin stood at 13.7% (+30bps YoY) led by favourable mix. UHP/UUHP tyres grew by 20% YoY and its share stood at 47% in 1QFY25 (vs. 39% in 1QFY24). In terms of outlook, demand momentum is expected to gradually pick up going ahead and APTY continues to focus on cost control measures and favourable mix to drive healthy performance.

* Margin outlook: RM basket cost increased by 5% QoQ during 1Q. However, with recent increase in NR prices, the company expects RM basket cost to increase by c.5% during 2QFY25. To mitigate these cost pressures, APTY took a 1% price increase across segment during 2Q (over and above 2%/1% price hike in PCR/TBR in 1Q). Management indicated that APTY will need another price hike of 4-5% in domestic market to fully mitigate these cost pressures. Focus on cost control measures and favourable product mix is also expected to support margin performance. The company re-iterated its continued focus on driving profitable growth and believes 16% EBITDA margin is sustainable in the mediumto-long term.

* Capex/debt update: Capacity utilization currently stands at c.82% / 78% for Indian and EU operations. The company maintained it capex guidance for FY25 at INR 10bn primarily towards de-bottlenecking, digitization and maintenance. Its consol. net debt decreased by INR 2.8bn to ~INR 23bn during 1QFY25. Net Debt / EBITDA remained stable QoQ at 0.6x.

* Other Highlights: 1) APTY exited certain non-profitable SKUs in OEM segment which is expected to support margin performance going ahead. 2) Vredestein brand continues to gain traction in domestic luxury car segment and the company recently started supplying to a German OEM in India.

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