apollo tyres, 1q fy 2014

8/22/2019 Apollo Tyres, 1Q FY 2014

1/14

Please refer to important disclosures at the end of this report 1

Y/E March (consolidated ` cr) 1QFY14 1QFY13 % chg (yoy) 4QFY13 % chg (qoq)Net sales 3,190 3,165 0.8 3,038 5.0EBITDA 393 352 11.9 356 10.6

EBITDA Margin (%) 12.3 11.1 123bp 11.7 62bp

Adjusted PAT 165 139 19.0 123 33.7Source: Company, Angel Research

Better-than-expected 1QFY2014 performance: Apollo Tyres (APTY) reportedstrong results for 1QFY2014, beating our estimates, driven by better-than-expected operating performance led by softening of natural rubber prices. Theconsolidated top-line grew 0.8% yoy (5% qoq) to `3,190cr, slightly ahead of ourestimate of `3,091cr. A strong revenue growth of 11% yoy in the Europeanoperations, aided primarily by volumes, contributed to the overall growth in thecompanys top-line even though the company faced pricing pressures. Thestandalone operations too reported a better-than-expected revenue growth of0.7% yoy, as against our expectations of a decline of ~2%, led by volume growthof 3% yoy. On the operating front, EBITDA margins expanded 62bp sequentially(123bp yoy) to 12.3%, beating our estimates of 11.5%, and were driven primarilyon account of softening of raw-material prices. The expansion of margins on asequential basis surprised given that the company had reduced tyre prices in thedomestic markets by 1-2% in 4QFY2013. Led by a strong operating performance,the net profit grew 19% yoy to `165cr, beating our expectations of `123cr.Standalone performance too beats estimates: The standalone top-line posted abetter-than-expected growth of 0.6% yoy (6.3% qoq) to `2,165cr driven by ~3%

growth in volumes despite a challenging environment. The Net averagerealization however, registered a decline of 2.4% yoy due to adverse product andprice mix. While the EBITDA margin improved 144bp yoy on account of softeningof natural rubber prices, it declined 35bp sequentially due to price cutsimplemented in 4QFY2013. The Net profit stood at `94cr aided partially by ahigh other income.

Outlook and valuation: We have tweaked our revenue and earnings estimatesmarginally to account for the demand pressures as guided by the Managementand better-than-expected EBITDA margin performance during the quarter. Ourrevised EPS estimates for FY2014/15 stand at `13.1/ `15.4 respectively. Webelieve that the stock price movement of the company in the near term would bedetermined by the combined performance (post-acquisition) of APTY and CopperTire and Rubber Company (CTB). According to the Management, the acquisition

is set to close by October 2013. The proposed acquisition of US based CTB isexpected to increase the companys leverage significantly and leaves limited roomfor error in execution in our view. We maintain our Neutral rating on the stock.Key financials (Consolidated- excluding CTB)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015ENet Sales 12,153 12,795 13,409 15,106% chg 37.1 5.3 4.8 12.7

Net Profit 411 596 662 775% chg (4.3) 45.1 11.2 17.0

EBITDA (%) 9.4 11.4 11.8 11.6

EPS (`) 8.1 11.8 13.1 15.4P/E (x) 7.5 5.2 4.7 4.0

P/BV (x) 1.1 0.9 0.8 0.7RoE (%) 15.7 19.1 17.9 17.8

RoCE (%) 14.9 17.3 17.8 18.3

EV/Sales (x) 0.4 0.4 0.3 0.3

EV/EBITDA (x) 4.8 3.4 2.9 2.5

Source: Company, Angel Research

NEUTRALCMP `62

Target Price -

Investment Period -

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 43.4

MF / Banks / Indian Fls 14.9

FII / NRIs / OCBs 26.7

Indian Public / Others 15.0

Abs. (%) 3m 1yr 3yr

Sensex (6.0) 6.8 3.6

Apollo Tyres (37.1) (22.4) (4.0)

