INSUBCONTINENT EXCLUSIVE:
JM Financial has a buy call on Apollo Tyres with a target price of Rs 275.
The current market price of Apollo Tyres is Rs 224.85.
Time
period given by the brokerage is one year when Apollo Tyres price can reach the defined target.
Investment rationale by the brokerage:2QFY19
expectation, driven by robust demand in the TBR segment
EBITDA at Rs 3.7bn (+31 per cent YoY, -10 per cent QoQ) was 7 per cent above our estimates
EBITDA margin stood at 11 per cent (+50bpsYoY, -150bpsQoQ), 60bps below JMFe
PAT stood at Rs 1.9bn (+46 per cent YoY, -14 per cent QoQ), 9 per cent above our expectation
At the consolidated level, revenue stood at Rs 42.6bn (+23 per cent YoY, -1 per cent QoQ), in-line expectation
EBIDTA of Rs 4.7bn (+28 per cent YoY, -12 per cent QoQ) was also in-line expectation
EBITDA margin of 11 per cent (+50bps YoY, -130bps QoQ) was 90bps below JMFe due to higher other expenses
PAT at Rs 1.9bn (+33 per cent YoY, -26 per cent QoQ) was 12 per cent below JMFe/street.
Demand outlook: Standalone revenue growth of 25 per
cent YoY was driven almost entirely by strong, broad-based volume growth
In trucks, TBR/TBB volumes grew 50 per cent/20 per cent YoY while PV and farm grew 17 per cent each
Despite concerns around CV sales, APTY registered 50 per cent YoY growth in truck OEMs aided by market share gains (market share of c.28 per
cent in TBR, c.25 per cent in TBB)
Truck replacement growth continues to remain strong at 25 per cent YoY
The PCR and 2W segments are expected to witness double-digit growth driven by increased OEM penetration and traction for its new products
Chennai TBR plant is operating at 85 per cent utilisation which is expected to peak in 4Q
Capacity constraints arising from continued strong truck demand are likely to ease after the AP plant becomes operational in FY21
Consolidated capex guidance over FY19-21 remains at Rs6.5bn.
Profitability outlook: Rising commodity costs and depreciating Rs led to a 5
per cent QoQ increase in RM cost during 2QFY19 and is expected to sustain at current levels next quarter before moderating from 4QFY19
Higher other expenses due to increase in fuel cost, brand-building and RD expenses are likely to sustain at current levels.
Maintain BUY:
With robust demand in domestic TBR and the concurrent turnaround in European operations, we expect EPS CAGR of 26 per cent over FY18-21
