Apollo Tyres – Slow Ride

Apollo Tyres’ Q4FY08 performance was higher than expected because of rise in margins. Net sales grew by 10% yoy to Rs10bn (our expectations of Rs10.3bn), with volumes growing by ~4%yoy to ~75,000MT. EBIDTA margins declined by 100bps qoq (higher 120bps yoy) at 12.4% and were above our expectations (11%) due to a better product mix and positive impact of price hikes. Net profit grew by 38.7%yoy to Rs 593m.

Going forward, expect 11% CAGR in consolidated revenues led by continued strength in replacement market sales and a partial recover in domestic T&B OEM segment. Despite the recent price hike of ~5% in the replacement market, we expect Apollo’s margins to come off by ~100bps from the present level due to sustained surge in prices of key raw materials like NR and crude based inputs.