APTY@IN

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Tyre

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

Net Debt (`cr)

18,789

5,566

APLO.BO

3,107

1.0

102/55

619,972

1

1,947

Yaresh Kothari022-3935 7800 Ext: 6844

[email protected]

Apollo TyresPerformance highlights

1QFY2014 Result Update | Auto Ancillary

August 12, 2013


2/14

Apollo Tyres | 1QFY2014 Result Update

August 12, 2013 2

Exhibit 1:Quarterly financial performance (Consolidated)Y/E March (` cr) 1QFY14 1QFY13 % chg (yoy) 4QFY13 % chg (qoq) FY2013 FY2012 % chg (yoy)Net Sales 3,190 3,165 0.8 3,038 5.0 12,795 12,153 5.3Consumption of RM 1,708 1,777 (3.9) 1,675 2.0 7,343 7,379 (0.5)

(% of Sales) 53.5 56.2 55.1 57.4 60.7

Staff Costs 393 388 1.3 375 4.9 1,471 1,335 10.2

(% of Sales) 12.3 12.3 12.3 11.5 11.0

Purchase of traded goods 170 179 (5.1) 121 40.3 654 658 (0.6)

(% of Sales) 5.3 5.7 4.0 5.1 5.4

Other Expenses 525 468 12.1 511 2.8 1,870 1,615 15.8

(% of Sales) 16.5 14.8 16.8 14.6 13.3

Total Expenditure 2,796 2,813 (0.6) 2,682 4.3 11,338 10,987 3.2Operating Profit 393 352 11.9 356 10.6 1,457 1,166 24.9OPM (%) 12.3 11.1 11.7 11.4 9.6

Interest 72 75 (3.6) 74 (2.4) 313 287 8.9

Depreciation 99 94 5.4 120 (17.7) 397 326 21.8Other Income 11 10 11.9 44 (74.9) 94 33 189.4

PBT (excl. Extr. Items) 234 193 21.1 206 13.5 842 586 43.7Extr. Income/(Expense) - - - (17) - (17) 29 -

PBT (incl. Extr. Items) 234 193 21.1 223 4.9 859 556 54.3(% of Sales) 7.3 6.1 7.3 6.7 4.6

Provision for Taxation 68 54 25.4 82 (17.2) 245 144 69.6

(% of PBT) 29.0 28.0 36.7 28.5 25.9

Share in profit/(loss of asso. (1) (0) (1) (0) (0)

Minority interest 0 0 0 0 0

Reported PAT 165 139 19.0 140 17.6 613 412 49.0Adjusted PAT 165 139 19.0 123 33.7 597 441 35.2

Adj. PATM 5.2 4.4 4.1 4.7 3.6

Equity capital (cr) 50.4 50.4 50.4 50.4 50.4

Reported EPS (`) 3.3 2.7 19.0 2.8 17.6 12.2 8.2 49.0Adjusted EPS (`) 3.3 2.7 19.0 2.4 33.7 11.8 8.8 35.2


Exhibit 2:1QFY2014 Actual vs Angel estimatesY/E March (` cr) Actual Estimates Variation (%)Net Sales 3,190 3,091 3.2EBITDA 393 355 10.7

EBITDA margin (%) 12.3 11.5 84bp

Adj. PAT 165 145 14.1Source: Company, Angel Research

Top-line growth beats estimates: The consolidated top-line grew 0.8% yoy (5%qoq) to `3,190cr, slightly ahead of our estimate of `3,091cr. The growth was

driven by a strong revenue growth of 11% yoy in the European operations aided

primarily by volume growth of 6% yoy, even though the company faced pricing

pressures. The standalone operations too reported a better-than-expected revenue

growth of 0.7% yoy, as against our expectation of a decline of ~2%, led by volume

growth of 3% yoy. South Africa operations reported a flattish performance in INR

terms; however, revenue grew strongly by 13% yoy in local currency. The capacityutilization levels for the Indian operations remained stable on a yoy basis at

~75%. The Europe and South Africa operations operated at utilization levels of

~90% and ~80% respectively.


