Institutional Equity Research

CMP* (Rs) 191

Apollo Tyres Upside/ (Downside) (%) 18
BUY
Bloomberg Ticker APTY IN
Tyres | India
Market Cap. (Rs bn) 109 Target Price: Rs225
Free Float (%) 61
4QFY19 Result Update | May 13, 2019 Shares O/S (mn) 572

Muted Performance but Positive Outlook; Maintain BUY

Apollo Tyres (ATL) has reported a muted performance in 4QFY19 with its consolidated revenue Share price (%) 1 mth 3 mth 12 mth
growing by just 6% YoY (-9% QoQ) to Rs42.7bn (vs. our estimate of Rs45.4bn) primarily led by
Absolute performance (11.6) (5.9) (33.4)
volume growth owing to market share gain. Notably, the Company did not undertake any
pricing action during the quarter. EBITDA fell by 18% YoY and 20% QoQ to Rs4.2bn due to weaker Relative to Nifty (8.3) (9.1) (38.6)
performance of overseas business, while standalone performance remained broadly in-line.
EBITDA margin fell by 289bps YoY and 124bps QoQ to 9.9% vs. our estimate of 11.1%. Net profit Shareholding Pattern (%) Dec-18 Mar-19
– adjusted for exceptional loss of Rs1bn on investment in IL&FS deposits – fell by 38% YoY and
Promoter 40.8 40.9
37% QoQ to Rs1.6bn vs. our estimate of Rs2bn. Notably, ATL’s capacity expansion programme is
moving as per the schedule. Looking ahead, the Management expects the growth momentum Public 59.2 59.1
to continue with the healthy replacement demand despite slowdown in the OEM segment.
Moreover, anti-dumping duty in Europe started benefitting the Company in Europe. Ramp-up at
European operation and inter transfer of production are expected to aid further improvement in Key Financials
margin, in our view. Y/E Mar (Rsmn) FY19E FY20E FY21E
Healthy Domestic Volume on Replacement Demand Net Sales 1,75,376 1,94,541 2,18,641
ATL’s consolidated revenue grew by 6% YoY to Rs42.7bn, while standalone revenue grew by EBITDA 19,474 22,313 25,841
8% YoY to Rs30.6bn. OEM volume remained muted due to subdued sales by the OEMs during EBITDA margin (%) 11.1 11.5 11.8
past 4-5 months, while replacement segment recorded a decent growth. TBR volume grew by Adj. Net Profit 8,329 8,970 10,728
double-digit on YoY basis. European volume grew by low single-digit much higher than the EPS(Rs.) 14.6 15.7 18.8
industry growth. The Company gained market share across segments in India and Europe and PER (x) 13.1 12.1 10.1
it is in the process of expanding capacity in both geographies. It plans capex of Rs30bn and
EV/ EBITDA 7.7 7.1 5.7
Rs16bn in FY20E and FY21E, respectively.
RoE (%) 8.3 8.6 9.5
Operating Margin to Improve
ATL’s EBITDA margin contracted by 289bps YoY and 124bps QoQ due to higher RM cost and Change of Estimates
increased pricing pressure. In Jan’19, ATL rolled back the price hike undertaken in Nov’18 due to
(% change) FY20E FY21E
competitive pressure. However, the Company expects margin improvement, going forward with
Cons Revenue (4.4) (5.2)
lower commodity cost and improving product-mix in India. Moreover, the Management expects
European operation to witness margin expansion with higher capacity utilisation. EBITDA (6.8) (6.5)
Net profit (10.6) (10.0)
Outlook & Valuation
Looking ahead, we expect ATL’s performance to improve owing to steady ramp-up in Hungarian EPS (Rs) (10.6) (10.0)
operations and market share gain across both the geographies. However, factoring in the near-
term slowdown and pricing pressure, we lower our revenue and EBIDTA estimates by 4%/5%
and 7%/7% for FY20E/FY21E, respectively. Factoring in higher depreciation for increased capex 1 Year Stock Price Performance
and interest expenses for increasing debt level, we cut our EPS estimates by 11%/10% for FY20E/ 310

FY21E. Considering ATL’s outperformance in tyre industry and improving market share, we 290

270
maintain its P/E valuation multiple at 12x. Expecting ATL’s earnings to clock 14% CAGR over
250
FY19-FY21E and valuing it at 12xFY21E EPS, we maintain our BUY recommendation on the
230
stock with a revised Target Price of Rs225 (from Rs250 earlier).
210

