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APTY delivered a steady 1Q, with in-line consolidated revenue (up 13% yoy) and flattish EBITDA yoy (but 10% above expectation); EBITDAM at 11.7% was down by 280bps qoq (better than expectations of 10.6%) as the 400bps gross margin drop was offset by 220bps curtailment in other expenses. APMEA/EU revenue rose 15%/10% yoy, with APMEA/EU EBITM down by 270bps qoq/90bps yoy. APTY expects demand momentum to sustain across segments (double-digit growth across OEMs/replacement/exports in 1Q) in India; EU is expected to see a pick-up (via Hungary plant ramp up). RM basket saw a 17% qoq uptick and APTY undertook 7- 9% price hikes (in a staggered manner) in 1Q (actual benefit of only 4-5%; full benefit in 2Q). APTY expects a further 8% qoq rise in RM costs in 2Q and plans to take further 1-2% price hikes in Jul/Aug-26. Price indexation from OEMs will also flow through starting 2Q. In EU, APTY has taken 3-4% price hike vs requirement of 10% (APTY is a price taker in EU). Domestic rubber prices are expected to start cooling off starting 3Q (2Q is seasonally weak). APTY indicated the evolving industry dynamics with unprecedented rise in RM costs and pricing power of tyre players (reflected in the ability to take requisite price hikes also supported by tight industry demand-supply dynamics; APTY at >90% capacity utilization). We raise FY27E EPS by ~10% on better-than-expected profitability (FY28E EPS largely unchanged) and raise TP by 4.5% to Rs575 (from Rs550), at 18x Jun-28E PER; maintain BUY.

In-line revenue print; margins better than anticipated

Consolidated revenue grew 13% yoy, led by 15/10% growth in APMEA/EU. Consolidated EBITDAM fell by 284bps qoq to 11.7%, led by higher gross margin contraction (400bps), partly offset by lower other expenses. Standalone revenue was up 16% yoy; EBITDAM fell by 260bps qoq to 12%, led by 540bps gross margin contraction, partly offset by lower other expenses.

Earnings call KTAs

1) Demand momentum is expected to continue into 2Q; 1Q saw double-digit growth across segments (replacement/OEM/exports). EU topline was muted due to the agri tyre transition and shift of truck radial capacity from the Netherlands to Hungary; pick-up expected from 2Q.

2) RM costs rose 17% in 1Q; margins were defended via price hikes and cost control. Further 8% qoq impact expected from RM basket. Required price increase of 11–12%; staggered hikes of 7–9% taken, but only 4–5% reflected; Jul-26: 1–2% price hike taken; similar hike possible in Aug-26. Price revisions also being secured from OEMs.

3) Competition has taken price increases of similar magnitude. International rubber prices cooling off; domestic rubber prices expected to ease from 3Q, after a seasonally weak 2Q; if RM stabilizes, full benefit of price hikes will come through in 2H.

4) 1Q EU RM basket up ~8%, but business is seeing an 8% hit. Cumulative price hike of 10% needed in EU; 3–4% taken so far. Absence of overlap between the Netherlands shutdown and capacity transfer to Hungary/India would have led to 11% EU EBITDAM in 1Q.

5) Cost impact is unprecedented and industry dynamics are different now; APTY believes the benefit of price hikes will come through.

6) Capacity situation to remain tight throughout FY27; utilization already >90%. Hungary plant to ramp up from 3Q; expansion of 4kpd tyres. India capex to come online by FY27-end; AP plant to add ~8kpd tyres of Hungary capacity.

7) Advertisement/sales promotion spends cut by 50% in 1Q owing to a tough situation; no further reduction expected; spends will increase in some quarters.

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