Apollo Tyres Ltd : Stock Analysis
Created on 28 May 2022
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Updated on 11 Sep 2022
Does the company justify ‘Go the distance’ with the best in business? Is this a stock to watch? Let's find it out.
Apollo Tyres Ltd. is one of the largest international tyre manufacturers, headquartered in Gurugram, India. It has earned generations of trust and reliability to create customer value in its products and service experience. But how did it gain this high-level growth? Founded in 1972, the company has a revenue of US$ 2.3 billion, and the goal for the Financial year 2026 is set at US$ 5Billion. The company caters to 100 countries across the globe. The company’s first plant was established in Perambra, Thrissur, Kerala, India, in 1975. Today, it has seven manufacturing units, five in India and one in the Netherlands and Hungary. A recently inaugurated plant is coming up in Andhra Pradesh. Two Global R&D Centers are based in India and the Netherlands.
Apollo Tyres Ltd: Business Model
With a revenue of US$ 2.3 billion, the company generates 67% of its revenue from APMEA(Asia Pacific/Middle East/Africa), 31% from Europe and 2% from others.
The company markets its products under its two key brands – Apollo and Vredestein(or Maloya), which are available through an extensive network of branded and exclusive outlets and dealerships. The product portfolio comprises tyres for passenger, commercial, off-highway vehicles, light trucks, two-wheelers, etc.
Apollo Tyres also launched the new generation of Agricultural tyres named as Virat range, announced the launch of its Digital Innovation Hub in London in the fields of AI, ML and data mapping, partnered with Tata Motors for the deployment of EV charging stations and is the highest-selling tyre in the PV segment.
The company’s first plant was set in Kerala, India, in 1975, and since then, nothing has stopped the company from expanding in India and abroad. Some of its most significant competitors include JK Tyres & Inds, CEAT Ltd, MRF Ltd, Balkrishna Industries Ltd, etc. But what lets it outperform is its penetration pricing policy by keeping prices low compared to its competitors. Also, it provides the right product in the right place through its massive distribution presence in the market.
Apollo Tyres Ltd. ( NSE: APOLLOTYRE, BSE: 500877, Sector:Tyres & Allied ) has the following company essentials as on May 2022:
Apollo Tyres Ltd reported a Year on Year(YoY) drop of 60% to Rs in its recent investor presentation. 113,5 Mn in its Quarter four’s profit of the Financial year 2022. But the net profit for the whole year was Rs. 6,386 Mn, an increase of 82% compared to Rs. 3,502 Mn in the previous financial year. The Price Earning (P/E) Ratio, i.e., the price every investor is ready to pay for every one rupee of earnings, is 53.24, which is high. The promoter holding per cent is stable at 37.34% in March 2022.
The company reported better revenue in its quarter four, the financial year 2022, up 11%, full-year up 20% on solid demand momentum in Europe, although lower growth in India. The company has an efficient Cash Conversion Cycle, good cash flow management, and substantial operating leverage.
While, Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) margins at 11.2% were lower due to higher Raw material and energy costs. It has also shown a poor profit growth of 5.11%, poor revenue growth of 4.43 % and a poor Return on Equity(ROE) of 7.67% over the past three years.
The company is leading in taking price hikes to the extent of 4% - 7% during the quarter in its Truck and Bus Radial (TBR), Agricultural and Industrial tyre segments and doesn’t mind compromising some market share for profitability. Europe demand is robust, and the company is continuously expanding and improving its contribution to the Ultra High Performance(UHP) and Ultra-Ultra High Performance(UUHP) segment accounting for 43% of Passenger Car Light Truck(PCLT) sales (volumes) in FY22 (40% in FY21).
The company has not earmarked any growth CAPEX(Capital Expenditures) for its Indian operations for the financial year 2023 due to the unprecedented situations taking place in the country.
Strengths and Risks
The company has been among the Best Companies To Work in the year 2021 with a rank of 80 and has won various accolades on Corporate Social Responsibility, under the ‘Health Enhancement’ category, for its HIV-AIDS awareness and prevention initiative, for exceptional work in Health Care 2020, exemplary work in Gujarat for women empowerment, etc.
The various external factors such as the unprecedented global pandemic, the Ukraine-Russia war, inflation and the recent rate hike by the RBI are taking a toll on tyre companies' profitability. Crude and crude derivatives and rubber account for about two-thirds of the cost of making tyres. Despite the cost-push, in terms of both RM and energy, it reported 4QFY22’s healthy operating performance.
Hence, the company’s Q4FY22 results were great but not over the counter, with significant operational improvement in European business, while standalone (Indian) operations suffered and needed a little push.
As a brand philosophy, it believes in giving customers new choices that provide them with control and comfort and help them conquer the road ahead. Apollo helps customers know their potential when driving and in every area of life, as reflected in its tagline ‘go the distance’. It is undoubtedly moving toward progress and excellence to its revenue goal of FY-2026.
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