Ambit ApolloTyres ChangeInStance 16Jun2014

8/12/2019 Ambit ApolloTyres ChangeInStance 16Jun2014

1/15

Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capitalmay have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.

ll worn outAs radialisation progresses in the truck-bus tyre market and as MNCspresence in the Indian tyre market increases, domestic manufacturers,like Apollo, are likely to lose market share. This combined with capacityconstraints at Vredestein and highly capital-intensive nature of theindustry is likely to pull down Apollos RoE sharply over FY14-18. Giventhat the stock is up 62% in the last three months, we change our stanceto SELL in spite of raising our TP from 130 to 186.

Competitive position: MODERATE Changes to this position: NEGATIVE

Increasing truck-bus radialisation to impact domestic players

We believe the increased focus of MNCs (such as Michelin and Bridgestone) and

technological advantages in truck bus & radial (TBR) tyres would result in marketshare loss for domestic players such as Apollo. Similarly, increased radialisationmeans that demand for truck & bus bias tyres would remain stagnant in thecoming years. Overall, we believe Apollos standalone revenues would recordonly 8% CAGR over FY14-18E.

Capacity constraint to limit revenue growth at Vredestein

Limited headroom for capacity expansion at Vredestein in the near term (withthe new plant in Eastern Europe to kick off production only in 2HFY17) couldrestrict Vredesteins revenue growth to only 5% over FY14-16. Furthermore,whilst exports from Apollo to Vredestein have been increasing, it is unlikely tomeaningfully contribute to Vredesteins volumes.

Decline in rubber prices offset by increase in other raw material costs

The management has indicated that the positive impact of declining rubberprices would be offset by an increase in the prices of other raw materials, suchas carbon black and tyre rod fabric. We believe this would restrict EBITDAmargin expansion to around 50bps over FY14-16. That said, a significant dropin rubber prices from the current levels could lead to sharp increases in margins,which is the key riskto our earnings and valuation estimates.

Downgrade to SELL with TP of 186, implying 8.7x FY16 EPS

The intensely competitive nature of the domestic market and the highly capital-intensive nature of the business are likely to result in RoEs falling post FY14. OurDCF assumes a WACC of 14% and terminal growth of 4%, translating into a July2015 target price of `186 (7% downside and 43% higher than our previous TP).Our TP implies 8.7x FY16 net earnings. The stocks run up in recent months (up62% in the last three months) forces us to turn SELLers.

Apollo TyresSELL

CHANGE IN STANCE APTY IN EQUITY June 16, 2014

Auto & Auto Ancillaries

RecommendationMcap (bn): `101/US$1.7

3M ADV (mn): `915/US$15.4

CMP: `200

TP (12 mths): `186

Downside (%): 7

Flags

Accounting: AMBERPredictability: AMBER

Earnings Momentum: GREEN

Catalysts

Market share loss in replacement TBR tyre

segment

Performance

Source: Bloomberg, Ambit Capital research

Analyst Details

Ashvin Shetty, CFA+91 22 3043 3285

[email protected]

Ritu Modi+91 22 3043 [email protected]

50

100

150

200

250

15,000

20,000

25,000

30,000

Jun

-13

Jul-13

Sep

-13

Oct-13

Dec

-13

Jan

-14

Mar

-14

Apr-

14

Jun

-14

Sensex Apollo Tyres (Rs)

Key financials (consolidated mn unless specified)

Year to March FY12 FY13 FY14 FY15E FY16E

Net Sales 121,533 127,946 133,378 142,547 151,113

EBITDA 11,661 14,567 18,363 19,452 19,947

EBITDA (%) 9.6% 11.4% 13.8% 13.6% 13.2%

EPS (`) 8.72 11.8 19.5 20.5 21.4

RoE (%) 16.7% 19.1% 24.7% 20.6% 18.0%

RoCE (%) 15.5% 17.9% 23.9% 25.9% 23.8%

P/E (x) 23.0 16.9 10.2 9.8 9.3

Source: Company, Ambit Capital research


2/15

Apollo Tyres

June 16, 2014 Ambit CapitalPvt. Ltd. Page 2

Increasing radialisation in TBR tyres Anadvantage for MNCs?After remaining stagnant for a large part of the last decade, radialisation in truck &bus tyres has caught on strongly in recent years. Some of the reasons for thisphenomenon are:

Increased adoption of truck-bus radial (TBR) tyres by OEMs in India, especiallywith the advent of the global OEM players such as Volvo and Daimler and alsothe development of advanced truck platforms by domestic OEMs such as Tata

Motors (Prima trucks) and Ashok Leyland (U-trucks); and

Increasing affordability of TBR tyres due to the influx of the cheap Chinese radialtyres, which also helped in creating awareness/increasing use of TBR tyres.

