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Equity | India | Automobile

Result Update
CMP (`) 75.50

Apollo Tyres Ltd.


February 09, 2012
Absolute Rating NOT RATED

Q3FY12 Strong sequential improvement in performance


Apollo Tyres Ltds consolidated revenues grew 36.3% Y-o-Y to `32.3 bn in Q3FY12 against `23.7 bn in Q3FY11 due to strong growth from Indian and European businesses. Sequentially revenues grew 12.4% due strong volume growth and better product mix. EBITDA grew 18.7% Y-o-Y to `3.2 bn. The growth was lower as compared to 36% revenue growth due to 54.5% Y-o-Y increase in the raw material costs to `21.5 bn. PAT declined 18.6% Y-o-Y to `980 mn in Q3FY12 against `1.2 bn in Q3FY11 due to higher interest expense (`731 mn versus `529 mn) and `294 mn exceptional loss in the current quarter.

Market Info (as on February 09, 2012)


BSE Sensex Nifty S&P 17830 5412

Stock Detail
BSE Group BSE Code NSE Code Bloomberg Code Market Cap (`bn) Free Float (%) 52wk Hi/Lo Avg. Daily Volume (NSE) Face Value / Div. per share (`) Shares Outstanding (mn) A 500877 APOLLOTYRE APTY IN 38.05 60% 82.5 / 44.05 2426907 1.00 / 0.50 504

Result Highlights
Raw material to sales ratio decline after 10 quarters of upward movement Raw material to sales ratio declined to 66.6% in the Q3FY12. This decline was seen after 10 quarters. In Q2FY12 it touched 67.5%. The softening of rubber prices led to 200bps improvement in EBITDA margins sequentially to 10.0%. European business continues its strong growth due to robust demand from winter tyres European business continues to grow stronger on back of strong demand seen from the winter tyres. Company posted strong winter tyres sales in the month of October and November 2011 but slowed in the month of December 2011. Revenues from the European operations grew 26.3% Y-o-Y to `8.2 bn due to 12% price increase, better product mix and 14% increase in currency movements. Volume growth was flat on account of strong base seen in the third quarter last year. South African business impacted the consolidated bottom line due to `296 mn EBIT loss Revenues from the South African operations increased 27.9% Y-o-Y to `3.8 bn due to 23% growth in volumes, 8% price increase and better product mix. EBITDA margins were slightly under 3%. At EBIT level, company posted `296 mn loss due to Rand 45 mn to be paid for the settlement issues over next three years.

Shareholding Pattern (in %)


Promoters 46.39 FIIs 22.58 DII 12.30 Others 18.73

Share Price Performance


180 160 140 120 100 80 60 Apr-11 Jul-11 Jan-12 Aug-11 Feb-11 Mar-11 May-11 Nov-11 Sep-11 Feb-12 Jun-11 Oct-11 Dec-11

Valuation & Viewpoint


With rubber prices beginning to soften and strong growth from the European business, Apollo tyres at CMP of `75.5 is trading at a P/E multiple of 7.3x its consensus FY13E earnings of `10.3 and looks a better player in the tyres segment. The deterrent for the company is the losses from the South African business, any improvement seen from this operation should boost the consolidated bottom line going forward. Quarterly Result Snapshot
Y/E Mar ` mn Net Sales Q3FY12 32,282 3,243 980 1.94 Q3FY11 23,687 2,732 1,204 2.39 Y-o-Y Chg 36.3% 18.7% (18.6)% (18.8)% Y-o-Y Chg 10.0% 3.0% 11.5% 5.1% (148)bps (200)bps 8.0% 2.7% Q2FY12 28,712 2,305 778 1.54 Q-o-Q Chg 12.4% 40.7% 26.1% 26.0% Q-o-Q Chg 200bps 30bps

Apollo Tyres

BSE SENSEX

Rel. Perf. Apollo (%) SENSEX (%)

1Mth 18.6 12.0

3 Mths 26.1 0.8

6Mths 13.2 4.2

1Yr 47.0 (0.4)

EBITDA PAT EPS Margin Profile EBITDA Margin (%) PAT Margin (%)

Source: Company data, GEPL Capital Research

Source: Company data, GEPL Capital Research

Analyst
Nayan Shah

+91-22- 6614 2694 nayan@geplcapital.com

GEPL Capital Research

Equity | India | Automobile

Apollo Tyres Ltd.


Segmental Performance
Segmental revenues India Y-o-Y (%) % of revenues South Africa Y-o-Y (%) % of revenues Europe Y-o-Y (%) % of revenues Others Y-o-Y (%) % of revenues Net segmental revenues Y-o-Y (%) Dec-10 14,320 8.2 60.2 2,995 2.6 12.6 6,492 (4.7) 27.3 NA 0.0 23,807 3.7 Mar-11 17,616 34.2 64.3 3,539 31.4 12.9 6,230 10.4 22.7 NA 0.0 27,385 27.6 Jun-11 19,608 74.9 68.9 2,800 5.1 9.8 6,035 37.9 21.2 34 NA 0.1 28,477 56.0

February 09, 2012

Sep-11 18,449 56.9 62.9 3,023 14.8 10.3 7,492 42.8 25.5 376 NA 1.3 29,340 49.4

Dec-11 20,932 46.2 62.8 3,832 27.9 11.5 8,197 26.3 24.6 353 NA 1.1 33,314 39.9

EBIT India % of EBIT South Africa % of EBIT Europe % of EBIT Others % of EBIT Total Y-o-Y (%)
Source: Company data, GEPL Capital Research

Dec-10 1,155 54.7 78 3.7 883 41.9 (7) (0.3) 2,109 (34.0)

Mar-11 1,244 47.1 247 9.4 1,148 43.5 0.0 2,640 (23.7)

Jun-11 1,157 68.9 (51) (3.1) 589 35.1 (16) (0.9) 1,679 19.3

Sep-11 816 49.9 26 1.6 795 48.6 (3) (0.2) 1,634 30.8

Dec-11 1,211 55.5 (296) (13.6) 1,290 59.1 (21) (1.0) 2,183 3.5

GEPL Capital Research| Q3FY12 Result Update

Equity | India | Automobile

Apollo Tyres Ltd.


