Apollo Tyres Results : Trailing 52-week high as an outcome of Q1FY23

Apollo Tyres, established in 1972, manufactures automatic bias and radial tyres, and tubes. It has plants in Kochi, Vadodara, Pune, and Chennai. The product profile includes prominent tyre brands in the light truck, passenger car, and farm vehicle segments in India, catering to both original equipment manufacturers, and the replacement market.

The company is the owner of two brands of tyres, Apollo & Vredestein. Apollo brand primarily manufactures tyres for the Indian Sub-continent. The Vredestein brand operates in Europe and is over 110 years old & has achieved premium brand status in the industry. In 2009, The Company completed the acquisition of the Netherlands-based Vredestein Banden BV for 40 Million EUR from Russia’s bankrupt largest tyre manufacturer Amtel-Vredestein NV.

The company owns and operates 5 manufacturing plants in India & 2 manufacturing plants in Europe in the countries of Netherlands and Hungary. Its combined capacity in Europe is 1 crore tyres p.a & 6.3 crore tyres p.a in India. Presently, Asia Pacific/Middle East/Africa (APMEA) accounts for 68% of revenues & Europe accounts for the rest 32% of revenues.

Products– Trucks & buses tyre account for the majority of revenues at 42%, followed by passenger vehicles (36%), Farm/Off-highway (11%), light truck (5%) & other products bring in the rest 6% of revenues. It is a leading player in the truck & bus tyre category & the passenger vehicles category in the domestic market.

Channel– The replacement channel accounts for about 84% of revenues while the rest 16% of revenues come from automotive companies.

Distribution Network

Its distribution network consists of more than 6,700 dealers across India and around 7,000 dealers across Europe. It has been increasing its presence in rural India; It increased its stores in rural areas from 1,300 in FY20 to 5,30

Key Highlights of Apollo Tyres Q1FY23 Results

• Revenue from operations during the period under review stood at Rs 5,942 crore as against Rs 4,584.47 crore in
• Apollo Tyres reported a 49.21% increase in consolidated net profit at Rs 190.68 crore for Q1FY23 as against a net profit of Rs 78 crore for Q1FY22
• The board has approved raising Rs 1,000 crore through the issuance of non-convertible debentures (NCDs) on a private placement basis in one or more
• Total expenses were higher at Rs 5,714.17 crore as against Rs 4,462.63 crore in Q1FY22 due to raw material inflation
• The cost of materials consumed was higher at Rs 3,405.46 crore as compared to Rs 2,356.33 crore in Q1FY22
• Both Indian and European operations did well in the first quarter and reported strong topline growth, aided by healthy demand across segments, especially passenger vehicle tyres, he

Consolidated net profit rises in Q1FY23 by 49.21%

Apollo Tyres reported a healthy performance in Q1FY23. Total operating income on a consolidated basis stood at Rs 5,942 crores, up 6.5% QoQ. EBITDA for the quarter stood at Rs 690 crore with EBITDA margins at 11.6%, up 40 bps QoQ. Consequent consolidated PAT for Q1FY23 came in at Rs 191 crores, up 68% QoQ. Higher PAT was tracking higher than anticipated margins & lower effective tax rate.

The company’s performance in terms of sequential revenue growth, as well as margin improvement, came in as a positive surprise. Gross margin was stable QoQ whereas employee cost was down 58 bps QoQ leading to healthy margins. EBITDA margins on a standalone basis stood at 9.7% supported by operating leverage gains amidst a gross margin decline of ~96 bps QoQ.

Apollo tyres launch EV-specific tyres for cars and scooters

Apollo Tyres has announced the roll-out of electric vehicle (EV)-specific tyres for cars and scooters in the Indian market. While the Apollo Amperion range of tyres is targeted at the electric passenger vehicle segment, the Apollo WAV range is meant for electric two-wheelers.

CEAT, has already launched its range of EnergyDrive tyres. However, they are specifically designed for four-wheeler EVs.Similarly, JK Tyres has also developed a complete range of EV-specific Smart radial tyres for all categories of buses, trucks, LCVs, and passenger cars in India. According to the Automotive Tyre Manufacturers’ Association (ATMA), all large tyre companies, with manufacturing facilities in India, have developed and/or are in the process of developing tyres for EVs as the electric segment is gaining traction across all categories of vehicles, from small two-wheelers to large city buses.

It is also the first Indian tyre to have received a fuel savings label with a 5-star rating for the PV category from the Bureau of Energy Efficiency (BEE). The products have been designed to cater to EVs like Tata Nexon, MG ZS, Hyundai Kona, and other upcoming EVs from Maruti Suzuki, Hyundai, etc.

EV tyres for motorcycles are next. The company also said that Apollo WAV, with its specialized design, low rolling resistance, low weight, and high traction to resist the initial torque, will cater to the majority of high-powered electric scooters available in the country such as the TVS iQube, Bajaj Chetak and Ather 450. The company plans to develop EV tyres for motorcycles in the next phase, considering the extremely low numbers in this category currently.

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Apollo tyres share price: Technical analysis

Apollo tyres share price has seen a huge surge due to the recently announced results. The impressive spike in net profile, as well as the revenue, has led the price to break the resistance which was in the 240-245 range. The stock is trading at a three-year high and is likely to head higher from here.

The price of Apollo tyres initially crossed the 225-230 range which was not supported by volume, but after the results, the momentum has helped the stock to move further upward. The 100 & 50 days EMA is below the current share price of Apollo tyres and 50 days EMA has crossed 100 days EMA. The RSI Indicator even though showing overbought as it has crossed 80 point mark but still the positive momentum is likely to be sustained post the stellar results.

Our view

The rising crude oil price throughout the world and increasing operating costs of tyre manufacturers were a huge hit to this industry. But Apollo tyres taking actions by cost-cutting and efficiency in financial management were profitable in every quarter from Q2FY21.

The initiative to launch new EV-specific tyres for cars, scooters, and lastly for motorcycles will allow the firm to have a larger share in the growing EV segment. Apollo tyres stock is attracting investors with the strength of its financials in Q1FY23 results as well as reaching a three-year high on the technical charts with a potential to move up higher in the near term.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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