3/14


August 12, 2013 3

Exhibit 3:Top-line beats estimates


Exhibit 4:Revenue-mix Geography-wise


Exhibit 5:Segmental performanceY/E March 1QFY14 1QFY13 % chg (yoy) 4QFY13 % chg (qoq) FY2013 FY2012 % chg (yoy)Revenue (` cr)India 2,173 2,157 0.7 2,061 5.4 8,507 8,158 4.3

SA 391 394 (0.8) 305 28.2 1,497 1,305 14.8

Europe 726 655 11.0 736 (1.4) 2,990 2,850 4.9

Others 19 51 (63.6) 35 (47.6) 184 105 75.1

EBIT (` cr)India 203 172 18.0 215 (5.8) 735 499 47.4

SA 19 5 247.2 (7) (352.8) (1) (43) (96.8)

Europe 89 93 (4.5) 86 3.9 432 386 11.9

Others (2) 1 (333.8) (20) (90.9) (8) 1 (690.1)

EBIT margin (%)India 9.3 8.0 10.4 8.6 6.1

SA 4.7 1.4 (2.4) (0.1) (3.3)

Europe 12.2 14.2 11.6 14.5 13.6


EBITDA margin expands on softening of commodity prices: On the operating front,the EBITDA margin expanded 62bp sequentially (123bp yoy) to 12.3%, beating

our estimates of 11.5%, driven primarily by softening of raw-material prices. The

expansion of margins on a sequential basis surprised positively given that the

company had reduced tyre prices by 1-2% in 4QFY2013. At the standalone level,

while the EBITDA margin improved 144bp yoy on account of softening of natural

rubber prices, it declined 35bp sequentially due to price cuts implemented in

4QFY2013. In Europe, EBIT margins declined 200bp yoy to 12.2% largely on

account of pricing pressures. South Africa operations on the other hand, staged a

smart recovery posting EBIT margins of 4.7% (up 330bp yoy) led by volume growth

and lower raw-material prices.

2,8

22

2,8

71

3,2

28

3,2

31

3,1

65

3,3

75

3,2

17

3,0

38

3,1

90

55.0

47.3

36.3

18.4

12.117.5

(0.3) (6.0) 0.8

(10.0)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,2003,300

3,400

3,500

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%)(`cr) Net sales % chg

1,9611,845

2,0932,259

2,1572,283

2,036 2,0612,173

280 302 383 339 394 391 406 305 391

604749 820 677 655

795 816 736 726

0

500

1,000

1,500

2,000

2,500

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(`cr) India South Africa Europe


4/14


August 12, 2013 4

Exhibit 6:Average natural rubber price trend


Exhibit 7:EBITDA margin ahead of estimates at 12.3%


Adjusted net profit ahead of estimates at `165cr: Led by a strong operatingperformance, the consolidated net profit grew robustly by 19% yoy (33.7% qoq) to

`165cr, beating our expectations of `123cr.

Exhibit 8:Adjusted net profit at `166cr


98 102119

142

165 177

195

225 229211 203

191 193

181 174160

169

0

50

100

150

200

250

1QFY10

3QFY10

1QFY11

3QFY11

1QFY12

3QFY12

1QFY13

3QFY13

1QFY14

(`/kg)

8.2 8.3 10.311.2 11.1 10.9 11.9 11.7 12.3

66.0 67.0 66.3 65.361.8

66.262.5

59.1 58.9

5.0

15.0

25.0

35.0

45.0

55.0

65.0

75.0

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%) EBITDA margin Raw-material cost/sales

77

78

98

157

138

152

181

142

166

2.7 2.73.0

4.94.4 4.5

5.6

4.75.2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0

20

40

60

80

100

120

140

160

180

200

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%)(`cr) Net profit Net profit margin (RHS)


