Buy Apollo Tyres, target Rs 279: Anand Rathi
Buy Apollo Tyres at a price target of Rs 279.
By ETMarkets.com |
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Anand Rathi has a buy call on Apollo Tyres with a target price of Rs 279.
The current market price of Apollo Tyres is Rs 206.40.
Time period given by the brokerage is one year when Apollo Tyres price can reach the defined target.
Investment rationale by the brokerage-
India business growth to continue, albeit slower: Growth prospects for the next two years continue to be healthy in TBRs and PCRs. With the full capacity of 12,000 tyres a day in TBR and incremental capacity of 3,000 PCRs a day available in FY20, we expect TBRs and PCRs to grow 13 per cent and 11 per cent respectively. PCR growth is expected to be driven by higher replacement growth and expect the company to be the leader in the replacement market. The new plant in Andhra for TBRs at 3,000 tyres a day and PCRs at 16,000 tyres a day is expected to commence production from Q4 FY20 and scale up in FY21. As the first phase of 3,000 TBR per day would take atleast 12 months to ramp-up, we do not foresee impact of capacity utilization, in the event of OEM slowdown in FY21, as we believe that this new capacity can easily get absorbed in the replacement market.
European business to improve further: The Hungary plant is expected to be ramped up to 12,000 tyres a day by end-FY20 (currently, 7,000 tyres) and would be the catalyst for volume growth in FY19 and FY20. We expect an 8 per cent EBIT margin in FY19 (2.2 per cent in Q1 FY19).
Valuation: We expect revenue to clock an 11 per cent CAGR over FY19-21 and expect earnings to grow at 13 per cent CAGR for FY19-21E Rs 12.29bn in earnings, leading to an EPS of Rs 21.5. We maintain our Buy rating, at a price of Rs 279 (13x FY21e EPS), earlier Rs 299.
Risk: (1) Lowering of price in the event of stable RM and lower volume growth relatively (2) Higher RM costs.
The current market price of Apollo Tyres is Rs 206.40.
Time period given by the brokerage is one year when Apollo Tyres price can reach the defined target.
Investment rationale by the brokerage-
India business growth to continue, albeit slower: Growth prospects for the next two years continue to be healthy in TBRs and PCRs. With the full capacity of 12,000 tyres a day in TBR and incremental capacity of 3,000 PCRs a day available in FY20, we expect TBRs and PCRs to grow 13 per cent and 11 per cent respectively. PCR growth is expected to be driven by higher replacement growth and expect the company to be the leader in the replacement market. The new plant in Andhra for TBRs at 3,000 tyres a day and PCRs at 16,000 tyres a day is expected to commence production from Q4 FY20 and scale up in FY21. As the first phase of 3,000 TBR per day would take atleast 12 months to ramp-up, we do not foresee impact of capacity utilization, in the event of OEM slowdown in FY21, as we believe that this new capacity can easily get absorbed in the replacement market.
European business to improve further: The Hungary plant is expected to be ramped up to 12,000 tyres a day by end-FY20 (currently, 7,000 tyres) and would be the catalyst for volume growth in FY19 and FY20. We expect an 8 per cent EBIT margin in FY19 (2.2 per cent in Q1 FY19).
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Lower RM cost would enable margin expansion: From Q4 FY19, the raw material consumed is expected to be at a lower price; thus, margins would expand sequentially in Q4 FY19 and Q1 FY20. Accordingly, we expect the margin to expand to 12 per cent in FY20 and be stable in FY21.Valuation: We expect revenue to clock an 11 per cent CAGR over FY19-21 and expect earnings to grow at 13 per cent CAGR for FY19-21E Rs 12.29bn in earnings, leading to an EPS of Rs 21.5. We maintain our Buy rating, at a price of Rs 279 (13x FY21e EPS), earlier Rs 299.
Risk: (1) Lowering of price in the event of stable RM and lower volume growth relatively (2) Higher RM costs.
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