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Apollo Tyres' results were broadly in line with Bloomberg consensus expectations, with consolidated net profit at Rs 228 crore, up 37 per cent year-on-year (y-o-y). However, the stock fell over seven per cent to close at Rs 172. While some analysts attribute the fall to profit booking, given the 10 per cent surge in the past few days, others say the profit number was below estimates and driven largely by non-operational factors. Additionally, they believe margins are close to peaking out.
Consolidated revenues were up only 1.4 per cent to Rs 3,235 crore, as the firm had sold a part of the African operations to Sumitomo Industries last year. The African business revenues came down 59 per cent to Rs 159 crore, from Rs 391 crore. Revenues from the standalone entity (India operations), which account for about 70 per cent of consolidated financial sales were at Rs 2,294, up six per cent over the year ago quarter. The growth was primarily driven by higher volumes (up five per cent), with pricing and product mix contributing to the rest. Over 75 per cent of its Indian revenues come from the replacement market, which is growing at about six per cent.
The margin gain was driven by a 2.3 per cent fall in raw material costs, which as a percentage of sales were down 228 basis points down to 56.6 per cent. Margins in the Indian operations, too, rose 90 basis points y-o-y to 12.6 per cent. Key raw materials such as natural and synthetic rubber were down about 11-12 per cent. Some of the gains, however, were also offset by higher employee and other costs.
Apollo announced it would invest euro 500 million (Rs 4,100 crore) over the next five years to build a facility in Europe. Its Vredestein facility in Netherlands is operating at 90 per cent capacity and the company is looking to expand its presence across Europe.
Analysts expect revenue growth to largely come from India operations driven by a recovery in commercial vehicle sales, which accounts for about 63 per cent of its revenue.
