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APTY posted a significantly weak Q4, missing consensus/our consol. EBITDA estimate by ~20% due to weak India operations in both, revenue and margin. APTY guided to gradual improvement in the demand outlook in India and stable demand in Europe; but margin could remain pressured with further spike in RM costs in 2Q/3Q. While APTY reiterated its stance on maintaining focus on profitability/cash flows, it said it will keep close watch on the demand scenario and competitive landscape following the recent market-share loss/underperformance to peers. We introduce our FY27 estimates; we cut FY25E/26E EPS by 9.8%/6.0% due to the miss in Q1 and muted demand/margin commentary. However, we retain BUY with unchanged TP of Rs600/sh (rolled over to Jun25) amid industry tailwinds and company focus on return ratios.

Weak performance; 20% miss on EBITDA

Consolidated revenue grew 1.4% YoY to Rs63.3bn (in-line) led by APMEA (largely India region; up 5%), with Europe down 1.5% and Others down 16% YoY. Consolidated EBITDA fell ~13.5% YoY/11.6% QoQ to Rs9.1bn. Margin fell by 207bps QoQ to 14.4% due to increase in RM/Staff costs (up by 170/100bps QoQ). APMEA/Europe margins declined QoQ by 198bps/554bps to 9.6%/4.3%. Overall, adjusted PAT at Rs3.4bn was below estimates due to the miss on EBITDA, higher depreciation, and lower than expected ‘other income’.

Earnings Call KTAs

1) India volumes were a mixed bag, with overall volumes up in mid-single digits amid double digit growth in TBR and PCR replacement, while OEM volumes saw a decline. 2) APTY expects replacement demand to improve ahead (high single digit growth in India); after the subdued H1, recovery is expected in Truck OEM sales in H2FY25. 3) The company has taken a price hike of 2%/1% in Q1 in PCR/TBR; another 1% hike overall expected in Jul-24; 2-3 more hikes will be required (5% overall, incl. 1% in Q2) to cover the RM cost increase. 4) APTY has sacrificed market share in MHCV OEMs (due to less focus on the lower-margin bus segment). 5) Domestic capacity utilization levels were >80% in PCR and ~70% in TBR. 6) European operations are seen doing better over the medium-to-long term, with sustained 16% margins and improving share of ultra-high performance tyres (47% now vs 39% in FY24). 6) The company remains committed to profitability via calibrated price hikes, premiumization, and new SKU launches; net debt is down 15% QoQ vs Q4FY24. 7) India business is influenced more by natural rubber due to higher RM content and share of natural rubber usage vs European operations. 8) Exports are seen facing some challenges in the near term (due to logistics issues), growth trajectory is improving vs last year. 9) FY25E capex guidance is unchanged (Rs10bn); per the management, there would be no capacity expansion in India in the near term. 10) Q4 RM costs (Rs/kg): natural rubber: 180; synthetic rubber: 180; carbon black: 120.

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