Whilst TBR tyre imports accounted for nearly 56% of the total Indian TBR tyreconsumption until FY11, its share has declined significantly since FY12 due to theimplementation of BIS norms governing the quality of the tyres and due to significantTBR tyre capacity additions by the domestic players.

As per industry sources, the level of radialisation in the truck-bus segment hasincreased from around 5% in FY08 to around 25-30% currently. The level ofradialisation is much higher in the truck-bus OEM segment (45-50%) as compared tothe after-sales market (20-25%).

TBR tyres have clear advantages over truck bus bias (TBB) tyres. Some of the areaswhere TBR tyres score over TBB tyres are:

Higher mileage partly driven by lower breakdown levels; Longer life radial tyres have longer life during the original run (which is around

1.5x that of the radial tyres) as well as post retreading;

Safety; and Lower cost of ownership (a derivative of higher mileage and lower breakdown).Whilst TBR tyres enjoy several advantages over TBB tyres, the replacement marketcontinues to be dominated by bias tyres due to:

(a) High initial cost of TBR tyres (20-25% premium to TBB tyres);(b) Rampant overloading and poor road conditions in most parts of India which

negate the effectiveness of radial tyres. To counter this, many tyre manufacturershave started offering radial tyres which can withstand overloading to some extent

(though not to the extent of bias tyres).

Despite the current preference towards bias tyres over radial tyres particularlyamongst fleet operators, we believe that radialisation would continue to increase in

the coming years. Our belief stems from:(a) Continued step-up in the adoption of TBR tyres in the OEM segment: One of the

factors for the near 100% radialisation in the passenger vehicle (PV) segment wasaggressive adoption of the radial tyres by the PV OEMs in the 1990s. As moreand more new vehicles are factory fitted with radial tyres, the adoption of the

radial tyres would increase when these tyres are due for replacement.

(b)A significant increase in the radial tyre capacities by domestic as well asinternational players (see Exhibit 2 on page 3): With significant capacities comingon stream, we believe tyre manufacturers would strive to raise the awareness ofthe benefits/advantages of TB`.

(c) An improvement in road infrastructure, over the longer term in India.(d) Regulations regarding overloading and stricter enforcement of the same in the

coming years.

Increasing penetration ofradial tyres in the truck & bussegment

Source: Industry, Ambit Capital research

0%

10%

20%

30%

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

Radial tyres score over biastyres on most parameters

Performancefactors

Radial Bias

Life

Fuel consumption

Safety

Cost of Ownership

Overloading

Source: Industry, Ambit Capital research


3/15


4/15

Apollo Tyres


Implication for Apollo Tyres

Amongst the Indian players, Apollo Tyres is ranked higher on brand/quality thanother domestic players as far the TBR segment is concerned, partly emanating fromApollos first-mover advantage in the TBR segment. As per company filings, Apollocurrently commands a market share of close to 28% in the domestic TBR segment.Given the increasing radialisation of truck-bus tyres and rising focus of MNCs in the

TBR segment, we believe domestic players would cede market share to theinternational players. (As explained above, we expect the MNCs market share in TBRto increase to 30% by FY18 from ~2-3% currently.) Hence, we expect Apollos market

share in TBR tyres to decline from 28% currently to 22% by FY18.

We expect the overall truck-bus replacement market to record volume CAGR of 5%over FY14-18E (marginally lower than the historical long-term average of 7-8% dueto the higher life of radial tyres). Given our expectation of TBR accounting for nearly50% of total replacement industry by FY18 (vs 25-30% now), we expect thereplacement industrys TBR volumes to record 17% CAGR over FY14-18E. However,with Apollo losing market share in the TBR segment, we expect its replacement TBRvolumes to expand lower than the industry at a CAGR of 10% over FY14-18E. On theother hand, due to overall industry growth challenges in the truck bias tyres space

(due to the reasons explained above), we expect Apollos TBB tyre volumes in thereplacement segment to record a decline of 3% CAGR over FY14-18 (despite it

retaining its market share in the TBB segment).

