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Nirmal Bang Report
We have cut our margin estimates of Apollo Tyres Ltd. by ~80 basis points for FY23 and FY24 each, leading to earnings per share cut of ~16%/15% for FY23/FY24. Crude oil prices have risen by ~50% during January 2022-June 2022 due to the Russia-Ukraine conflict.
Crude derivatives account for 40% of raw material cost in terms of volume and ~50% in terms of value. Even natural rubber prices have risen by ~7% during January-May 2022.
Moreover, a depreciating Indian rupee is further detrimental for Apollo Tyres' profitability as it is a net importer. We believe that the current raw material price under-recovery stands at ~6-7% for the company.
We expect the raw material cost pressure to persist over the next couple of quarters and Apollo Tyres will need to take more price increases to get back to its normalised margins.
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