ICICI Direct's research report on Apollo Tyres
Apollo Tyres (ATL) reported a healthy Q2FY21 performance. Total consolidated total operating income came in at Rs 4,283 crore, up 7.4% YoY. Within key geographies, revenue from APMEA region came in at Rs 2,964 crore (up 4.8% YoY), while revenue from Europe region was at Rs 1,372 crore (up 12.3% YoY, flat in Euro terms). EBITDA in Q2FY20 was at Rs 695 crore (up 60.8% YoY) with attendant EBITDA margins at 16.2% (up 538 bps YoY); savings across all cost heads. APMEA EBIT margins rose 758 bps YoY to 13.9% while Europe continued to post a loss at EBIT level. Consequent consolidated PAT came in at Rs 200 crore, up 1.4x YoY.
Outlook
We expect sales, PAT CAGR at 7.4%, 25%, respectively in FY20-23E. The company’s stated focus on deleveraging and improvement in return ratios going forward is a positive. Given the market share gains across the segment by ATL amid healthy demand prospects, we upgrade ATL from HOLD to BUY, valuing ATL at Rs 175 i.e. 5.8x EV/EBITDA on FY22E numbers.
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