5/14


August 12, 2013 5

Exhibit 9:Quarterly financial performance (Standalone)Y/E March (` cr) 1QFY14 1QFY13 % chg (yoy) 4QFY13 % chg (qoq) FY2013 FY2012 % chg (yoy)Net Sales 2,165 2,152 0.6 2,036 6.3 8,507 8,158 4.3Consumption of RM 1,428 1,505 (5.1) 1,346 6.1 5,860 5,997 (2.3)(% of Sales) 66.0 69.9 66.1 68.9 73.5

Staff Costs 115 109 4.8 100 14.7 427 369 15.8

(% of Sales) 5.3 5.1 4.9 5.0 4.5

Purchase of traded goods 64 64 0.1 52 23.3 254 238 6.5

(% of Sales) 3.0 3.0 2.6 3.0 2.9

Other Expenses 304 252 20.4 292 3.8 1,069 888 20.4

(% of Sales) 14.0 11.7 14.4 12.6 10.9

Total Expenditure 1,911 1,931 (1.0) 1,790 6.7 7,609 7,492 1.6Operating Profit 254 222 14.7 246 3.3 898 666 34.8OPM (%) 11.7 10.3 12.1 10.6 8.2

Interest 63 62 2.4 63 0.7 261 241 8.2

Depreciation 59 55 8.4 56 6.7 220 186 18.5

Other Income 8 5 60.6 25 (67.7) 57 18 215.4

PBT (excl. Extr. Items) 139 110 26.8 152 (8.5) 475 258 84.3Extr. Income/(Expense) - - - - - - - -

PBT (incl. Extr. Items) 139 110 26.8 152 (8.5) 475 258 84.3(% of Sales) 6.4 5.1 7.5 5.6 3.2

Provision for Taxation 46 35 32.2 64 (28.5) 162 76 112.6

(% of PBT) 32.8 31.5 42.0 34.1 29.6

Reported PAT 94 75 24.3 88 6.0 313 181 72.4Adjusted PAT 94 75 24.3 88 6.0 313 181 72.4

Adj. PATM 4.3 3.5 4.3 3.7 2.2

Equity capital (cr) 50.4 50.4 50.4 50.4 50.4

Reported EPS (`) 1.9 1.5 24.3 1.8 6.0 6.2 3.6 72.4Adjusted EPS (`) 1.9 1.5 24.3 1.8 6.0 6.2 3.6 72.4


Net sales down on 10% yoy decline in volumes: On a standalone basis, the top-line posted a better-than-expected growth of 0.6% yoy (6.3% qoq) to `2,165cr led

by ~3% growth in volumes despite a challenging environment. The Net average

realization however registered a decline of 2.4% yoy due to adverse product and

price mix. Effective March 15, 2013, APTY undertook an average price cut of 1-2%

which weighed on the companys realization. During the quarter, the replacement

market accounted for 65% of standalone revenues and the balance was

contributed by the OEMs (27%) and exports (8%). In terms of product-mix, truck

tyres accounted for 63% of revenues and passenger car tyres accounted for 16% of

the revenues.

According to the Management, the radialization levels in the truck tyre segment

continue to gain traction and have reached ~25%. The companys market share in

the TBR space stands at 27.5% as of FY2013. Further, the Management expects

the raw-material prices to remain stable going forward; however, the INR

depreciation is likely to keep EBITDA margin under pressure.


6/14


August 12, 2013 6

Exhibit 10:Top-line grows 0.6% yoy


EBITDA margin at 11.7%: On the operating front, while the EBITDA marginimproved 144bp yoy largely on account of softening of natural rubber prices, it

declined 35bp sequentially due to price cuts implemented in 4QFY2013. The

Net profit for the quarter stood at `94cr (up 24.3% yoy and 6% qoq),

slightly ahead of our estimate of `91cr and was partially aided by higher other

income (up 60.6% yoy).

