Apollo Tyres Ltd. share price target

Apollo Tyres’ (ATPY) Q4FY23 standalone EBITDA margin at 16% (up 300bps QoQ) was driven by 8% QoQ decline in raw material basket (RMB) costs, improved sales mix and cost controls. EU EBIDTA margin at ~18% was up 270bps QoQ driven by lower RM prices, decline in power/freight costs and further increase in mix of UHP/all-season tyres.

Apollo Tyres’ (ATPY) Q3FY23 EBITDA margin at 14.2% (up 220bps QoQ) was 50bps ahead of our estimate despite cost inflation and weak demand in the EU. EU revenues were up 6% YoY to Rs21bn despite ~14% YoY decline in the PCR industry. India volume was down 4% YoY despite OEM volume growth of ~30% as replacement demand was down 8% and exports down 25%.

Apollo Tyres’ (ATPY) Q2FY23 EBITDA margin at 12% (up 35bps QoQ) was ahead of our estimate (11.5%) despite an adverse raw material cost environment (RM/sales ratio was the highest in a decade).

After having doubled its gross debt on books during FY17-FY22, we believe Apollo Tyres (APTY) is now taking the right path, in terms of actively focusing on FCF generation.