Quarterly Financials
Y/E Mar ` mn Net sales Y-o-Y (%) Q-o-Q (%) Total expenditure Raw material costs % of sales Y-o-Y (%) Q-o-Q (%) Staff cost % of sales Y-o-Y (%) Q-o-Q (%) Other expenses % of sales Y-o-Y (%) Q-o-Q (%) EBIDTA EBIDTAM (%) Y-o-Y (bps) Y-o-Y (%) Other Income Depreciation Y-o-Y (%) EBIT Interest Y-o-Y (%) PBT Extra - ordinary items Tax Tax rate (%) Profit after tax NPM (%) Y-o-Y (%) Q-o-Q (%) EPS (`)
Source: Company data, GEPL Capital Research

February 09, 2012

Dec-10 23,687 3.2 21.5 20,955 13,912 58.7 13.3 21.2 3,126 13.2 5.4 3.7 3,917 16.5 1.0 24.5 2,732 11.5 (518) (28.8) 50 673 (0.0) 2,109 529 20.7 1,580 0 372 23.6 1,204 5.1 (35.7) 126.1 2.39

Mar-11 27,297 27.4 15.2 24,084 17,410 63.8 32.8 25.1 2,502 9.2 (15.8) (20.0) 4,171 15.3 76.0 6.5 3,213 11.8 (215) 7.7 171 739 15.2 2,645 543 332.7 2,103 0 177 8.4 1,923 7.0 (26.9) 59.7 3.81

Jun-11 28,224 55.0 3.4 25,821 18,553 65.7 81.5 6.6 3,517 12.5 20.8 40.5 3,751 13.3 21.5 (10.1) 2,403 8.5 (239) 21.0 19 754 18.1 1,669 620 83.2 1,049 0 274 26.1 771 2.7 3.9 (59.9) 1.53

Sep-11 28,712 47.3 1.7 26,408 19,395 67.5 69.0 4.5 3,299 11.5 9.5 (6.2) 3,714 12.9 18.0 (1.0) 2,305 8.0 (148) 24.4 118 777 16.0 1,646 654 47.9 992 0 211 21.2 778 2.7 46.0 0.8 1.54

Dec-11 32,282 36.3 12.4 29,039 21,493 66.6 54.5 10.8 3,511 10.9 12.3 6.4 4,035 12.5 3.0 8.7 3,243 10.0 (148) 18.7 33 824 22.3 2,453 731 38.2 1,722 294 444 25.8 980 3.0 (18.6) 26.1 1.94

GEPL Capital Research| Q3FY12 Result Update

Equity | India | Automobile

Apollo Tyres Ltd.


NOTES

February 09, 2012

GEPL CAPITAL Pvt Ltd (formerly known as Gupta Equities Pvt. Ltd.) Head Office: D-21/22 Dhanraj mahal, CSM Marg, Colaba, Mumbai 400001 Reg. Office : 922-C, P.J. Towers, Dalal Street, Fort, Mumbai 400001 Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Name : Nayan Shah Sector : Automobile Disclaimer: This report has been prepared by GEPL Capital Private Limited ("GEPL Capital "). GEPL Capital is regulated by the Securities and Exchange Board of India. This report does not constitute a prospectus, offering circular or offering memorandum and is not an offer or invitation to buy or sell any securities, nor shall part, or all, of this presentation form the basis of, or be relied on in connection with, any contract or investment decision in relation to any securities. This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy, recommendation or any other content contained herein is suitable or appropriate to a recipients individual circumstances or otherwise constitutes a personal recommendation. All investments involve risks and investors should exercise prudence in making their investment decisions. The report should not be regarded by the recipients as a substitute for the exercise of their own judgment. Any opinions expressed in this report are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of GEPL Capital as a result of using different assumptions and criteria. GEPL Capital is under no obligation to update or keep current the information contained herein. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument mentioned in this report. Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments. There is no representation that any transaction can or could have been effected at those prices and any prices do not necessarily reflect GEPL Capitals internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions, by GEPL Capital or any other source may yield substantially different results. GEPL Capital makes no representation or warranty, express or implied, as to, and does not accept any responsibility or liability with respect to, the fairness, accuracy, completeness or correctness of any information or opinions contained herein. Further, GEPL Capital assumes no responsibility to publicly amend, modify or revise any forward-looking statements, on the basis of any subsequent development, information or events, or otherwise. Neither GEPL Capital nor any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. In no event shall GEPL capital be liable for any direct, special indirect or consequential damages, or any other damages of any kind, including but not limited to loss of use, loss of profits, or loss of data, whether in an action in contract, tort (including but not limited to negligence), or otherwise, arising out of or in any way connected with the use of this report or the materials contained in, or accessed through, this report. GEPL Capital and its affiliates and/or their officers, directors and employees may have similar or an opposite positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). The disclosures contained in the reports produced by GEPL Capital shall be strictly governed by and construed in accordance with Indian law. GEPL Capital specifically prohibits the redistribution of this material in whole or in part without the written permission of GEPL Capital and GEPL Capital accepts no liability whatsoever for the actions of third parties in this regard.

GEPL Capital Research| Q3FY12 Result Update