Exhibit 11:Average raw-material cost trendParticulars 1QFY14 1QFY13 % chg (yoy) 4QFY13 % chg (qoq)Natural rubber 175 185 (5.4) 180 (2.8)

Nylon tyre cord fabric 225 255 (11.8) 230 (2.2)

Carbon black 75 85 (11.8) 78 (3.8)


Exhibit 12:EBITDA margin improves to 12.1%


Exhibit 13:Net profit grows strongly


1,9

61

1,8

45

2,0

93

2,2

59

2,1

52

2,2

83

2,0

36

2,0

36

2,1

65

74.9

56.946.2

28.2

9.8

23.7

(2.7)(9.9) 0.6

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

0

500

1,000

1,500

2,000

2,500

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%)(`cr) Net sales yoy change (RHS)

7.6 7.3 8.1 9.5 10.3 9.9 10.112.1 11.7

77.0 77.0 76.5 75.5 72.9 74.6 70.9 68.6 68.9

0.0

10.0

20.0

30.0

40.050.0

60.0

70.0

80.0

90.0

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%) EBITDA margin Raw material cost/sales

44

22

43

72

75

75

74

88

94

2.3

1.2

2.0

3.23.5

3.33.6

4.3 4.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0

10

20

30

40

50

60

70

80

90

100

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

(%)(`cr) Net profit Net profit margin (RHS)


7/14


August 12, 2013 7

Investment arguments

Tyre industry set for a structural shift: Currently, manufacturing radial tyres isfar more capital intensive than manufacturing cross-ply tyres. The investment

required for radial tyres per tpd is 3.2x that of cross-ply tyres, at `6.1cr/tpd.

On the other hand, the selling price of radial tyres is ~20% higher than that of

cross-ply tyres. Thus, to generate a similar RoCE and RoE, tyre companies

would need to earn EBITDA margin of ~21% compared to ~9% earned on

cross-ply tyres, considering the difference in capital requirements and the

consequent impact on asset turnover, interest cost and depreciation.

Therefore, higher capital requirements will help protect margins from

upward-bound input costs, as the business model evolves, bearing in mind

final RoEs rather than margins. With the sector set for a structural shift and the

apparent pricing flexibility, RoCE and RoE of tyre manufacturers are expected

to improve going forward.

Riding on high domestic demand: The Indian tyre industry is currentlywitnessing a slowdown in demand from the replacement as well as OEM

markets, primarily due to macro-economic concerns. However the demand

scenario in the long term remains encouraging which will aid APTY to operate

at optimal capacities.

CTB acquisition to remain an overhang in the near term: APTY and CTB haveannounced a definitive merger agreement, under which APTY will acquire CTB

in an all cash transaction valuing the firm at US$2.5bn (including minority

interest). The acquisition would be funded entirely through debt. While theacquisition appears to be a good strategic fit for APTY in the long run,

concerns regarding the large size of acquisition, substantial increase in

leverage and the Managements ability to successfully integrate the operations

has led to an ~40% correction in APTYs stock price since the deal has been

announced. According to the Management, post the consolidation, the

consolidated net Debt: Equity is expected to jump sharply to ~2x from 0.6x

currently. We believe that the execution would be the key thing going ahead,

as successful execution will lend stability to the operations and lead to lower

leverage over time. Additionally, sustainability of margins of CTB (EBITDA

margins have been in the range of 7.5%-12.5% over the last three years)

would be very important given the obligation of servicing the huge debt that

the company would be undertaking.

Outlook and valuationWe have tweaked our revenue and earnings estimates marginally to account for

the demand pressures as guided by the Management and better-than-expected

EBITDA margin performance during the quarter. Our revised EPS estimates for

FY2014/15 stand at `13.1/ `15.4 respectively.


