Sector Outlook: Neutral
Apollo Tyres Ltd. reported consolidated revenue of Rs. 64,370 million in Q2FY25 (up 2.5% YoY / up 1.6% QoQ), aligning with street estimates.
Table of Contents
Rising RM cost weaken margin
Growth was driven by the CV and agri replacement segments, while the OEM segment saw a decline. The APMEA region grew 2.1% YoY but fell 3.1% sequentially, and Europe contributed Rs. 19,286 million, indicating recovery. Gross margins stood at 44.8% (down 95 bps YoY), impacted by an 8% rise in RM costs. EBITDA declined to Rs. 8,779 million (down 24.3% YoY), with margins contracting to 13.6% due to flat revenue growth and higher operating costs. PAT came in at Rs. 2,975 million (down 37.3% YoY), below market estimates, with a PAT margin of 4.6%.
Key Concall Highlights
- Product Mix H1FY25 (Standalone): 54% truck segment, 24% PCR (Passenger Car Radials), 6% LCV (Light Commercial Vehicle), 8% agriculture, and 8% other segments.
- Product Mix H1FY25 (Consolidated): 41% truck, 38% PCR, 9% agriculture (including off-highway), 6% LCV, and 5% other segments.
- Passenger Car Tyres: Volume growth aligned with EU industry; UHP (Ultra High-Performance) tyres increased to 46% of the mix in Q2FY25 (up from 39% YoY).
- EBITDA Margin Growth: Manufacturing operations saw a 70 bps YoY increase in EBITDA margin.
- Outlook: Improved operating performance expected due to easing raw material costs and price adjustments.
- Capex Guidance: No changes to FY25 capex plans.
- Net Debt: Consolidated net debt rose to Rs. 29.9 billion in Sep 2024 (from Rs. 25.3 billion in Mar 2024).
- Free Cash Flow: FCF declined 75% YoY to Rs. 2.8 billion due to weak operations and increased working capital, partly from stocking winter tyres for Europe.
- Market Share Goals: Aims for 30% share in TBR (Truck and Bus Radials) and 20-22% in PCR over the medium term.
- Exceptional Expense: Incurred Rs. 52 million for an employee reorganization exercise in Q2FY25.
- Capacity Utilization: Standalone operations at 84%, European operations at 79%.
- Reifencom Performance: Revenues grew 18% YoY to EUR 45 million, with EBITDA breaking even.
Valuation and Outlook
Apollo Tyres delivered a weak financial performance due to rising raw material costs and subdued topline growth. While replacement demand saw mid-single-digit growth and exports recorded double-digit growth, the OEM segment declined sharply. The company anticipates steady growth in the replacement segment but expects continued weakness in the OEM market. Competitive pressures in the domestic TBR segment and subdued OEM demand may impact performance. Apollo plans to balance pricing and profitability to regain market share, though this may limit margin improvements. Raw material costs are expected to rise in Q3 but may correct in Q4, providing some margin relief. The company remains optimistic about the demand outlook, supported by strong agricultural demand and price adjustments in the coming quarters.
