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Apollo tyres Limited is incorporated in 1972 and engaged in manufacture of automobiles tyres and
tube. The Company has 9 tyre manufacturing site across the globe and annual consolidated revenue
of Rs. 8,120 Crores for March 2010. The company is 17th largest producer of tyre in the world with
installed capacity of 13.15 million per annum of automobiles tyres and tubes, is operating at 80% of
its installed capacity.

The distribution network comprises sale of tyres to Original Equipment Manufacturers (OEM),
Replacement category and for export. Replacement Category is the major contributor to the
revenue consisting of approx 85% of total revenue of the company.

 


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The Company is in tyre manufacture business since 39 years and has developed expertise in
its line of operation. The Company is a leading player in Indian market commanding 20% to
total market share.

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Segment wise major component of Revenue is from India comprising of 60% followed by
Europe 27% and South Africa 13% based on Dec 2010(unaudited Result). Replacement
category comprises 85% of revenue segmentation by customer and Original Equipment
Manufacturers contributes to 15% of total revenue.

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A wide range of products required by Indian Automobiles Industry is catered namely, Truck
and Bus Tyre, Passenger Car Tyre, Light Commercial Vehicle tyres. The Company earns its
major revenue from sale of Commercial Vehicle tyres. To take the advantage of increasing
disposal income in India supported by availability of a variety of vehicle models meeting
diverse needs and preferences and easy financing scheme for automobiles, the Company
has launched passenger cars tyres for booming small car tyre segment. The increase in
disposable income has led to increase in demand for passenger cars thereby the demand for
tyres has also increased. The additional demand for passenger cars will create replacement
demand in next 24- 48 months. Also, the growing economy has raised demand for freight
movement across the nation. This has led to increase in demand for commercial vehicles and
tyre demand from Original Equipment Manufacturers, supported by replacement demand in
next 12 -18 months

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The Company has a first mover advantage in its Chennai Plant. Chennai plant currently
produces 7000 passenger vehicle tyres and 1300 commercial vehicle tyres a day. And by
March 2012, its estimated production is expected to reach 16,000 passenger vehicle and
6,000 commercial vehicle tyres a day

By: Namrata Shah

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The company is enjoying robust distribution network in India. Post acquisition of Vredestein
Banden BV in Europe in May 2009, the company is benefitted with healthy distribution
channel in Europe. This acquisition adds feature to company͛s plan to become market leader
in Europe region. For this, the Company has launched ͚Winter Tyres͛ for European Region in
range of passenger cars of 4X4 tyres. The European market provides profitability margin to
the tune of 16% compare to Indian market of 8-10%.

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To secure the interest of domestic player, Government of India has imposed anti dumping
duty on imports from China and Thailand for the period of 5 years from February 2010
onwards.

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The Company does not have much presence in two and three wheeler tyre segment in India.
With Increase in disposal income, the demand of two and three wheeler is expected to
increase.

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Tyre Industry is highly raw-material intensive. Raw materials cost accounts for approx. 63%
of tyre industry turnover and 72% of production cost. Raw Material primarily comprises of
natural rubber, nylon tyre cord and carbon black. With rise in price of natural rubber
touching mark of Rs. 185/kg in Q3FY11 there is huge pressure on profitability margin.

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Multinational players like Bridgestone and Goodyear Tyres has robust research and
development facilities and spends huge on marketing to capture market share.

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The export comprises 40% of total revenue. As a result the company is exposed to foreign
currency fluctuations in respect of proceeds received in various foreign currency. Major
Customers are located in Europe and South Africe. The fluctuation in the exchange rate
between the rupee and other currencies, including the USD, Pound Sterling, Euro etc. may
adversely impact the
financials.

 

By: Namrata Shah

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The Indian Tyre Industry has total turnover of Rs. 25,000 Crores with Tyre production is 13.50 lakh
MT (FY 2009 -10E). There are 50 tyre manufacturers across India. However, the industry is
dominated by 4 Major Player namely, Apollo Tyres Limited, CEAT Limited, MRF Limited, JK Tyres and
Industries Limited with total market share of 75%.Of total production, only 13.06% in value is
exported by India. The major export element is Truck and Bus category followed by passenger car.