8/14


August 12, 2013 8

Exhibit 14:Change in estimatesY/E March (` cr) Earlier Estimates Revised Estimates % chg

FY2014E FY2015E FY2014E FY2015E FY2014E FY2015ENet sales 13,852 15,487 13,409 15,106 (3.2) (2.5)OPM (%) 11.4 11.5 11.8 11.6 36bp 1bp

EPS (`) 12.8 14.9 13.1 15.4 2.3 3.2Source: Company, Angel Research

We believe that the stock price movement of the company in the near term would

be determined by the combined performance (post-acquisition) of APTY and

Copper Tire and Rubber Company (CTB). According to the Management, the

acquisition is set to close by October 2013. The proposed acquisition of US based

CTB is expected to increase the companys leverage significantly and leaves limited

room for error in execution in our view. We have not yet incorporated the

financials of CTB into our assumptions. We maintain our Neutral rating on thestock.Key downside risks to our call: A sharp rise in input costs from current levels,slower growth in international business and lower-than-anticipated domestic

replacement demand pose downside risks to our estimates.

Exhibit 15:Angel vs consensus forecastAngel estimates Consensus Variation (%)

FY2014E FY2015E FY2014E FY2015E FY2014E FY2015ENet sales (` cr) 13,409 15,106 13,654 14,940 (1.8) 1.1EPS (`) 13.1 15.4 13.3 15.2 (1.2) 1.4


Exhibit 16:One-year forward P/E band


Exhibit 17:One-year forward P/E chart


0

20

4060

80

100

120

140

160

180

Apr-03

Mar-04

Feb-0

5

Jan-0

6

Jan-0

7

Dec-0

7

Nov-0

8

Oct-09

Oct-10

Sep-1

1

Aug-1

2

Jul-13

(`) CMP (`) 2.0 5.0 8.0 11.0

0.0

2.0

4.06.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Jul-05

Apr-06

Jan-0

7

Oct-07

Jun-0

8

Mar-09

Dec-0

9

Aug-1

0

May-1

1

Feb-1

2

Oct-12

Jul-13

(x) One-yr forward P/E Five-yr average P/E


9/14


August 12, 2013 9

Exhibit 18:One-year forward EV/EBITDA band


Exhibit 19:One-year forward EV/EBITDA chart


Exhibit 20:Auto Ancillary Recommendation summaryCompany Reco. CMP(`) Tgt. price(`) Upside(%)

P/E (x) EV/EBITDA (x) RoE (%) FY13-15E EPSFY14E FY15E FY14E FY15E FY14E FY15E CAGR (%)

Apollo Tyres* Neutral 62 - - 4.7 4.0 2.9 2.5 17.9 17.8 14.0Ceat Buy 122 170 39.5 2.8 2.5 2.1 1.8 18.4 17.5 17.6

JKI* Buy 92 154 67.7 2.4 2.1 4.0 3.8 16.4 16.6 4.4

Source: Company, Angel Research; Note: *Consolidated

Company background

Apollo Tyres (APTY) is India's second largest tyre manufacturer with an overall tyremarket share of ~18%. The company has a leadership position in the heavy and

light commercial vehicle tyre segments, with a 23% and 26% market share

respectively. APTY acquired Dunlop's South African operations in 2006 and

Vredestein Branden BV (Netherlands) in May 2009. These acquisitions now

account for ~35% of APTY's consolidated revenue. The company has eight

manufacturing plants located across India (1,400TPD), South Africa (175TPD) and

Europe (170TPD), with a total installed capacity of 1,750TPD. APTY's main brands

include Apollo (India); Dunlop (South Africa); and Maloya, Regal and Vredestein

(Europe). The company has recently entered into an agreement to acquire US

based tyre manufacturer, CTB in an all cash transaction valuing the firm at

US$2.5bn (including minority interest). Post the acquisition; the combined entity

will be the 7th largest tyre company in the world with combined revenues of

US$6.6bn.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Apr-03

Feb-0

4

Dec-0

4

Oct-05

Sep-0

6

Jul-07

May-0

8

Apr-09

Feb-1

0

Dec-1

0

Nov-1

1

Sep-1

2

Jul-13

(`cr) EV (`cr) 2.0 4.0 6.0 8.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jul-05