Given that the truck-bus segment accounts for 64% of Apollos standalonerevenues and given the volume growth challenges in this segment, webelieve Apollos standalone volume growth would be restricted to 7% overFY14-18E (vs 14% over FY10-14).

Exhibit 3:We expect Apollos volumes to record 7% CAGR over FY14-18YoY volume growth(standalone business)

FY14 FY15 FY16 FY17 FY18

TBB tyres -8% -1% 0% 0% -1%

TBR tyres 9% 15% 12% 7% 9%Total truck bus tyres (OEM +replacement)

-2% 5% 5% 3% 4%

PCR tyres 8% 10% 10% 10% 9%

Others segments 7% 15% 15% 15% 10%

Total volumes 1% 8% 8% 7% 6%

Source: Company, Ambit Capital research.


5/15

Apollo Tyres


Capacity constraints at Vredestein torestrict revenue growthCurrently, Apollo Vredestein is operating at utilisation levels of more than 90%. Themanagement has indicated that there is very little scope for further capacityexpansion at Vredestein. (Vredesteins capacity has been recently expanded from

6.5mn tyres p.a. to 7mn tyres p.a.) The trend of exports from Apollo to Vredestein hasbeen increasing; however, Apollo with its lower price positioning caters to a differentsegment as compared to Vredesteins niche premium category positioning. Also, asper the managements guidance itself (for FY15), incremental exports from Apollo to

Vredestein will account for only 5% of total volumes of Vredestein for FY15.

The company plans to set up a greenfield project in Eastern Europe at a cost ofEuro500mn over the next four years. The plant would have a capacity of 16,000passenger car tyres/day and 3,000 truck bus radial tyres/day. The capex on thisproject will commence from FY16 and production at these plants is likely to start in2HFY17. Hence, this plant would not be able to cater to Vredesteins FY15 and FY16requirements.

As a result of the above, we expect Vredestein revenues to record only 5% CAGR overFY14-16E.

Exhibit 4:We expect Vredesteins revenues to record 5% CAGR over FY14-16mn unless specified FY13 FY14 FY15 FY16

Revenues 29,821 39,426 43,349 43,349

YoY growth 5% 32% 10% 0%

% contribution to consolidated revenues 22% 28% 29% 26%



6/15

Apollo Tyres


Key risks Rubber price movementGiven the current declining trend in rubber prices, we have factored in a 5% YoYdecline in rubber prices for FY15. However, the management has indicated theincrease in prices of other raw materials (carbon black and tyre rod fabric) has offsetthe positive impact of declining rubber prices, which will restrict the scope of

significant margin expansion. We expect EBITDA margins to expand 50bps overFY14-16. Any significant drop in rubber prices from the current levels could lead tosharp increases in margins and pose a risk to our earnings and valuationsestimates.

Exhibit 5:Sensitivity of earnings and target price to rubber price movementBase

assumptionYoY change in rubber prices (FY15)

-5% 0% -3% -5% -8% -10% -12%

EBITDA margin

FY15 (bps) 13.1% (195) (78) - 117 195 273

FY16 (bps) 12.7% (199) (80) - 120 199 279

EPS ()FY15 11.7 -22% -9% 0% 13% 22% 31%

FY16 13.4 -22% -9% 0% 13% 22% 31%

Target Price ( ) 182 167 179 186 198 206 213change in TP 0% -8% -2% 2% 9% 13% 17%

Source: Ambit Capital research. Note: We have kept FY16 YoY growth in rubber prices constant while doing thesensitivity analysis


7/15

Apollo Tyres


Key assumptions and estimatesExhibit 6:Key assumptions and estimates

mn unless specified FY13 FY14 FY15E FY16E Remarks

India business (standalone)

Revenue 85,075 86,375 93,476 101,813 Given our expectation of recovery in the OEM segment in 2HFY15,

we factor a volume CAGR of 8% over FY14-16 vs 2% over FY12-14.Revenue growth 4.3% 1.5% 8.2% 8.9%

EBITDA 8,982 10,547 12,230 12,930 Benign rubber prices to continue aiding margins going forward. As aresult, we expect EBITDA margin in FY15 and FY16 to be higher thanFY14 level.EBITDA margin 10.6% 12.2% 13.1% 12.7%

Europe (Vredestein)

Revenue 29,821 39,426 43,349 43,349We expect Apollo Vredestein to post revenue growth of only 5% overFY14-16 given capacity constraint at Apollo Vredestein.

