Buy Apollo Tyres; target of Rs 278: Kotak Securities
Kotak Securities’ research report on Apollo Tyres
APTY’s 2QFY18 results improved QoQ, but remained significantly weak YoY. Raw material price increase and weak performance at European operations impacted company’s 2QFY18 results YoY. Consolidated revenue during the quarter was Rs34.7bn, 13% higher YoY. EBITDA and PAT declined by 17% YoY and 46% YoY respectively. Rubber prices have been stable and that should support EBITDA margins QoQ. EBITDA margins on a YoY basis is expected to stay lower in 2HFY18. While FY18 is expected to be a weak year for APTY, we expect performance to improve over FY19/FY20. We cut our earnings to factor in weak performance in 2QFY18 and expect continued stress in Europe operations.
We retain Buy with revised price target of Rs278. Lower than expected volume growth and increase in raw material cost are key risks to our earnings estimates.
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