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India performance impresses, Europe disappoints

• Apollo Tyres’ 1QFY26 consolidated performance was in line with our estimates. Standalone performance was much ahead of our estimates, whereas Europe performance was weaker than expected.
• Consolidated revenue grew ~4% YoY to INR65.6b (in line).
• Gross margins contracted 140bp YoY (+70bp QoQ) to 44.1% (above our estimate of 43.6%), primarily due to higher commodity pricing.
• EBITDA margins remained flat YoY at 13.2% (in line). EBITDA contracted 4.6% YoY (up ~4% QoQ) to INR8.7b (in line).
• In 1Q, Apollo booked exceptional expenses related to the restructuring costs of INR3.7b at its Netherland unit. Adjusted for these costs, PAT declined 13% YoY to INR2.8b (est. INR3.1b), primarily due to lower-than-expected other income.
• Standalone business revenue was in line with our estimate at INR47.2b, up ~3% YoY and QoQ. Gross margins contracted by 380bp YoY (+220bp QoQ) to 36.7% (est. 35%). EBITDA margin sharply improved 240bp QoQ (down 20bp YoY) to 13.6% (ahead of our estimate of 12%), likely due to lower input costs.
• On the other hand, Europe EBIT margins hit a multi-quarter low of 2.6% (down 170bp YoY).
• Valuation: The stock trades at 17.4x/14.6x FY26E/FY27E consolidated EPS.

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