Revenue growth 4.6% 32.2% 10.0% 0.0%

EBITDA 5,282 6,645 6,936 6,719 FY13 and FY14 margin had one-off benefits; hence, FY15 and FY16margin to be lower than FY13/FY14 levels.EBITDA margin 17.7% 16.9% 16.0% 15.5%

Consolidated (post inter-company elimination)

Revenue 127,946 133,378 142,547 151,113 We expect revenue growth of 6% over FY14-16 (marginally higher

than FY13 and FY14 levels) driven to improvement in demand in theOEM segment.Revenue growth 5% 4% 7% 6%

EBITDA 14,567 18,363 19,452 19,947 Consolidated EBITDA margin to marginally decline in FY15 and FY16(despite an improvement in standalone business margin) due todecline in Vredestein margin.EBITDA margin 11.4% 13.8% 13.6% 13.2%

PAT (normalised) 5,958 9,846 10,420 10,914Net earnings performance to mirror the EBITDA performance of 4%CAGR over FY14-16. Higher tax rates will more than offset thepositive impact of decrease in interest expenses (due to reduction indebt levels), impacting the net earnings.

Normalised PAT margin 4.7% 7.4% 7.3% 7.2%

Fully Diluted EPS (`) 11.8 19.5 20.5 21.4

Fully Diluted EPS growth 36% 65% 5% 5%

Capex (ex-acquisitions) (5,999) (3,500) (2,851) (15,054)Significant portion of capex in FY16 towards setting up a new facilityin Eastern Europe and expansion of TBR capacity in India.

Net CFO 12,781 18,068 15,893 16,063Strong CFO and limited capex to result in healthy FCF generation

and net debt reduction in FY15. However, significant capex in FY16will limit FCF generation.Net debt 26,507 16,141 13,141 8,141Free cash flow 6,782 14,569 13,042 1,008


Exhibit 7:Change in estimatesNew estimates Old estimates Change (%)

CommentsFY15E FY16E FY15E FY16E FY15E FY16E

Standalone

Net sales (`mn) 93,476 101,813 90,228 95,641 4% 6%Our expectation of a recovery in the OEM segment leads toupgrades to our FY15 and FY16 revenue assumptions.

EBITDA (`mn) 12,230 12,930 11,378 11,774 7% 10% We have upgraded our FY15/FY16 margin estimates based oncontinued benign rubber prices.EBITDA margin (%) 13.1% 12.7% 12.6% 12.3% 47bps 39bps

PBT (`mn) 8,407 9,631 7,156 8,023 17% 20% Reduction in debt estimates lead to reduction in interestexpenses resulting in higher (vs EBITDA) upgrades to ourFY15/16 PBT estimates.

PAT (`mn) 5,969 6,838 4,795 5,375 24% 27% Lower tax rate (as guided by the management in 4QFY14) leadsto significant upgrades to our FY15/16 earnings estimates.EPS (`) 11.7 13.4 9.5 10.7 23% 26%

Consolidated

Net sales (`mn) 142,547 151,113 141,940 149,502 0% 1%Revenue performance of the international business (Vredestein)likely to be impacted by capacity constraints.

EBITDA (`mn) 19,452 19,947 17,654 18,300 10% 9% Benign rubber prices lead to upgrades in our FY15/FY16 marginestimates.EBITDA margin (%) 13.6% 13.2% 12.4% 12.2% 121bps 96bps

PBT (`mn) 14,187 14,924 11,607 12,513 22% 19%Reduction in debt estimates at the standalone level lead toreduction in overall interest expenses and thus upgrades to ourPBT estimates.

