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Target: ₹250
CMP: ₹215.7
Apollo Tyres reported better revenue in Q4F-Y22 on strong demand in CV segment, European business and exports from India, however margins at 11.2 per cent was lower due to higher energy cost in Europe. In India, OEM demand is strong in CV and PV segment whereas replacement demand is impacted by higher fuel prices.
The company is leading in taking price hikes and doesn’t mind compromising some market share for profitability. Europe demand is robust and company is gaining market share on network expansion and higher contribution of UHP and UUHP segment. RM and high energy costs remain a challenge in Europe.
There is no growth capex planned for FY23/24 as there are a lot of uncertainty. Company will focus on completing the AP greenfield project, maintenance and debottlenecking. For that it will spend ₹900 crore. In Europe it will spend Euro40mn on similar activities. Current capacity utilization is 84 per cent for TBR and PCR segment.
We have cut our numbers for two reasons – higher energy costs and higher interest expense. This leads to EPS cut of 20 per cent/12.6 per cent in FY23/24. We roll forward to FY24 valuation (mid FY24 earlier) Revised TP of ₹250, maintain Buy.
We reduce our Mar'23E SOTP-based TP by 9 per cent to ₹140, retaining the core business blended FY24E EV/EBITDA multiple at 5.5x.
Key risks: adverse commodity/currency/polices and project issues.
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