Apollo Tyres’ Q4 Net Down By 10%

Apollo Tyres announced its Q4FY13 results on Friday (May 10, 2013). The company witnessed a decline on all fronts as compared to the corresponding quarter of the previous year. The results have been below expectations. Stock prices of Apollo Tyres have declined by more than 3% post the result announcement.

The revenues of Apollo Tyres for the quarter declined by 6% to Rs 3037.76 crore. A decline in domestic OEM (Original Equipment Manufacturer) sales and pressure on sales in South Africa resulted in this pressure on the topline. Considering the fact that 30% of Apollo Tyres’ revenues come from OEMs, 65% from India and 10% from South Africa, a slowdown in these areas is going to translate into pressure on its overall performance.

Although the decline in revenues was expected, what was surprising was the decline in the profitability of Apollo Tyres. In Q4FY13, the average price of rubber, RSS 3 and RSS 4, has come down by 16.19% and 15.90% respectively, as compared to Q4FY12. Since this raw material component constitutes more than 50% to the company’s total input costs, such a massive decline is bound to result in improved margins.

However, the EBIT of Apollo Tyres declined by 12.92% to Rs 236.11 crore and its net profit by 10.76% to Rs 141.05 crore. This signifies a decline in its operating profit margin and net profit margin by 62 basis points and 25 basis points respectively. Geographically, its profitability in India improved by 25%. However, other geographical segments witnessed a massive decline, resulting in an overall hit. Profitability from South Africa and Europe declined by 34.41% and 27.99% respectively.

Although the quarterly result has been largely disappointing, Apollo Tyres is positive on its outlook. An improving product mix, customer mix and focussing on newer markets is the strategy it plans to fix on to maintain the growth momentum. The company believes that the worst is over and expects a pick-up in sales of automobiles and thus tyres.

We have been bullish on the tyre industry owing to the potential of radialisation and automotive sales and the buoyancy offered by the replacement market coupled with stabilisation of rubber prices at levels lower than those seen in the last couple of years.

Sales have been hampered because of a subdued demand in weak macroeconomic conditions and unfavourable buying dynamics. However, with an expected improvement in the industry, the performance of the tyre industry is expected to bounce back. We are hence bullish on the long-term prospects of Apollo Tyres.