PAT (`mn) 10,420 10,914 8,231 8,759 27% 25% Lower tax rate guidance (both for standalone as well asinternational operations) leads to significant upgrades to ourearnings estimates.EPS (`) 20.5 21.4 16.3 17.4 25% 23%

Source: Ambit Capital research


8/15

Apollo Tyres


Exhibit 8:Ambit vs consensus (consolidated)Ambit Consensus Divergence Remarks

Revenues ( mn)

Our revenue, margin and netearnings estimates are largely in linewith consensus estimates.

FY15E 142,547 144,166 -1%

FY16E 151,113 159,040 -5%

EBITDA ( mn)FY15E 19,452 19,157 2%

FY16E 19,947 20,934 -5%

EPS (`)

FY15E 20.5 20.3 1%

FY16E 21.4 22.6 -5%

Source: Bloomberg, Ambit Capital research


9/15

Apollo Tyres


Valuation Turning SELLersWe expect RoE to fall sharply post FY14 due to the intensely competitive nature of thedomestic market as well as the highly capital-intensive nature of the business. OurDCF assumes a WACC of 14% and terminal growth of 4%, translating to a July 2015target price of `186, implying 7% downside and 43% higher than our previous TP onthe stock. The fair value so arrived at implies a multiple of 8.7x FY16 net earnings,which is at a premium of around 20% to the average multiple at which Apollo hastraded over the past four years and 13% higher than the valuation multiple impliedby our previous valuation. Given the sustained drop in rubber prices over the past 2-2.5 years, we have increased our near term (as discussed in Exhibit 7 above) as wellas long-term sustainable EBITDA margin for the company, which results in a premium

to the historical multiple.

Whilst we have upgraded our earnings and valuation estimates for the stock,the stock price run-up in recent months (up 62% in the last three months)leaves no room for an upside. Consequently, we turn SELLers on the stock.

Exhibit 9:FCF profile (consolidated)


Exhibit 10:FCF assumptions (consolidated)PV of FCF for forecasting period (FY16- FY25) (`mn) 44,834

Terminal value (`mn) 48,841

Enterprise value (`mn) 93,674

Less: net debt/ (cash) at 31 March 2015 (`mn) (1,207)

Implied equity value (`mn) 94,881

Fully diluted equity shares (mn) 509

Implied equity value ( /share) 186Source: Ambit Capital research

10%

12%

14%

16%

18%

20%

(500)

1,000

2,500

4,000

5,500

7,000

8,500

FY16E

FY17E

FY18E

FY19E

FY20E

FY21E

FY22E

FY23E

FY24E

FY25E

PVFF (LHS) WACC (RHS) RoE (RHS)


10/15

Apollo Tyres


Relative valuation

On a relative valuation comparison with domestic peers, Apollo Tyres is trading at apremium of 52% based on FY16 net earnings and a 35% premium on FY16EV/EBITDA. However, the peer group coverage suffers from inadequate coverage(with only 6-7 broker estimates for the peer group). The recent rally in the stock price(up 62% in the past three months) has further led to the valuation multiple expansion.

On the other hand, Apollo Tyres is trading at a significant discount to global players.

Exhibit 11:Comparative valuationCrcy CMP

Mcap EV/EBITDA (x) P/E (x) CAGR (FY14-16) ROE (%)Price perf

(%)

US$ mn FY14 FY15 FY16 FY14 FY15 FY16 Sales EBITDA EPS FY14 FY15 FY16 3m 6m 1 yr

India

MRF# INR 23,867 1,709 5.7 5.6 5.0 12.6 12.1 10.1 12 7 12 25 20 20 15 22 63

Apollo Tyres INR 209 1,774 5.8 5.7 5.2 10.5 10.4 9.3 9 6 6 25 20 19 62 151 127

Ceat^ INR 465 282 4.1 3.7 3.3 6.5 5.7 5.0 14 13 14 30 25 23 18 43 336

JK Tyres INR 287 199 3.9 3.7 3.2 4.5 4.0 3.3 10 10 17 26 27 29 79 74 153

Average (ex-Apollo) 4.6 4.3 3.8 7.9 7.2 6.1

Other Asia/Japan*

Bridgestone Corp JPY 3,694 29,421 5.2 4.8 4.6 11.1 9.5 9.0 5 7 11 17 16 15 (1) (2) 15

