Apollo Tyres: Speeding ahead

Operating profit grew 41.7% thanks to the firm's export activities and productivity enhancement.

Apollo Tyres was able to offset the impact of higher input prices and sluggish demand from the domestic auto industry in the December 2007 quarter, thanks to its productivity enhancement measures and export activities.

As a result, the company's standalone operating profit grew 41.7 per cent y-o-y to Rs 130.9 crore and net sales rose 13.6 per cent to Rs 974.1 crore in the last quarter.

To the company's credit, its adjusted raw material costs as a percentage of net sales declined 410 basis points y-o-y to 62.6 per cent in Q3 FY08 although the average rubber costs went up 10.8 per cent y-o-y to Rs 94.8 a kg.

The company did not hike the domestic tyre prices in Q3 FY08.

But the export of higher margin passenger car radial tyres helped in offsetting the rising input costs.

The operating profit margin in the last quarter thus went up by a 260 basis points to 13.4 per cent on a y-o-y basis.

The stock however, declined 6 per cent to Rs 52 on Tuesday in line with the sell-off seen on the street.

The company is looking at raising its product prices in Q4 FY07 due to the high rubber prices.

Other inputs such as nylon cord tyre and synthetic rubber have also become dearer thanks to the high crude oil prices.

Meanwhile, Apollo Tyres' subsidiary Dunlop South Africa reported sales of Rs 265.9 crore in the December 2007 quarter, a growth of 17 per cent y-o-y.

Apollo Tyres is planning to invest Rs 320 crore on expanding its tyre business and Rs 39 crore for setting up an additional wind energy project in Gujarat, in an attempt to leverage the long term growth opportunities.

The stock trades at 13.3 times estimated FY08 and 12.5 times FY09 earnings.