This industry is highly Capital Intensive. The success in the industry is depended on having robust
distribution network and product branding.

The performance of commercial vehicle tyres is directly linked to the country͛s economic
development and the performance of automobiles industry.

According to research report ͞India Auto Component Market Analysis͟, India͛s fast and continuous
economic growth has proved highly beneficial for its auto component industry. With advantages like
low labor cost, easy availability of raw materials and well-qualified employees, India has established
a solid platform for the growth of auto component suppliers. The report has also revealed that
various supporting factors such as increasing demand from the domestic automobile industry and
surging exports will support the auto component production grow at a CAGR of around 15% by FY
2014.

With rising Industrial and Agricultural output, Favourable demographic distribution with rising
working population and middle class Urbanisation, and Fast growing economy will infuse production
of passenger carrier tyre demand in the country. It is anticipated that the commercial vehicle tyre
market will climb to Rs 22.8 Billion by FY 2014.

Also, the connectivity among the villages and cities is improved with the country with better road
infrastructure. The project of Golden Quadrilateral and Highways connecting North-South and East -
West corridors has favored the tyre industry.

The radialisation in India has not reached its optimum capacity because of poor road condition and
high inital cost. The passenger car tyre segment where radialisation has crossed 98% mark and is
expected to reach 100% in two to three years. In the Medium and Heavy Commercial vehical
segment current level of radialisation upto 12%, and that in the LCV segment is estimated at 18%.
Compared to developed country which has achieved 100% radialisation, there is lots of scope for
Indian players to expand. Introduction of Capex in Radialisation will enable Indian players to
compete globally.

Retreading is a process of applying a new TREAD over the body of the worn tyre, thereby the tyre
functions like a new one at 50% of the cost of new tyre. At present only 3 -4 organised players are
operating in this segment. There exist ample of opportunity for the players to expand in this
category.

 

By: Namrata Shah

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CMP (Rs.) 65.00 102.00 91.00 6,589.00

TTM Sales (Rs. In
Crores) 5,041.63 3,263.45 4,515.46 7,950.84

M. Cap (Rs. In Crores) 3,270.96 350.28 372.00 2,793.57

P/E (x) 7.90 2.20 2.30 8.10

EV/ Sales (x) 0.82 0.31 0.32 0.50

EV/ EBIDTA (x) 5.28 2.90 2.89 4.51

M. Cap / Sales (x) 0.65 0.12 0.10 0.38

OPM % 15.60 10.60 11.00 11.00

NPM% 8.29 5.75 4.44 4.67

RONW% 26.98 28.95 31.71 23.20

Price/ Book Value 1.90 0.56 0.64 1.65

EPS 8.20 46.50 39.20 811.00

Comments:

1. Apollo Tyres Limited contributes to 32% of total market capital of tyre industries.
2. Apollo tyres Limited has higher P/E compare to its peers CEAT Limited and JK Tyres and
Industries Limited. The stock of Apollo Tyres Limited is overpriced indicating the investors
perceive better opportunities in the company compares to its peers.
3. Higher price to book value for Apollo Tyres Limited indicated that that stock is overvalued
compared to its peers.
4. With operating Profit margin of 15.60% and net operating margin of 8.29%, the company is
leading players in the sector in terms of profitability indicating better efficiency.
5. RONW of 26.98% which is lower compared to its peers implies that company is not
efficiently converting its capital into profit as its peers are.
6. Apollo Tyres Limited has highest EV/EBITDA among its peers. High ratio indicates that it will
be difficult for its peers to acquire it. It also provides the company to acquire it peers as it
would take approx 3 years for EBIDTA to pay off acquisition cost of CEAT Limited and JK
Tyres and Industries Limited and approx 4 years for MRF Tyres Limited.

By: Namrata Shah

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Source: 1. Automobile Tyre Manufacture͛s Association

2. Capital Market

3. Official Site: Apollo Tyres Limited

By: Namrata Shah