Sumitomo Rubber JPY 1,577 4,063 6.2 5.6 5.3 9.9 8.6 8.0 6 9 11 15 14 14 16 11 5

Cheng Shin Rubber TWD 80 8,650 9.7 8.5 8.0 14.4 13.2 12.2 6 10 9 26 23 22 3 7 (0)

Average 7.1 6.3 6.0 11.8 10.4 9.7

Europe*

Pirelli & C SpA EUR 12 8,206 6.9 6.6 5.9 16.9 13.8 11.9 3 8 19 14 16 17 4 12 39

Continental AG EUR 173 46,903 8.1 7.2 6.5 15.4 13.7 12.0 7 11 13 23 25 23 2 14 74

Michelin EUR 92 23,207 5.4 5.1 4.6 12.3 11.6 10.3 2 8 9 15 15 15 5 23 40

Nokian Renkaat EUR 30 5,409 8.1 8.6 7.8 13.6 14.8 12.7 2 2 4 17 20 22 3 (12) (2)

Delticom AG EUR 34 542 0.5 0.9 1.4 29.3 27.5 19.3 14 22 23 22 23 30 (4) (3) (11)

Average 5.8 5.7 5.3 17.5 16.3 13.2

North America*

Goodyear Tire USD 26 6,502 6.3 5.7 5.2 10.4 9.1 8.0 (0) 11 14 64 36 30 (4) 17 75

Cooper Tire USD 29 1,872 5.7 4.7 4.7 16.6 11.2 11.2 4 11 22 13 16 14 28 23 (15)

Titan USD 17 893 6.5 11.8 7.3 18.1 37.6 17.2 1 (6) 3 11 8 NA (8) (1) (7)

Average 6.2 7.4 5.7 15.0 19.3 12.1

Source: Bloomberg, Ambit Capital research. Note: * indicates December-ending (CY13=FY14); ^ indicates that financials pertain to standalone entity; #indicatesSeptember-ending company


11/15

Apollo Tyres


Cross-cycle valuation

On a cross-cycle basis, Apollo Tyres is currently trading at 10.0x 12-month rollingforward consensus net earnings. This is at a significant 50% premium to the three-year average. Despite improving outlook and benign rubber prices, we expect thecompany to record an earnings growth of only 4% over FY14-16 due to higher taxrates.

Exhibit 12:Cross-cycle P/E band

Source: Bloomberg, Ambit Capital research. Note: P/E bands arrived atusing Bloomberg consensus estimates for respective periods

Exhibit 13:Cross-cycle EV/EBITDA band

Source: Bloomberg, Ambit Capital research. Note: EV/EBITDA bands arrivedat using Bloomberg consensus estimates for respective periods

Exhibit 14:Explanation for our forensic accounting scores on the cover pageSegment Score Comments

Accounting AMBERApollos average accounting score based on Ambits forensic accounting analysis ranks in line with the sector

(auto-ancillary) average.

Predictability AMBER

Quarterly earnings reported by the company tend to be unpredictable. Given the high level of fixed costs(including depreciation and interest expenses), any marginal outperformance/underperformance at the toplinelevel tends to have a magnified impact at the net earnings level. However, this is an industry-widephenomenon. That said, the company has been regular in communicating any exceptional events such as thePerambra facility shutdown in 2010 to shareholders.

Earnings momentum GREEN Bloomberg consensus earnings show significant upgrades in the past one month.


3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Jun-1

1

Sep-1

1

Dec-

11

Mar-

12

Jun-1

2

Sep-1

2

Dec-

12

Mar-

13

Jun-1

3

Aug-1

3

Nov-1

3

Fe

b-1

4

May-1

4

Apollo 1-yr fwd P/E Avg 1-yr fwd P/E

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Jun-1

1

Sep-1

1

Dec-1

1

Mar-1

2

Jun-1

2

Sep-1

2

Dec-1

2

Mar-1

3

Jun-1

3

Aug-1

3

Nov-1

3

Fe

b-1

4

May-1

4

Apollo 1-yr fwd EV/EBITDA Avg 1-yr fwd EV/EBITDA


12/15

Apollo Tyres


Balance sheet (consolidated)

Year to March ( mn) FY12 FY13 FY14 FY15E FY16EShareholders' equity 504 504 504 509 509

