Industry: Tyres & Tubes
CMP and PE Ratio: Rs. 22.40 with a PE ratio of 5.15
Peer Companies for Apollo Tyres: MRF Ltd, Ceat Ltd and JK Tyre & Industries Ltd.
Apollo Tyre Sales Product Mix for FY 08: * Automobile Tyres – 91.47% of Sales
* Automobile Tubes – 6.92% of Sales
* Flaps Automobile – 1.59% of Sales
Apollo Tyre Buyback Offer Details and Advantage:
* Apollo Tyre board approved a buyback of its equity shares for an amount not exceeding Rs 1220 million constituting around 10% of the paid-up capital and free reserves of the Company as on March 31, 2008.
* The maximum buy-back price is Rs 25/- per equity share.
The buyback of equity shares by Apollo Tyres is an encouraging thing for investors and shows the confidence the management has in its business. Moreover, the buyback will lead to better returns in terms of EPS for investors not selling their shares in the buyback.
Financial Analysis:
* Apollo Tyres has got strong fundamentals with steady topline and bottomline growth over a period of five years. During the same period the company has also improved on its operating, gross and net profit margins.
* Apollo has got a strong balance sheet with good reserves and not significant amount of leverage.
* The operating cash flow for Apollo Tyres has been impressive over the last five years. Moreover, the company has made significant capital expenditure over the same period and this has helped revenue to remain robust.
Why Buy Apollo Tyres:
* Leading tyre major in India & South Africa and India’s only multinational tyre manufacturer.
* Stock with good fundamentals avaliable at attractive valuations. The near term results of the company might be hit due to slowdown in the auto sector but the long term prospects are very bright.
* Better operating, gross and net profit margins as compared to its peers (MRF and JK Tyre) as on 31st March 2008.
In my opinion Apolly tyres is a good buy for long term. The current stock market rally has lead to significant upmove among all stocks. Thus any correction would be a good entry opportunity in my opinion for long term investors.
Key Risk and Challenges:
* Continuing raw material cost pressure – any significant rise in price for natural rubber would lead to margin pressure if the company is not able to pass on the entire increase in cost to the end user.
* Mantaining current profit margins is a big challenge for the company. It is one of the best in the industry.
Key Future Strategies of Apollo Tyres for Growth: (Source:Company Presentation)
* Become a significant player in new markets – Europe
* Become a major player in PCR segment – significant capacity expansion
* Further consolidate market share in existing leadership categories
* Explore further strategic inorganic growth opportunities
Thus, Apollo Tyres would also be looking at acquisitions for expansion and entry into new markets.
Stock Advice on Apollo Tyres: Buy on declines for long term.
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