Valuation and Analysis

We value the company using 4 valuation methods. Namely, FCFF, FCFE, APV and CCF.

Free Cashflow to the Firm (FCFF):

2021E 2022E 2023E 2024E 2025E
EBIT (1-tax) 9213 10552 10958 11398 12608
Add: Depreciation 6207.05 7771.57 8211.08 8708.74 8778.88
Less: Capex 10,100.42 10,896.22 12,547.11 13,589.98 14,550.34
Less: Changes in Non-Cash WC -12324.93 7274.91 5493.53 1320.42 2384.24
FCFF 17644.57 152.25 1128.15 5196.67 4452.67
Terminal Value 144684.2
PV of Free Cash Flow 16148.84 127.53 864.88 3646.25 2859.38
PV of Terminal Value 92912.06

Enterprise Value 116558

.94
Less: Debt 48582.
38
Add: Cash 2365.8
4
Value of Equity 70342.
40
No. of Outstanding 572.05
Shares
Intrinsic Value per Share 122.97
Current Market Price 131.7
Potential Upside/ -6.63%
Downside

Free Cashflow to Equity (FCFE):

2021E 2022E 2023E 2024E 2025E
Projected Cash Flow 8024 9293 9606 10132 11316
Add: Depreciation 7771.57 8211.08 8708.74 8778.88 9287.16
Less: Capex 10,100.42 10,896.2 12,547.1 13,589.98 14,550.34
2 1
Less: Changes in Non-Cash WC -12324.93 7274.91 5493.53 1320.42 2384.24
less: Debt Repayment 525.99 -128.34 -1079.01 -701.20 -416.91
FCFE 17493.95 -539.03 1353.12 4701.36 4085.36
Terminal Value 76190.0
PV of Free Cash Flow 15663.83 -432.15 971.32 3021.78 2351.15
PV of Terminal Value 43847.76

Enterprise Value 65423.68

Add: Cash 2365.84
Value of Equity 67789.52
No. of Outstanding Shares 572.05
 Intrinsic Value per Share 118.50
Current Market Price 131.7
Potential Upside/Downside -10.02%

Adjusted Present Value (APV):

2021E 2022E 2023E 2024E 2025E
EBIT (1-tax) 9213 10552 10958 11398 12608
Add: Depreciation 6207.05 7771.57 8211.08 8708.74 8778.88
Less: Capex 10,100.42 10,896.22 12,547.11 13,589.98 14,550.34
Less: Changes in Non-Cash WC -12324.93 7274.91 5493.53 1320.42 2384.24
Less: Depreciation 525.99 -128.34 -1079.01 -701.20 -416.91
FCFF 17118.59 280.59 2207.16 5897.87 4869.58
Terminal Value 90815.3
PV of Free Cash Flow 15327.73 224.95 1584.39 3790.83 2802.47
PV of Terminal Value 52264.68
Value of Unlevered Firm 75995.05

Finance Cost 1670.31 1768.61 1898.62 1779.18 1815.47

Tax Shield 481.16 509.47 546.93 512.52 522.97
Terminal Value of Tax Shield 31951.11
PV of Tax Shield 446.61 438.94 437.38 380.44 360.33
PV of Terminal Tax Shield 12780.44
Value of Tax Shield 14844.14

Value of Equity less Cash 90839.19

Add: Cash 2365.84
Value of Equity 93205.03
No. of Outstanding Shares 572.05
Intrinsic Value per Share 162.93

Current Market Price 131.7

Potential Upside/Downside 23.71%

Capital Cashflow (CCF):

2021E 2022E 2023E 2024E 2025E
Projected Cash Flow 8203 9578 9927 10302 11492
Add: Depriciation 7771.57 8211.08 8708.74 8778.88 9287.16
Less: Capex 10,100.42 10,896.22 12,547.1 13,589.98 14,550.34
1
Less: Changes in Non-Cash WC -12324.93 7274.91 5493.53 1320.42 2384.24
FCFF 18199.57 -381.81 595.37 4169.98 3844.51
Terminal Value 124922.8
PV of Free Cash Flow 16656.79 -319.82 456.43 2925.87 2468.84
PV of Terminal Value 80221.90
 Enterprise Value 102410.01
less: Debt 48582.38
Add: Cash 2365.84
Value of Equity 104775.85
No. of Outstanding Shares 572.05
Intrinsic Value per Share 183.16
Current Market Price 131.7
Potential Upside/Downside 39.07%

Valuation Snapshot:
FCFF
Intrinsic Value per Share 122.97
Current Market Price 131.7
Potential Upside/Downside -6.63%

FCFE
Intrinsic Value per Share 118.50
Current Market Price 131.7
Potential Upside/Downside -10.02%

APV
Intrinsic Value per Share 162.93
Current Market Price 131.7
Potential Upside/Downside 23.71%

CCF
Intrinsic Value per Share 183.16
Current Market Price 131.7
Potential Upside/Downside 39.07%

Recommendation and Conclusion

Apollo Tyres if we go with FCFF & FCFE method of valuation is slightly over-valued around 6.63% and
10.02% respectively. However, with the modest assumptions, using APV & CCF method we can find
that the Apollo Tyres looks under-valued based on the above calculations.

Apollo Tyres expects domestic replacement demand to remain strong in coming months, with July
continuing Q1FY21 strength. The company expects to post sequential growth in Europe, going
ahead, and retain focus on costs with operating at 90% of normal levels in Europe during Q2FY21E.
The management said that rebound in India replacement demand had been much higher than
expected.

Hence, with the above-mentioned factors in place and the market demand recovering from the
COVID-19 crisis, the company is likely to be well-positioned against it competitors. Hence, we give a
HOLD recommendation on Apollo Tyres.