Stock watch: Apollo Tyres

Apollo Tyres counter has seen hectic activity at the bourses recently. Though price is down by a meagre 0.7 per cent, volumes have leaped by over 1000 per cent in last week-highest rise among the major players.

The stock's trailing 12 month P/E stands at 13.9 times which looks quite reasonable considering its competitive position and its improved financial performance.

Apollo Tyres is the second largest tyre manufacturer in India with a major presence in the truck and bus tyre market. It derives over 70 per cent of the revenues from the replacement market.

The company has recorded a CAGR of 17.5 per cent and 21 per cent in net sales and profitability in FY02-FY05- one of the highest in the industry.

The company is likely to benefit from robust demand for tyres pegged at about 6-7 per cent in the long term on account of sustained growth in the industrial and infrastructure activities.

Recent depreciation of rupee against the dollar is likely to benefit the industry in terms of low imports of cheap Chinese tyres. The company expects selling prices to move up in future as input costs - mainly crude oil based products and natural rubber are expected to go up by 14-15 per cent this fiscal. It hiked its product prices by 3-4 per cent with effect from April 1.

For Q2FY06, net sales have increased by 24.7 per cent to Rs 632.78 crores. Operating profit and net profit grew by 69 per cent and 25.5 per cent respectively.

Operating margins improved by 230 basis points at 8.9 per cent and net margins were firm at 2.9 per cent. This is despite the sharp rise of 380 basis points rise in cost of raw materials.