Reserves & surpluses 27,824 33,397 45,134 54,962 64,989

Total networth 28,328 34,009 45,746 55,471 65,498

Minority Interest 8 - - - -

Debt 28,720 26,507 16,141 13,141 8,141

Deferred tax liability 4,025 4,928 5,241 5,241 5,241

Total liabilities 61,081 65,444 67,128 73,853 78,880

Gross block 80,344 85,219 90,657 93,508 108,562

Net block 40,238 41,693 43,022 41,569 51,835

CWIP 4,225 3,878 2,000 2,000 2,000

Goodwill on Consolidation 1,338 1,436 1,376 1,376 1,376

Investments (non-current) 158 546 637 637 637

Cash & Cash equivalents 1,730 3,348 6,541 14,348 8,651

Debtors 11,458 9,908 10,427 10,622 10,932

Inventory 19,991 20,311 20,664 21,259 22,695

Loans & advances 4,781 4,136 5,672 6,023 6,435

Total current assets 37,961 37,703 43,304 52,252 48,713

Current liabilities 17,811 13,928 16,247 16,949 18,103

Provisions 5,028 5,884 6,963 7,031 7,577

Total current liabilities 22,839 19,812 23,211 23,980 25,680

Net current assets 15,121 17,891 20,093 28,272 23,032

Total assets 61,081 65,444 67,128 73,853 78,880


Income statement (consolidated)Year to March ( mn) FY12 FY13 FY14 FY15E FY16ENet Sales 121,533 127,946 133,378 142,547 151,113

% growth 37% 5% 4% 7% 6%

Operating expenditure 109,872 113,380 115,015 123,096 131,166

EBITDA 11,661 14,567 18,363 19,452 19,947

% growth 19% 25% 26% 6% 3%

Depreciation 3,256 3,966 4,109 4,304 4,789

EBIT 8,405 10,601 14,254 15,147 15,158

Interest expenditure 2,873 3,128 2,838 1,859 1,351

Non-operating income 326 944 698 899 1,117Adjusted PBT 5,858 8,418 12,115 14,187 14,924

Tax 1,444 2,448 2,269 3,767 4,010

Adjusted PAT/ Net profit 4,393 5,958 9,846 10,420 10,914

% growth 0% 36% 65% 6% 5%

Extraordinary Expense/(Income) (294) 169 204 - -

Reported PAT / Net profit 4,687 5,789 9,642 10,420 10,914



13/15

Apollo Tyres


Cash flow statement (consolidated)

Year to March ( mn) FY12 FY13 FY14E FY15E FY16ENet Profit Before Tax 5,565 8,586 12,319 14,187 14,924

Depreciation 3,256 3,966 4,109 4,304 4,789

Others 2,825 2,817 2,750 1,692 1,113

Tax (953) (1,134) (1,955) (3,767) (4,010)

(Incr) / decr in net working capital (3,100) (1,454) 846 (524) (753)

Cash flow from operations 7,593 12,781 18,068 15,893 16,063

Capex (net) (7,895) (5,999) (3,500) (2,851) (15,054)

(Incr) / decr in investments (43) (13) (91) - -

Other income (expenditure) 58 67 88 167 239

Cash flow from investments (7,879) (5,944) (3,503) (2,684) (14,816)

Net borrowings 3,372 (1,782) (10,367) (3,000) (5,000)

Issuance of equity - 108 2,127 (103) 0

Interest paid (2,769) (3,085) (2,838) (1,859) (1,351)

Dividend paid (293) (293) (295) (439) (592)

Cash flow from financing 309 (5,053) (11,373) (5,401) (6,943)

Net change in cash 23 1,784 3,193 7,807 (5,696)

Closing cash balance 1,730 3,347 6,540 14,348 8,651

Free cash flow (302) 6,782 14,569 13,042 1,008


Ratio analysis (consolidated)

Year to March FY12 FY13 FY14E FY15E FY16E

EBITDA margin (%) 9.6% 11.4% 13.8% 13.6% 13.2%

EBIT margin (%) 6.9% 8.3% 10.7% 10.6% 10.0%

Net profit margin (%) 3.6% 4.7% 7.4% 7.3% 7.2%

Dividend payout ratio (%) 6% 4% 4% 5% 7%

Net debt: equity (x) 1.0 0.7 0.2 (0.0) (0.0)