Quarterly Performance (Consolidated Rs mn) 190

170
YE March (Rs. mn) 4QFY19 4QFY18 YoY (%) 3QFY19 QoQ (%)
150
Total Revenue 42,737 40,336 6.0 47,184 (9.4)
Nov-18
May-18

May-19
Oct-18
Aug-18

Sep-18

Mar-19
Jul-18
Jun-18

Dec-18

Jan-19

Feb-19

Apr-19

EBIDTA 4,246 5,175 (17.9) 5,274 (19.5)

Profit Before Tax 984 3,345 (70.6) 2,508 (60.8) Note: * CMP as on May 10, 2019

Less: Total Tax 144 844 (83.0) 529 (72.8)

PAT 840 2,501 (66.4) 1,979 (57.6)
Adj. PAT 1,555 2,501 (37.8) 2,453 (36.6)
Adj EPS (Rs) 2.7 4.4 (37.8) 4.3 (36.6) Research Analyst: Mitul Shah
EBIDTA Margin (%) 9.9 12.8 (289) bps 11.2 (124) bps Contact: 022 3303 4628
Adj NPM (%) 3.6 6.2 (256) bps 5.2 (156) bps Email: mitul.shah@relianceada.com
Source: Company, RSec Research
1
Institutional Equity Research
CMP* (Rs) 191
Apollo Tyres Upside/ (Downside) (%) 18 BUY
Bloomberg Ticker APTY IN
Tyres | India Target Price: Rs225

Risk to the view

ff Intensifying competition.

ff Change in government regulation.

ff Sharp up-tick in input prices.

ff Significant slump in OEM sales.

Exhibit 1: Result Summary (Consolidated)

YE March (Rs mn) 4QFY19 4QFY18 YoY (%) 3QFY19 QoQ (%)
Total Revenue 42,737 40,336 6.0 47,184 (9.4)
Less:
Net Raw Material consumed 24,850 22,053 12.7 27,940 (11.1)
Other Expenses 7,460 7,073 5.5 7,573 (1.5)
Personnel 6,181 6,036 2.4 6,398 (3.4)
Total Expenditure 38,491 35,161 9.5 41,910 (8.2)
EBIDTA 4,246 5,175 (17.9) 5,274 (19.5)
Less: Depreciation 2,314 1,768 30.8 2,011 15.1

EBIT 1,933 3,407 (43.3) 3,264 (40.8)

Less: Interest 434 476 (8.8) 485 (10.6)
Add: Other income 485 414 17.1 330 46.9
Extraordinary Expense (net) (1,000) 0 NA (600) 66.7
Profit Before Tax 984 3,345 (70.6) 2,508 (60.8)
Less: Total Tax 144 844 (83.0) 529 (72.8)
Profit After Tax 840 2,501 (66.4) 1,980 (57.6)
Adj. PAT 1,555 2,501 (37.8) 2,453 (36.6)
Reported EPS (Rs) 1.47 4.37 (66.4) 3.46 (57.6)
Adj. EPS (Rs) 2.72 4.37 (37.8) 4.29 (36.6)
Change Change
Cost & Margin Analysis (%)
in bps in bps
EBIDTA Margin 9.9 12.8 (289) 11.2 (124)
Adj. NPM 3.6 6.2 (256) 5.2 (156)
Effective Tax Rate 14.6 25.2 (1,061) 21.1 (649)
Cost Analysis
RM/Net Sales 58.1 54.7 347 59.2 (107)
Other Expenses 17.5 17.5 (8) 16.0 141
Personnel/Net Sales 14.5 15.0 (50) 13.6 90
Source: Company, RSec Research, *NA: Not Applicable

Exhibit 2: Revised vs. Old Estimates

Old Revised % change
Y/E Mar (Rs mn) FY20E FY21E FY20E FY21E FY20E FY21E
Cons revenue 2,03,477 2,30,572 1,94,541.3 2,18,641.3 (4.4) (5.2)
EBITDA 23,951 27,638 22,313.4 25,841.0 (6.8) (6.5)
EBITDA margin (%) 11.8 11.8 11.5 11.8
Net profit 10,028 11,918 8,970 10,728 (10.6) (10.0)
EPS (Rs) 17.5 20.8 15.7 18.8 (10.6) (10.0)
Source: RSec Research

2
Institutional Equity Research
CMP* (Rs) 191
Apollo Tyres Upside/ (Downside) (%) 18 BUY
Bloomberg Ticker APTY IN
Tyres | India Target Price: Rs225

