22 May , 2021 By : Kanchan Joshi
NEW DELHI: Apollo Tyres could witness a swift recovery in financials during the second half of the fiscal on the back of recovery in India operations and continued expansion in the European market.
A possible recovery in commercial vehicle sales after almost two-and-a-half years in the domestic market will also help the company, since it is the market leader in the segment.
According to ICICI Securities analysts, notwithstanding the immediate impact of covid resurgence, demand outlook is healthy across segments on a medium-term basis. In particular, expected cyclical recovery in the domestic commercial market stands Apollo in good stead on account of its market leadership in the segment with truck and bus category constituting 60% of its India sales.
“Ongoing focus on Europe product premiumisation, new client wins (added 300 clients in Europe) and expansion of distribution footprint in India (ATL added 550 dealers, quadrupled rural touchpoints) leave the company well poised to register broad-based growth, in our view," added the analysts.
Apollo Tyres reported a 270.5% year-on-year (y-o-y) increase in consolidated net profit of Rs289 crore for the quarter ending 31 March, as vehicle production returned to pre-covid levels in India and foreign markets.
The revenue from operations during the quarter improved by 38.99% y-o-y to Rs5,026 crore. The operating profit or earnings before interest, tax, depreciation and amortization (Ebitda), also jumped by 69% y-o-y to Rs815 crore due to the overall improvement in sales and costing cutting measures taken by the company.
Despite swift recovery in sales, tyre manufacturers are expected to witness pressure on operating margins due to continuous increase in commodity prices.
“We expect sales, PAT CAGR at 13.9%, 71.6%, respectively in FY21-23E. For ATL, demand outlook appears encouraging across both Indian and European operations. While margins are set to soften, the company’s commitment towards deleveraging and better capital efficiency (double digit RoCE) help us retain our positive stance," added the analysts in the note mentioned above
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