Apollo Tyres Ltd. share price target

Aftermarket to support demand; margin recovery to be moderate! Amid continued tepid demand prospects on OEM front both domestically, globally, tyre players (including ATL) would increasingly rely on steady state support from replacement side. In this context, ATL's healthy India replacement market share and strong brand recall stand it in good stead. In Europe, product mix is seen improving in favour of premium segment along with overall volume market share gains, albeit in a low growth industry. Europe (~30% of consolidated sales) stays a margin drag given structurally...

Apollo Tyres Limited's (ATL) Q2FY2020 results missed our estimates as lower-than-anticipated topline growth coupled with increased depreciation and interest expenses led to net profit falling sharply by 55%. We expect topline growth to remain muted in near term, given demand headwinds in domestic CV OEMs. Domestic CV players have undertaken production cuts in October and November 2019, indicating weak demand. Moreover, European operations growth has moderated sharply given the fall in industry demand. Muted topline in intensive...

Stable replacement demand to mitigate muted OEM volumes ATL is a differentiated player in the tyre pack, with diversified presence across geographies and segments (as of FY19:- India 70%, Europe 29%; CV 50%, PV 37%, off highway 10%). While fresh vehicle sales remain muted in India and globally, consumable suppliers like ATL enjoy steady state support from replacement demand. Replacement segment for ATL (~66% of India sales mix) grew 6% in H1FY20 vs. 40% fall in OEM volumes (22% of India sales mix). We expect this trend to continue over the medium term given...

Likely to Witness Steady Improvement; Maintain BUY Apollo tyres (ATL) has delivered a weak performance in 2QFY20 with its consolidated revenue, EBITDA and adjusted PAT declining both on YoY and QoQ basis due to 45% YoY decline in OEM business. Its replacement segment reported a decent 6% YoY growth, while exports witnessed strong growth. Its revenue and EBIDTA declined by 6% YoY/8% QoQ and 8% YoY/9% QoQ to Rs39.8bn and Rs4.3bn vs. our estimate Rs42bn and Rs4.3bn. Its EBITDA margin fell by 14bps YoY/13bps QoQ to 10.8% vs. our estimate of 10.1%, aided by better product-mix and higher contribution of replacement segment. Overall volume declined by 13% YoY, while improved...

Q2FY20 consolidated revenue declined 6% yoy to Rs39.9bn (est.: Rs40.1bn), while earnings fell steeply by 55% yoy to Rs831mn (est.: Rs1.2bn). Earnings were below estimates due to lower other income and higher depreciation. The recovery in revenue is expected to be gradual due to the weakness in the domestic...

Apollo Tyres Limited manufactures tires and tubes for cars, trucks, farm equipment, and light commercial vehicles. The company markets its products with two global brands: Apollo and Vredestein in APMEA (Asia...

Muted OEM dispatches to limit volume growth! Demand prospects for automobile purchases were muted both domestically as well as globally. Domestically, the situation is grimmer given high channel inventory with key OEMs reporting a volume decline in the range of 15-35% for July 2019. This is over and above the 12.4% volume decline witnessed by the industry in Q1FY20. This will limit the volume growth for ATL, which realises ~30% of its sales from auto OEMs. The replacement market, on the other hand (constitute ~60% sales) is healthy and growing healthily in...

Beat margin estimates on improvement in replacement demand Apollo Tyres' (APTY) Q1FY20 Consolidated EBITDA margin beat estimates led better product mix (higher replacement sales). While the OEMs business was weak, strong replacement demand drove the volumes (grew by 12% YoY). Management is positive about improving top-line and profitability in Europe segment. Management has given flattish revenue...

Profitability remains the key in uncertain environment Replacement demand drives Q1 numbers Apollo's standalone net sales slowed down to 1% yoy and 2.7% qoq growth at 30.4 bn. The negative OEM growth was more or less offset by a strong replacement growth both in India and Europe. Truck volume in Replacement grew by 25% yoy, PCR moved up by 12%, while 2W volumes zoomed by ~30% in the quarter leading to a good growth in market share and topline, in...

The government has levied a countervailing duty (CVD) on truck and bus radial tyres originating from China. The duty amounts to 9.117.57% of the tyre's CIF value. The levy is aimed at protecting Indian tyre manufacturers from Chinese players which are subsidized by Chinese Government to promote exports. Chinese tyres form about 10% of the domestic CV tyres market. However, as per our understanding CVD is unlikely to have a material reduction in the Chinese tyre prices. As per The Association of Tyre Manufacturers Association (ATMA), CVD will be triggered in only some instances...