Exhibit 3: Result Summary (Standalone)

YE March (Rs. mn) 4QFY19 4QFY18 YoY (%) 3QFY19 QoQ (%)
Net Sales 30,615 28,436 7.7 31,233 (2.0)
Less: -
Net Raw Material consumed 20,191 17,471 15.6 20,960 (3.7)
Other Expenses 5,102 4,995 2.1 5,048 1.1
Personnel 1,812 1,916 (5.4) 1,801 0.6
Total Expenditure 27,106 24,382 11.2 27,809 (2.5)
EBIDTA 3,509 4,054 (13.4) 3,424 2.5
Less: Depreciation 1,314 1,045 25.7 1,068 23.0

EBIT 2,196 3,009 (27.0) 2,356 (6.8)

Less: Interest 302 380 (20.4) 372 (18.8)
Add: Other income 457 424 7.7 267 71.0
Extraordinary Expense (net) (1,000) 0 NA (600) NA
Profit Before Tax 1,350 3,053 (55.8) 1,651 (18.2)
Less: Total Tax 296 816 (63.7) 421 (29.5)
Profit After Tax 1,054 2,237 (52.9) 1,230 (14.3)
Adj. PAT 1,834 2,237 (18.0) 1,677 9.4

Reported EPS (Rs.) 1.84 3.91 (52.9) 2.15 (14.3)

Adj. EPS (Rs.) 3.21 3.91 (18.0) 2.93 9.4
Change Change
Cost & Margin Analysis (%)
in bps in bps
EBIDTA Margin 11.5 14.3 (279) 11.0 50
Adj. NPM 6.0 7.9 (187) 5.4 62
Effective Tax Rate 22.0 26.7 (477) 25.5 (353)
Cost Analysis
RM/Net Sales 66.0 61.4 451 67.1 (116)
Other Expenses./Net Sales 16.7 17.6 (90) 16.2 50
Personnel/Net Sales 5.9 6.7 (82) 5.8 15
Source: Company, RSec Research, *NA: Not Applicable

3
Institutional Equity Research
CMP* (Rs) 191
Apollo Tyres Upside/ (Downside) (%) 18 BUY
Bloomberg Ticker APTY IN
Tyres | India Target Price: Rs225

Profit & Loss Statement

Y/E Mar (Rs mn) FY18 FY19 FY20E FY21E
Net revenue 1,48,405 1,75,376 1,94,541 2,18,641
Expenditure 1,31,748 1,55,902 1,72,228 1,92,800
Raw Materials 83,955 1,01,109 1,11,472 1,24,626
Employee Expenses 21,567 24,718 27,684 31,006
Other expenditure 26,227 30,075 33,072 37,169
EBITDA 16,657 19,474 22,313 25,841
Depreciation and amortization expense 5,926 8,127 9,057 10,165
EBIT 10,732 11,347 13,256 15,676
Non-operating income 980 1,345 1,452 1,554
Interest including finance charges 1,774 1,811 2,907 3,115
Adjusted pre-tax profit 9,938 10,881 11,802 14,115
Extra Ordinary Exp (186) 2,000 - -
Reported pre-tax profit 10,124 8,881 11,802 14,115
Less: taxes 2,885 2,083 2,832 3,388
Reported net profit 7,239 6,798 8,969 10,727
Less: minority/associate earnings - (1) (1) (1)
Reported net profit for shareholders 7,239 6,799 8,970 10,728
Adjusted net profit for shareholders 7,106 8,329 8,970 10,728
EPS (Rs), based on fully diluted shares 12.4 14.6 15.7 18.8
Fully diluted shares outstanding (mn) 572 572 572 572

Balance Sheet
Y/E Mar (Rs mn) FY18 FY19E FY20E FY21E
Equity capital 572 572 572 572
Reserves and surplus 97,195 99,755 1,06,487 1,14,978
Total equity 97,767 1,00,327 1,07,059 1,15,550
Deferred tax liability (net) 16,188 16,188 16,188 16,188
Total borrowings 46,612 47,112 51,823 44,049
Current liabilities 40,011 38,136 49,393 54,182
Total liabilities 2,00,577 2,01,763 2,24,463 2,29,969

