Apollo Tyres Stock Hits A Two-Year High On Record Revenue, Lower Debt

Shares of Apollo Tyres Ltd. rose to their highest in little over two years as the company reported a record quarterly revenue and lowered net debt.

The company's revenue rose 17% year-on-year to Rs 5,153.8 crore in the quarter ended December, according to an exchange filing, led by a recovery in the OEM and replacement segments. That compares with the Rs 4,742.6-crore consensus estimate of analysts tracked by Bloomberg.

The company, in its investor presentation, said it witnessed demand momentum across key segments on the back of preference for personal mobility, government spend on infrastructure, import restrictions and recovery in sectors such as mining.

Apollo Tyres, according to its internal estimates, has gained 500-basis-point market share in the agri segment, 400 basis points in the passenger vehicle segment and 300 basis points in the truck and bus segments during the first seven months of FY21.

• The company's net profit more than doubled over the year earlier to Rs 443.8 crore, against the projected Rs 200.4 crore.
• Ebitda, or operating profit, rose 85% year-on-year to Rs 989.2 crore, compared with the Rs 668.9-crore estimate.
• Ebitda margin expanded more than 700 basis points to 19.2%.

Other Highlights

• The company recorded its best ever volumes in the passenger vehicle replacement segment in December.
• It has increased prices in the replacement segment by 2-3% across product categories during the reported quarter.
• The company is in the last leg of plant specialisation for its European business, after which it expects significant improvement in cost competitiveness.
• It reduced net debt to Rs 3,800 crore as of December 2020 from Rs 6,000 crore in March 2020. Net debt to Ebitda is at 1.6 times as on Dec. 31, 2020.
• It witnessed weaker market sentiments with growth in all season tyres partly offsetting the decline in winter tyres for the European business.

“We maintain our positive view on the stock due to the uptick in OEM volumes and continued replacement market growth and restriction on import of tyres are likely to lead to sustained recovery in operating profit,” Dolat Capital said in a post-earnings note. “Demand recovery in Europe is also likely to benefit the company.”

Shares of Apollo Tyres gained as much as 8.2% in early trade on Thursday to Rs 246.2 apiece—the highest since September 2018. Of the 25 analysts tracking the company, 17 have a ‘buy' rating, while four each recommend a ‘hold' and a ‘sell'. The stock is trading 26% higher than its Bloomberg consensus 12-month price target of Rs 178.8 apiece.