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APTY’s consolidated revenue growth was muted (3.6% YoY; 3% miss on our estimate) amid soft revenue performances in India/Europe. Consol EBITDAM rose 20bps QoQ to 13.2% (SA EBITDAM up 240bps QoQ to 13.6% on 220bps gross margin expansion). The mgmt highlighted an improving demand outlook in India (expects double-digit TBR/PCR growth) and guided to high-single digit revenue growth (double digit earlier). India margins saw a sharp rise in Q1; lower RM cost in Q2 to aid further expansion. APTY is evaluating composition of the RM basket to drive margin expansion (visible in APTY’s Q1 margins being ahead/in line with peers vs a lag in Q4). Q2 is expected to be better for Europe amid better demand visibility, improving product mix, and a better operating leverage. APTY is undertaking multiple steps for cost control (restricting EU operations via shutdown of high-cost manufacturing at the Netherlands plant) and premiumization (dual strategy with Vredestein yielding results). Our estimates are unchanged. We retain BUY and a TP of Rs525 (17x Jun-27E PER).

Muted revenue growth; SA margins up sharply; consol margin dragged by EU

Consolidated revenue rose 3.6% YoY amid flattish volumes in India and a dip in Europe. India replacement/OEM volumes grew in low-/mid-single digits with major exports decline. APMEA (largely India)/Europe revenue grew 2.2%/8%. Consolidated EBITDAM rose by 20bps QoQ to 13.2%, amid 70bps gross margin expansion and lower other expenses (but higher staff cost). APMEA EBITM rose by 150bps QoQ to 8.8%; Europe EBITM fell by 300bps QoQ to 2.6% on higher RM/operating deleverage. APTY booked a Rs3.7bn exceptional charge related to employee payout (Netherlands plant; in FY27). Consolidated adj PAT up 12% YoY. Q1 net debt down by Rs3.9bn; net debt/EBITDA: 0.7x.

Earnings call KTAs:

1) The management acknowledged the lower-than-expected performance amid an inline performance in replacement (despite drop in share of PVs) and underperformance in exports. It expects strong growth in domestic/international business ahead. India business to be led by replacement demand. OEM demand in Q1 was largely led by prebuy in MHCVs (on mandatory AC cabin norms). APTY has also received an order from a premium German PV OEM (for domestic and international). It targets double-digit growth in TBR/PCR (vs mid-single/low-single digit in Q1). 2) The mgmt expects RM costs to be lower in Q2 (the overall cost to be contingent upon exchange rates: ~50% of RMs are imported). It is exploring ways to raise the share of imports, given lower international RM prices vs domestic. 3) EU operations saw a dip in volumes across categories (seasonally weak quarter) due to soft demand. EU margins were hit by operating deleverage and sustained inflation (eg higher staff/energy costs). While APTY expects Q2 to be better (higher operating leverage), it is focusing on cost optimization and improving the volume mix. Demand is likely to pick up in TBR in Q3/Q4, with improvement in PCR. 4) Consultation for the closure of the Netherlands plant continues. APTY has accounted for a one-time restructuring provision for actual employee payout for plant closure in FY27; operations to continue at least till Jun-26. 5) FY26 capex guidance at Rs15bn.

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