Cash and cash equivalents 5,992 5,625 2,719 4,908

Inventory 29,454 34,841 37,749 42,258
Trade receivables 14,350 11,547 18,655 20,966
Total current assets 49,796 52,013 59,123 68,132
Gross block 1,74,257 2,10,347 2,30,797 2,58,997
Less: depreciation and amortization 70,226 98,863 1,10,783 1,29,499
Add: capital work-in-process 23,041 15,950 25,500 15,300
Total fixed assets 1,27,072 1,27,434 1,45,515 1,44,799
Investments 13,425 61 61 61
Other assets 10,285 22,255 19,765 16,978
Total assets 200,577 201,763 224,463 229,969

4
Institutional Equity Research
CMP* (Rs) 191
Apollo Tyres Upside/ (Downside) (%) 18 BUY
Bloomberg Ticker APTY IN
Tyres | India Target Price: Rs225

Cash Flow Statement

Y/E Mar (Rs mn) FY18 FY19E FY20E FY21E
Operating cashflow
Pre-tax income 10,123 8,881 11,802 14,115
Add: depreciation and amortization 5,926 8,127 9,057 10,165
Add: interest expense (net) 1,295 1,811 2,907 3,115
Less: other adjustments (836) 20,511 2,862 8,551
Less: taxes paid (2,465) (2,083) (2,832) (3,388)
Add: working capital changes 3,154 (16,429) 3,731 756
Total operating cashflow 17,197 20,817 27,527 33,314
Investing cashflow
Capital expenditure (29,386) (29,000) (30,000) (18,000)
Investments (9,250) 13,365 - -
Others (273) - - -
Total investing cashflow (38,908) (15,635) (30,000) (18,000)
Financing cashflow
Share issuances 14,762 - - -
Loans 11,608 500 4,711 (7,773)
Dividend (1,838) (2,238) (2,238) (2,238)
Interest Payment (1,323) (1,811) (2,907) (3,115)
Less: Others 1,186 - - -
Total financing cashflow 24,395 (3,549) (433) (13,126)
Net change in cash 2,683 1,633 (2,907) 2,188
Opening cash 3,309 5,992 5,626 2,720
Closing cash 5,992 7,625 2,719 4,908

Key Ratio
Y/E Mar FY18 FY19E FY20E FY21E
Growth Ratios (%)
Net revenue 12.6 18.2 10.9 12.4
EBITDA (10.6) 16.9 14.6 15.8
Adjusted net profit (33.7) 17.2 7.7 19.6
Ratios (%)
Effective tax rate 28.5 23.5 24.0 24.0
EBITDA margin 11.2 11.1 11.5 11.8
Adjusted net income margin 4.8 4.7 4.6 4.9
ROaCE 5.9 6.0 6.6 7.4
ROaE 8.2 8.3 8.6 9.5
Total asset turnover ratio (x) 0.8 0.9 1.0 1.0
Inventory days 72 73 71 71
Debtor days 35 24 35 35
Creditor days 72 57 72 71

Per share numbers (Rs)

Diluted earnings 12.4 14.6 15.7 18.8
Free cash (21.3) (14.3) (4.3) 26.8
Book value 170.9 175.4 187.1 202.0

P/E 15.3 13.1 12.1 10.1

EV/EBITDA 9.0 7.7 7.1 5.7
P/B 1.1 1.1 1.0 0.9

5
Institutional Equity Research
CMP* (Rs) 191
Apollo Tyres Upside/ (Downside) (%) 18 BUY
Bloomberg Ticker APTY IN
Tyres | India Target Price: Rs225

Rating History
Date Reco CMP TP
05-Apr-19 BUY 224 250
05-Feb-19 BUY 203 250
08-Jan-18 BUY 229 270 PLEASE CLICK HERE FOR PREVIOUS REPORTS
02-Aug-18 BUY 286 325
11-May-18 BUY 280 325
7-Feb-18 BUY 261 335

Rating Guides
Digitally signed by NAVEEN KULKARNI
Rating Expected absolute returns (%) over 12 months
NAVEEN
DN: c=IN, o=Personal,
2.5.4.20=0c1ff234f79bd813e0368a6dc03
BUY >10% b4ca15b14b3b5a481882c186a1ef7b6330
566, postalCode=400072,
HOLD -5% to 10%
KULKARNI
st=MAHARASHTRA,
serialNumber=97c18031b020ff979ee607
REDUCE >-5% a3efa48cfba8b1455defbde1b85beecbfbf
99bbde3, cn=NAVEEN KULKARNI
Date: 2019.05.13 09:25:04 +05'30'

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