EUR 120.00 For Business Accounts Only

MOSL: APOLLO TYRES (Buy)-Raw material inflation hurts performance

APOLLO TYRES: Raw material inflation hurts performance

(APTY IN, Mkt Cap USD1.9b, CMP INR222, TP INR290, 30% Upside, Buy)

 

Price increases taken in Jul-Aug'21 to largely absorb full cost inflation

• APTY's 1QFY22 operating performance was impacted by higher RM cost in its India operations as well impact of the transition in its EU operations. Demand recovery in India as well as consistent price hikes will drive a margin recovery in India. Turnaround in its EU operations and profitability in mid-teens are expected to be structural and sustainable.
• We cut our FY22E consolidated EPS by ~4.6% to factor in RM cost inflation and the transitory impact on its EU operations, but maintain our FY23E estimate. We maintain our Buy rating.

 

Raw material cost inflation, operating deleverage hurts margin

• Consolidated performance: Revenue declined by 9% QoQ (+59.5% YoY) to INR45.85b. EBIDTA fell by 30% QoQ (+139% YoY) to INR5.7b. Adjusted PAT declined by 55% QoQ to INR1.29b.
• Standalone business performance: Revenue fell 11% QoQ to INR32.2b due to a 14% decline in volume, diluted by a 3% increase in ASPs.
• Gross margin contracted by 440bp QoQ (-430bp YoY) to 34.2% due to RM cost inflation (~11% QoQ), diluted by 3-4% price hikes. EBIDTA margin stood at 10.4%, a decline of 500bp QoQ (-40bp YoY). Adjusted PAT fell 70% QoQ to INR685m.
• Europe performance (manufacturing operations): Revenue from EU operations declined by ~16% QoQ to EUR114m, impacted by transition of operations from the Netherlands. Gross margin improved QoQ, despite a cost push (6-7%), driven by a richer product mix. EBITDA margin declined by 150bp QoQ to 16.3%, impacted by operating deleverage.