MOSL: AUTOMOBILES – TYRES: Ready to roll; Return of growth, supported by timely capacity addition | APTY is our top pick
AUTOMOBILES – TYRES: Ready to roll; Return of growth, supported by timely capacity addition | APTY is our top pick
- The Indian Tyre industry is expected to recover from five years of weakness and be on a linear growth path (~12% CAGR over FY21-25E), supported by timely capacity expansion across companies. Improving demand, stable competitive intensity, and peak capex (capex of INR116b over FY22-24E v/s INR135.5b over FY19-21) augurs well for profitability.
- We estimate 2W/PCR/T&B tyre volumes to clock 8%/11%/13% CAGR over FY21-25E. This coupled with a reasonable pricing environment and operating leverage, will enable a recovery in profitability and capital efficiency.
- Against this favorable backdrop, we have built a Tyre Industry Investment (TII) framework to evaluate the attractiveness of various tyre segments as well as companies. Based on our analysis, 2Ws appear to be the best placed segment, followed by PCR. APTY tops our TII framework as it offers a good blend of strong earnings growth and cheap valuations.
- We initiate coverage on three stocks - APTY (Buy), BIL (Neutral), and MRF (Neutral). APTY is our top pick due to benefits from: a) ramp-up of new capacities, b) reduction in capex intensity, c) EU operation turnaround, and d) debt reduction. This translates in the best earnings growth for our Tyre sector universe, which is still available at very attractive valuations.
Apollo Tyres manufactures and sells automotive tires, tubes, and flaps in India, South Africa, and Europe. Its product portfolio includes passenger cars, sports utility vehicle, multi utility vehicle, light truck, truck bus, agriculture, industrial, specialty, bicycle, and off highway tires; retreading material and tires; and alloy wheels. Co. offers its products under the Apollo, Kaizen, Dunlop, Maloya, Regal, and Vredestein brands. Co. also exports its products to approximately 100 countries internationally.
Balkrishna Industries Limited is engaged in offering pneumatic tires. The Company offers tires, tubes and tire flaps. It focuses on manufacture of a range of off-highway tires (OHT). These tires are mainly meant for agricultural, industrial and construction, earthmover and port, mining, forestry, lawn and garden and all-terrain vehicles (ATV). It offers tires for compact loader, compact utility tractor, cotton picker, forwarder, go-kart, golf kart, harvester, hay harvester/baler, mower, orchard harvester, pivot irrigator, rotor rake, rototiller, sprayer, spreader, tanker, tractor, trailer, trencher, universal vehicle and vineyard harvester. The Company offers tires for backhoe loader, compact dumper, compactor, container handler, excavator, mobile home and skid steer. It also offers tires for dozer, haul train, load haul dump (LHD) and underground mining vehicles. Its products include AGRIMAX RT 855, PL 801, EARTHMAX SR 41, EM 934, AGRIMAX TERIS and EARTHMAX SR 30, among others.
MRF is a automobile tire manufacturing group based in India. Co. is principally engaged in the manufacturing of automobile tires and tubes. Co. also manufactures pre-cured treads, tread rubber, finished leather from skins, fabric/steel cord and specialty surface coatings. In addition, Co. trades in marine products and through a subsidiary, is active in the toy market. Co. maintains a global presence across 65 different countries, with tires manufactured in 6 interdependent facilities, approximately 3,000 dealer networks and approximately 180 different offices.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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