Working capital turnover (x) 10.2 9.0 9.3 10.0 10.1

Gross block turnover (x) 1.8 1.7 1.7 1.8 1.9

RoCE (pre-tax) (%) 15.5% 17.9% 23.9% 25.9% 23.8%

RoIC (%) 11.7% 12.7% 19.4% 19.0% 17.4%

RoE (%) 16.7% 19.1% 24.7% 20.6% 18.0%


Valuation parameter (consolidated)

Year to March FY12 FY13 FY14E FY15E FY16E

EPS (`) 8.7 11.8 19.5 20.5 21.4

Diluted EPS (`) 8.7 11.8 19.5 20.5 21.4

Book value per share (`) 56.2 67.5 90.7 109.0 128.7

Dividend per share (`) 0.5 0.5 0.7 1.0 1.5

P/E (x) 23.0 16.9 10.2 9.8 9.3

P/BV (x) 3.6 3.0 2.2 1.8 1.6

EV/EBITDA (x) 9.5 7.6 6.0 5.7 5.5

EV/EBIT (x) 13.1 10.4 7.7 7.3 7.3



14/15

Apollo Tyres


Institutional Equities Team

Saurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 [email protected]

Research

Analysts Industry Sectors Desk-Phone E-mail

Nitin Bhasin - Head of Research E&C / Infrastructure / Cement (022) 30433241 [email protected]

Aadesh Mehta Banking / Financial Services (022) 30433239 [email protected]

Achint Bhagat Cement / Infrastructure (022) 30433178 [email protected]

Aditya Khemka Healthcare (022) 30433272 [email protected]

Akshay Wadhwa Banking & Financial Services (022) 30433005 [email protected]

Ashvin Shetty, CFA Automobile (022) 30433285 [email protected]

Bhargav Buddhadev Power / Capital Goods (022) 30433252 [email protected]

Dayanand Mittal, CFA Oil & Gas / Metals & Mining (022) 30433202 [email protected]

Deepesh Agarwal Power / Capital Goods (022) 30433275 [email protected]

Gaurav Mehta, CFA Strategy / Derivatives Research (022) 30433255 [email protected]

Karan Khanna Strategy (022) 30433251 [email protected]

Krishnan ASV Real Estate (022) 30433205 [email protected]

Nitin Jain Technology (022) 30433291 [email protected]

Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 [email protected]

Paresh Dave Healthcare (022) 30433212 [email protected]

Parita Ashar Metals & Mining / Oil & Gas (022) 30433223 [email protected]

Pratik Singhania Retail (022) 30433264 [email protected]

Rakshit Ranjan, CFA Consumer / Retail (022) 30433201 [email protected]

Ravi Singh Banking / Financial Services (022) 30433181 [email protected]

Ritesh Vaidya Consumer (022) 30433246 [email protected]

Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 [email protected]

Ritu Modi Automobile (022) 30433292 [email protected]

Tanuj Mukhija, CFA E&C / Infrastructure (022) 30433203 [email protected]

Utsav Mehta Technology (022) 30433209 [email protected]

Sales

Name Regions Desk-Phone E-mail

Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7614 8374 [email protected]

Deepak Sawhney India / Asia (022) 30433295 [email protected]

Dharmen Shah India / Asia (022) 30433289 [email protected]

Dipti Mehta India / USA (022) 30433053 [email protected]

Nityam Shah, CFA USA / Europe (022) 30433259 [email protected]

Parees Purohit, CFA UK / USA (022) 30433169 [email protected]

Praveena Pattabiraman India / Asia (022) 30433268 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected]

Sharoz G Hussain Production (022) 30433183 [email protected]

Joel Pereira Editor (022) 30433284 [email protected]

Nikhil Pillai Database (022) 30433265 [email protected]

E&C = Engineering & Construction


15/15

Apollo Tyres

Explanation of Investment Rating

nvestment Rating Expected return(over 12-month period from date of initial rating)

Buy >5%

Sell

Date post:	03-Jun-2018
Category:	Documents
Upload:	shahav
View:	218 times
Download:	0 times

Ambit ApolloTyres ChangeInStance 16Jun2014

Documents