Apr-06

Jan-0

7

Sep-0

7

Jun-0

8

Mar-09

Nov-0

9

Aug-1

0

May-1

1

Jan-1

2

Oct-12

Jul-13

(x) One-yr forward EV/EBITDA Five-yr average EV/EBITDA


10/14


August 12, 2013 10

Profit and loss statement (Consolidated- excluding CTB)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ETotal operating income 8,121 8,868 12,153 12,795 13,409 15,106% chg 62.6 9.2 37.1 5.3 4.8 12.7Total expenditure 6,936 7,895 11,007 11,338 11,827 13,361Net raw material costs 4,581 5,322 8,037 7,997 8,247 9,366

Other mfg costs 539 629 746 910 979 1,110

Employee expenses 1,088 1,134 1,335 1,471 1,582 1,782

Other 727 810 889 960 1,019 1,103

EBITDA 1,185 972 1,146 1,457 1,582 1,745% chg 180.7 (18.0) 17.9 27.1 8.6 10.3

(% of total op. income) 14.6 11.0 9.4 11.4 11.8 11.6

Depreciation & amortization 254 272 326 397 411 430

EBIT 931 700 821 1,060 1,172 1,315% chg 216.9 (24.8) 17.2 29.2 10.5 12.2


Interest and other charges 134 204 297 313 292 282

Other income 177 62 32 94 55 61

Recurring PBT 973 558 556 842 934 1,093% chg 357.3 (42.6) (0.5) 51.5 11.0 17.0

Extraordinary items 59 11 (1) (17) - -

PBT (reported) 914 547 556 859 934 1,093Tax 261 106 144 245 271 317

(% of PBT) 28.5 19.4 25.9 28.5 29.0 29.0

PAT (reported) 653 441 412 614 663 776Minority interest 0 1 2 1 1 1

PAT (reported) 653 440 410 613 662 775ADJ. PAT 594 429 411 596 662 775% chg 325.3 (27.8) (4.3) 45.1 11.2 17.0


Basic EPS (`) 13.0 8.7 8.1 12.2 13.1 15.4Adj. EPS (`) 11.8 8.5 8.1 11.8 13.1 15.4% chg 325.3 (27.8) (4.3) 45.1 11.2 17.0


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August 12, 2013 11

Balance sheet statement (Consolidated- excluding CTB)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ESOURCES OF FUNDSEquity share capital 50 50 50 50 50 50Reserves & surplus 1,917 2,362 2,782 3,350 3,953 4,669

Shareholders Funds 1,968 2,413 2,833 3,401 4,004 4,719Minority Interest - 1 1 - - -

Total loans 1,707 2,222 2,550 2,282 2,232 2,132

Deferred tax liability 251 316 403 493 493 493

Other long term liabilities - 21 45 27 27 27

Long term provisions - 107 94 109 109 109

Total Liabilities 3,926 5,079 5,925 6,312 6,865 7,480APPLICATION OF FUNDSGross block 5,563 6,895 8,034 8,545 8,929 9,342

Less: Acc. depreciation 3,120 3,501 4,011 4,407 4,818 5,248

Net Block 2,443 3,394 4,024 4,138 4,112 4,095Capital work-in-progress 536 358 331 352 367 384

Goodwill 118 125 134 144 144 144

Investments 6 11 16 55 109 109Long term loans and advances - 264 221 181 181 181

Other noncurrent assets - - - - - -

Current assets 2,439 3,154 3,667 3,657 4,257 5,051Cash 349 191 173 335 594 707

Loans & advances 310 258 349 301 402 453

Other 1,780 2,705 3,145 3,022 3,261 3,891

Current liabilities 1,614 2,227 2,467 2,214 2,305 2,483

Net current assets 824 928 1,200 1,444 1,952 2,567Total Assets 3,926 5,079 5,925 6,312 6,865 7,480


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August 12, 2013 12

Cash flow statement (Consolidated- excluding CTB)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 973 558 556 842 934 1,093

Depreciation 254 272 326 397 411 430Change in working capital (115) (261) (291) (81) (281) (533)

Others 637 16 345 114 - -

Other income (177) (62) (32) (94) (55) (61)

Direct taxes paid (261) (106) (144) (245) (271) (317)

Cash Flow from Operations 1,312 416 759 932 738 612(Inc.)/Dec. in fixed assets (3,627) (1,161) (1,121) (531) (400) (430)

(Inc.)/Dec. in investments (1) (5) (5) (39) (55) -

Other income 177 62 32 94 55 61

Cash Flow from Investing (3,452) (1,105) (1,094) (476) (400) (369)Issue of equity - - - - - -

Inc./(Dec.) in loans 816 515 328 (268) (50) (100)

Dividend paid (Incl. Tax) 44 29 29 29 29 29

Others 1,266 (14) (59) - - -

Cash Flow from Financing 2,126 530 299 (297) (79) (129)Inc./(Dec.) in cash (13) (158) (18) 162 259 113

Opening Cash balances 362 349 191 173 335 594Closing Cash balances 349 191 173 335 594 707


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August 12, 2013 13

Key ratios

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 4.8 7.1 7.5 5.2 4.7 4.0P/CEPS 3.7 4.4 4.2 3.1 2.9 2.6

P/BV 1.6 1.3 1.1 0.9 0.8 0.7

Dividend yield (%) 1.2 0.8 0.8 0.8 0.8 0.8

EV/Sales 0.5 0.6 0.4 0.4 0.3 0.3

EV/EBITDA 3.8 5.3 4.8 3.4 2.9 2.5

EV /Total Assets 1.1 1.0 0.9 0.8 0.7 0.6

Per Share Data (`)EPS (Basic) 13.0 8.7 8.1 12.2 13.1 15.4

EPS (fully diluted) 11.8 8.5 8.1 11.8 13.1 15.4

Cash EPS 16.8 13.9 14.6 20.0 21.3 23.9

DPS 0.7 0.5 0.5 0.5 0.5 0.5

Book Value 39.0 47.9 56.2 67.5 79.4 93.6

Dupont AnalysisEBIT margin 11.5 7.9 6.8 8.3 8.7 8.7

Tax retention ratio 0.7 0.8 0.7 0.7 0.7 0.7

Asset turnover (x) 2.9 2.1 2.3 2.2 2.2 2.3

ROIC (Post-tax) 23.6 13.3 11.4 12.9 13.6 14.3

Cost of Debt (Post Tax) 7.4 8.4 9.2 9.3 9.2 9.2

Leverage (x) 0.6 0.8 0.8 0.7 0.5 0.3

Operating ROE 32.7 17.1 13.3 15.4 15.6 16.0

Returns (%)ROCE (Pre-tax) 29.3 15.6 14.9 17.3 17.8 18.3

Angel ROIC (Pre-tax) 26.0 14.3 14.3 17.7 18.7 19.4

ROE 35.8 19.6 15.7 19.1 17.9 17.8

Turnover ratios (x)Asset Turnover (Gross Block) 2.1 1.4 1.6 1.5 1.5 1.7

Inventory / Sales (days) 36 57 56 57 57 61

Receivables (days) 23 36 31 30 32 33

Payables (days) 41 65 59 49 48 46

WC cycle (ex-cash) (days) 19 25 26 30 34 39

Solvency ratios (x)Net debt to equity 0.7 0.8 0.8 0.6 0.4 0.3

Net debt to EBITDA 1.1 2.1 2.1 1.3 1.0 0.8

Interest Coverage (EBIT / Int.) 6.9 3.4 2.8 3.4 4.0 4.7


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Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates mayhave investment positions in the stocks recommended in this report.

Disclosure of Interest Statement Apollo Tyres

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

apollo tyres, 1q fy 2014

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